Cheap Phone Calls Are Next Wave on Internet
You may not have any interest in Internet discussion forums or online magazines or surfing the World Wide Web, but the computer industry is on the verge of drawing even the most technophobic into cyberspace with a universally appreciated commodity: very cheap telephone calls.
Although software for making phone calls over the Internet computer network is already available, the technology is poised for a great leap forward this summer when Microsoft Corp. and Netscape Communications Corp. incorporate voice communication capabilities into their mainstream Internet software.
At the recent PC Expo trade show here, Microsoft, Netscape and others dazzled audiences with software offering remarkably clear voice quality over the Internet. Also in the works is technology that will make it possible to call not just from one computer to another but from a computer to a regular telephone or from one phone to another over the Internet--a development that promises to eliminate the biggest obstacle to widespread use of the Internet as a telephone network.
The new generation of Internet communication will also let users on opposite sides of the globe play interactive games in real time and collaborate on writing letters and other documents, all for the price of a local phone call.
The result could be a boom in Internet traffic, a windfall for savvy consumers and big corporate telecommunications users--and a dangerous loss of revenue for telephone companies, especially on lucrative international services.
“Six months ago I would have said someone is nuts for telling you this technology had a market,” said Len Kennedy, a Washington communications lawyer who has studied the issue. “But many businesses already have the infrastructure [in their computer networks] to do telephony, high-speed data transmission and even video conferencing. Pretty soon the computer industry is going to convince most of them they don’t need a phone company for most of their communications needs.”
Telephone companies are getting worried. Computer networks already cost phone carriers hundreds of millions of dollars in lost long-distance charges and other fees--money the companies say they need to subsidize local telephone service for low-income Americans and those living in remote or high-cost areas.
Merrill Lynch, the big New York investment house, for instance, has cut its phone bill in half and removed 13 million minutes of calls per month from the public telephone networks since it installed a system that lets its employees dial one another over the company’s computer network, said Bruce Sieben, managing director of enterprise integrated systems services.
“In the coming weeks and months, consumers will have every incentive and opportunity to begin a large-scale migration off the fee-based, public-switched telephone network in order to use free [Internet] services,” Worldcom Inc., a Jackson, Miss., long-distance carrier said in a regulatory filing this spring.
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Even the biggest name in the telephone business is scrambling to protect itself from the advance of Internet telephony: John Petrillo, president of AT&T; Corp.’s business communication services division, recently hired Apple Computer’s former research chief as head of research and development, in part to focus on developing Internet telephones.
Only a few years ago, talking over the Internet was an ordeal only a computer nerd would love. Voice quality was poor, and both users had to be on line at the same time, equipped with identical software and costly computer gadgetry, including a sound card, modem and microphone.
But that’s all changing with remarkable speed. Computer memory marketer Kingston Technology Corp. of Fountain Valley, Calif., for instance, has developed a $200 circuit board that allows a computer user to talk over an ordinary telephone handset instead of using a computer microphone and sound board.
VocalTec Inc. of Northvale, N.J., a pioneer in Internet voice telephony, has said it will unveil a commercial system of relaying Internet voice calls to regular telephone users later this year.
MCI Communications Inc. and Intel Corp. announced last month that they would work to perfect standards to support instantaneous Internet communication services, including voice telephony, video conferencing and other applications.
And while Internet voice calls still contain a nettlesome delay reminiscent of those produced by long-distance calls transmitted by satellites, the sound itself is clear.
“I witnessed the technology for the first time about a month ago, and the voice quality was absolutely staggering,” said Ken Anderson, vice president of information services for the giant telephone switch maker, Northern Telecom Ltd.
Vocaltec’s upcoming service could also eliminate the need for the receiver of an Internet call to have a computer. The computer-equipped initiator of the call would establish an Internet connection with a computer in the city where the call is going and the computer would then “patch” the call through free via the regular local telephone exchange.
