Verizon rolls out VoIP while AT&T plans to abandon its consumer biz

And so the problem remained; lots of the people were mean and most of them were miserable, even the ones with digital watches. Many were increasingly of the opinion that they’d all made a big mistake in coming down from the trees in the first place. And some said that even the trees had been a bad move, and that no one should ever have left the oceans.Douglas Adams

Dear Vorticians,

The fundamental premise behind the VORTEX 2004 Conference is that the technology industry is entering into a new era of profound change – change born of the boom-and-bust cycle that has slammed companies and investors around, disruptive innovations that are altering the landscape, the flowering of new market segments and the maturation of others. The powerful forces driving convergence, mobility, security, grid computing, virtualization and many other vital trends will twist and turn the tech world in ways we’re just starting to envision. They will spark new opportunities for the nimble and derail companies too protective of old business models and outdated visions.

Even during the dog days of summer 2004, change is in the air.

Verizon, the largest telephone company in the U.S. and a bastion of the Bellhead mentality, this week announced a nationwide VoIP service, enabling customers with broadband connections to make unlimited VoIP calls for less than 40 bucks a month. The announcement is a major boost for VoIP, which is being embraced on an ever-wider scale – from start-ups like Vonage to traditional players like AT&T. The market for VoIP callers is expected to grow 17-fold by 2008.

Verizon and VoIP – who’d a thunk it a few years ago?

Verizon’s foray into the VoIP world comes at a time when AT&T is poised to abandon the consumer market altogether. Along with the news this week that its second quarter profit dropped 80%, AT&T confirmed a plan reported by The Wall Street Journal to exit the consumer market for local and long-distance calling, deciding to focus its energies on the business market. Even there, the company will get no quarter from Verizon and other rivals.

Keep in mind that AT&T is still the largest long-distance company in the U.S., with some 30% of the residential market. But the unshackling of the Bells, the advance of the cable companies, the rapid expansion of cellular use and the current regulatory muddle have forced AT&T to retreat.

Ma Bell tossed out in the street. Who’d a thunk it ever?

At the same time, Microsoft offered the U.S. economy a bigger monetary jolt than the Bush tax cuts. Gates and company announced plans to distribute as much as $75 billion in cash to shareholders over the next four years, in the form of a one-time $3-a-share dividend payment and a doubling of future dividends. The company also plans to buy back $30 billion of its own stock. (Even with all these steps, Microsoft will retain some $25 billion in cash and keep generating tons of new cash every month.)

This dividend windfall came on the heels of CEO Steve Ballmer’s announcement, in an internal strategy memo a couple weeks back, that Microsoft will pare some $1 billion in costs as well, in order to improve its financial performance.

Ballmer and Microsoft supporters say the company’s best days are ahead. But many on Wall Street and elsewhere view these moves as an admission that Microsoft’s high-growth days are behind it. Microsoft, they say, is a mature company with but modest growth ahead.

What’s clear is that Microsoft must succeed in some critical new ventures, like Web services, collaboration and convergence, mobility, search and applications – along with a slew of consumer initiatives – in order to spark new growth and investor interest. Understanding how the company’s plans in those areas, its potential acquisitions and its strategic agenda will create new markets and close down others is critical to the future success of innovators and established companies alike. Navigating the interactions with Microsoft as an ally, customer or competitor will, arguably, become even more challenging in the years ahead.

It’s changes of this magnitude that Geoffrey Moore and I will spotlight at VORTEX 2004, with leaders from Microsoft, IBM, Oracle, SAP and many other top companies on hand. If you play in the $1 trillion IT industry, you need to be there. If you haven’t registered yet, now’s the time! Visit http://www.vortex.net and fill in the particulars.

One note: After this missive, I’ll be retiring to the sunny shores of Lake Kezar for a brief respite. You’ll still receive this newsletter, with some updates on the VORTEX 2004 program, and I hope you’ll continue to offer your rapt attention. As always, you can reach me at mailto:jgallant@vortex.net.

Bye for now.