Phone options expand despite telecom mergers

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2004, cable operators offered VoIP service to 16.9 million homes, or 15 percent of all U.S. households, according to a recent report from research analyst firm Sanford Bernstein.

"The cable companies are only in the second inning of their VoIP rollouts," Sanford Bernstein's Halpern said. "And there's no evidence they won't continue to aggressively deploy it."

No cables, no wires
Cell phone companies also offer alternatives for consumers. Initially, wireless operators ate into the long-distance market by offering flat-rate calling packages of local and long-distance calling. But soon many customers cut the cord with

VoIP takes off

By 2005, Sanford Bernstein analysts predict, 41 percent of U.S. households--46.2 million homes--will have access to VoIP services. This is in addition to the 19 million households with access to cable phone service using traditional circuit-switched technology. By 2010, cable VoIP services will be available to 75 percent of homes, the analyst firm predicts.

Customers are taking advantage of the opportunity. At the end of 2004, roughly 35 percent of people who could get VoIP already had, Sanford Bernstein reports. One year after launching VoIP to its entire service area, Cablevision signed 6.1 percent of its customers. In its earliest VoIP markets, Time Warner achieved better than 10 percent penetration in the first 18 months.

their local phone providers and started using their cell phones instead. The trend has been particularly high among younger consumers, who have had cell phones through high school and college.

"I call this group the 'young and the wireless,'" Halpern said. "When these kids get out of college, they don't even think about signing up for a new phone line. They just use their cell phones."

And as the big wireless companies consolidate, smaller players are popping up to fill in where standard service options leave off. Companies with popular brand names, such as ESPN, Disney, Virgin and Wal-Mart, are getting into the cell phone business as mobile virtual network operators.

Popular brand names draw customers. So does a lack of long-term contracts with heavy penalties for early termination. Some niche marketers target groups the traditional cell phone companies have long ignored--teenagers, bad-credit hipsters and ethnic minorities.

The basic premise of reselling calling minutes bought from major carriers is an old one. But it took breakthroughs in billing and database management for it to become relatively inexpensive to launch and operate as a mobile virtual network operator. In August there were about 22 mobile virtual network operators operating in the United States, according to Max Smetannikov, vice president of business development of Global Advertising Strategies, a telecommunications market consultancy. Since then, that number has risen to 56.

"There are more and more MVNOs popping up every day," Smetannikov said. "The large wireless carriers can't service every niche market. It's a great opportunity for smaller resellers, who can go after certain demographics."

Pure VoIP
Wireless carriers and cable operators aren't the only competition out there. A slew of new entrants are using other companies' infrastructures to deliver voice services. Vonage, followed by 8x8, Skype and others offer software that brings their brands of VoIP to users' existing broadband service.

VoIP's jamming

Internet telephony subscriber numbers are growing in the face of telecommunications industry consolidation.

Vonage

December 2003: 75,000

December 2004: 390,000

March 2005: 500,000+

8x8

March 2004: 11,000

September 2004: 26,000

December 2004: 40,000

AT&T

December 2004: 53,000

SkypeOut

March 2005: 1 million

Sources: SEC, companies

Just like the cable companies, many networkless operators rely on VoIP technology to provide their services. All that is required is a broadband connection and an adapter that translates digital packets from a broadband connection into a voice conversation on a standard phone. Today, the market is flooded with offerings. AT&T even started offering its own VoIP service. It decided last summer to stop marketing its traditional local phone service to customers.

Web giants such as America Online and Yahoo are also trying to squeeze their way into voice services. Earlier this month, Time Warner's AOL division unveiled plans to offer its own VoIP service. Its service is similar to Vonage's--requiring a broadband connection and special equipment that lets a regular phone accept and initiate VoIP calls. The company did not disclose its price, but it said it would be "competitive" with Vonage's $25 a month.