This could also be accomplished without personal computers on either end: A caller would simply dial a local server directly, enter an access code and the phone number to dial. The server alerts the caller to hold while the call is transferred to a computer near the intended recipient.
Robert Heymann, vice president of business development for VocalTec’s partner in the venture, Dialogic Corp. of Parsippany, N.J., said his company has received numerous inquiries from Internet service providers, businesses with overseas offices and international call-back services that exploit the lower cost of overseas calls that originate in the United States.
“I just got off the phone to Israel, for example, and it didn’t cost me anything,” Heymann added.
The new technology has spotlighted long-standing telephone rate inequities at a time when federal regulators are seeking to establish new ground rules for telephone rate competition.
Currently, U.S. long-distance companies pay local telephone companies an access fee amounting to about 7 cents a minute to deliver a toll call. Long-distance companies pass along the charge as well as the cost of operating their networks, requiring their customers to pay more the longer they talk and the farther they call.
Internationally, long-distance companies pay a heftier “accounting charge” amounting to 50 cents or more per minute to foreign carriers to handle long-distance calls.
By contrast, although communication over the Internet travels along many of the same telephone wires as voice calls, subscribers typically pay a monthly flat rate of $15 to $25 a month; dialing up the Internet is usually a local call and does not carry access charges. Once on the Internet, users can send communications virtually anywhere in the world and for any amount of time, at no extra charge.
A group of small and medium-size long-distance companies, America’s Carriers’ Telecommunications Assn. (ACTA), has petitioned the Federal Communications Commission to regulate Internet telephone technology.
But earlier this month, FCC Chairman Reed E. Hundt threw cold water on that idea in a speech delivered in Montreal by his chief of staff, Blair Levin.
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Levin told the audience that Hundt is “strongly inclined to believe that the right answer at this time is not to place restrictions on software providers or to subject Internet telephony to the same rules that apply to conventional circuit-switched voice carriers.” Hundt added that “the last thing we want to do is stop . . . improvement by thoughtless regulation.”
The FCC--under a mandate from Congress to promote telephone competition--may nevertheless revisit the access fee issue in the next year or so.
“We are pleased they are going to look at this issue in the context of access charges; that is a start,” said ACTA lawyer Robert M. McDowell, trying to put the best face possible on the group’s petition to the FCC.
But even if access fees are overhauled, the higher costs of international dialing will remain. As a result, many experts think strong incentives will remain for consumers--especially business consumers--to make long-distance calls over the Internet.
David Goodtree, an analyst for Forrester Research, estimates that corporate spending on two high-speed networks systems suitable for simultaneous voice and data transmission--known as frame relay and asynchronous transfer mode--will grow from $1.2 billion this year to more than $6 billion by the year 2000. Business spending on direct Internet access will similarly explode to $8 billion, from $410 million this year, he predicted.
Some experts believe that heavy use of capacity-hogging voice and video on the Internet will end up damaging the performance of the network itself--but there is little consensus on that point.
“There are doomsday believers who think everything will crash, and there are other people who say there is nothing to worry about,” said Virginia Brooks, manager of network access technologies at Aberdeen Group Inc., a Boston-based computer technology consulting firm. “The truth is probably somewhere in between. There certainly is congestion and we are starting to see vendors come up with products to try to reduce bottlenecks.”
Such congestion was in evidence at PC Expo, as a cacophony of squawking modems and telephone-dependent product demonstrations was so great that it brought some Internet communication to a virtual standstill.
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Even if they don’t immediately spur huge numbers of people to abandon their telephones, the forthcoming Internet software products from Microsoft and Netscape--called NetMeeting and CoolTalk--are almost certain to entice more people to spend long hours on the Internet. The two companies dominate the Internet software market, and their new products are expected to quickly create a nearly uniform platform for voice and other communication services over the Internet.
“In 18 months and three days we’ve distributed 38 million copies of our software,” said Jim Barksdale, president of Netscape. “This growth is unprecedented in the computer industry. . . . I absolutely see the computer replacing the telephone and the TV; it is inexorable.”
