Yahoo: Net will rattle phone industry

Yahoo chief executive Tim Koogle predicted that most phone calls in five to 10 years will be local calls to Internet service providers.

The Internet will allow people making phone calls to connect via the Net with friends and co-workers around the world--forcing dramatic changes to the business model of traditional phone companies, Koogle said. The changes highlight the convergence of voice and data on the Internet.

"This has substantial implication for phone companies," Koogle said today at the Chase H&Q Technology Conference in San Francisco. "That's why they're focused on building data centers as fast as they can."

Koogle's prediction also underscored the frenzied rate of change in the telecommunications industry, which is increasingly running on Internet time. Experts say the distinction between today's Internet service providers, Web portals and telephone companies will continue to erode as the Internet becomes voice-enabled.

For example, Yahoo recently invested in telephone giant AT&T and in Net2Phone, a company that allows customers to make low-cost calls from a personal computer to ordinary telephones. AOL, InfoSpace and Priceline.com also have forged partnerships recently with Net2Phone.

Conversely, local Baby Bell firms are cutting deals with much smaller Web competitors for access to unified messaging services such as Internet-based faxes and voice mail.

Unified messaging--a term that includes Internet faxes, email, voice mail and other services--is still a very young market, with relatively few subscribers. But analysts say it has engendered enough excitement that businesses are beginning to look for services that provide voice and email messages in one accessible place.

Cisco Systems, Nortel Networks and 3Com this week unveiled Net-based phone systems aimed at businesses. Using these systems, employees can make phone calls within a corporate network or to a traditional phone system if the calls are outside the company.

The companies say Net-based phone systems are cheaper alternatives to traditional technology, dubbed PBX systems, which is used to send and receive voice calls. They argue that marrying voice and data services will make corporate networks easier to maintain.