Just a few days earlier, Yahoo acknowledged its interest in tying voice calling into its vast array of Web services. While the company did not offer any details, Yahoo and competitors Google and Microsoft are looking into many of the independent VoIP services. During the Voice on the Net conference in San Jose, Calif., a team of Google executives met with several VoIP companies to ponder the search giant's possibilities in this business.

Virtual competition
Not all of that competition counts, consumer groups maintain. The offerings of wireless companies, wireless resellers, cable operators and independent VoIP companies don?t stack up against the Bells. The local-phone kings still own the residential telephone market and have their major wireless stakes.

Advocates also argue that unless customers are already using broadband, VoIP is not cost-effective. A traditional phone line can cost as little as $20 per month in some regions, but a VoIP service with the added cost of the broadband connection will typically cost more than three times as much. And because every Baby Bell with the exception of Qwest Communications International requires customers to also pay for a traditional telephone line when they subscribe to DSL, an independent VoIP offering is not really a choice at all.

"VoIP is great for those who can afford a broadband connection or cable television," said DeGraff of the Consumers Union. "But a lot of people in America can't."

But analysts are convinced that new technology will eventually step up to fill whatever void has been left by the mergers of the traditional phone companies. Prices will eventually stabilize, and access will be ubiquitous.

"Competition from new technologies is absolutely on its way," Halpern said. "It may not be available everywhere yet, but it's coming."

"If you look at the penetration numbers of VoIP and wireless carriers, you can see that customers already view these technologies as competitive services," Smetannikov said. "This is exactly the competitive strategy that the FCC has promoted under Michael Powell for the past four years."

[PeteCollins]

VOIP

All of this VOIP competition via Cable is great until the Cable companies begin port blocking the Vonage's of the world to promote their own offerings.

[Big Tsunami]

No Can Do

Broadband providers run the risk of getting sued if they choose to block ports used by a competitor's VOIP service.

[Stating]

re: Port Blocking

If Big Broadband tries to block Small VoIP ports then Small VoIP will just have to get smart and use other ports that aren't blocked. Their client software should allow port remapping. There's plenty of stuff that can't be blocked FTP (21), SMTP (25), Pop3 (110), RSTP (554), etc., not to mention all the ports that Internet gaming uses. It's all just a game anyway.

Keith
www.techcando.com

How do you cut thru the complicated maze?

Is there a simple way to find out the most cost effective communication system on the market? It seems there is so much out there to choose from and everyone pushes a different twist that it makes it tremendously confusing as to how to purchase an appropriate communication set up. How can you have DSL for the computer without subscribing to a local land line provider? Going wireless is great, but how does a computer go wireless without a land line connection?

[landlines]

Technology is Irrelevant unless it solves the "last mile" problem

In our area, SBC STILL has a monopoly on all of the local phone lines. The cable which potentially could replace the phone line has a base price which is 1.5 times the cost of the traditional phone line, and the cheapest "unlimited" cell phone also is 1.5 times the cost of the traditional phone line.

So where is consumer choice? None over phone line...none over cable (Time-Warner is the monopoly)...and no cost-effective alternative from cellular companies.

Long distance is no longer a separate cost, but there is STILL NO COMPETITION in the "last mile"!!! ... And, thanks to our lilly-livered regulators and Congressional representatives, we are LOSING potential competitors every month.

So far, the technology has "cherry picked" the easy problem (long distance) and virtually ignored the hard problem ("last mile").

[phoenixjim]

In our area, Fairpoint owns the lines. There is no cable here. So Fairpoint sells 768kb internet at 49.95 a month (because the phone company that they purchased had already begun to offer this).

In Kinderhook, Fairpoint has bought out the local telco as well - but there there is a difference - cable. So they offer 5mb at 39.95 a month, because otherwise they would get no business at all. BTW, this is the only region which Fairpoint controls in which they offer such a "high" speed option.

How can it be legal for telecoms to do this to there customers? I thought that monopolies were required to provide comparable services and prices in spite of their status? Yet Fairpoint gets away with this. No wonder our country is so far behind.