Section 2.3. What s Old Is New Again: Internet Telephony from Phone Companies | Talk is Not Cheap!: Saving the High Costs of Misunderstandings at Work and Home

2.3. What's Old Is New Again: Internet Telephony from Phone Companies

You didn't think the traditional telephone companies were going to shuffle quietly off to retirement, did you? They have this strange idea that because they developed the world's best telephone network in the first place, they should be able to keep our business no matter the technology used to carry the conversation from phone to phone.

Note: Acronym Alert:ILEC = Incumbent Local Exchange Carrier and RBOC = Regional Bell Operating Company

When AT&T split, the local telephone service in the United States was split into seven companies called Regional Bell Operating Companies. These seven merged down to four: SBC, Verizon, BellSouth, and Qwest. One of these four companies controls the copper pair of wires providing telephone service to your home.

Surprisingly, these old guard traditional telephone companies aren't thrilled to see various broadband phone companies stealing all their customers. Worse, all their dirty tricks over the years (filing lawsuits to keep companies from tying into the telephone network and refusing service so often that the courts regularly had to step in and force these phone companies to follow the laws) have used up most of the good will people had for them. Remember back when most of us hated the cable company but lovedokay, trusted the phone company? Now most of us hate both, or worse, ignore both and rely on our Internet Service Provider.

That said, the traditional phone companies are willing to let bygones be bygones and provide Internet Telephony if that's what we want. And they have considerable advantages they can leverage against the newer broadband phone companies.

2.3.1. Leveraging Copper

What's the biggest advantage the traditional telephone companies have in their favor? They own the copper wire that reaches into every home and business. Oh, and inertia is the strongest physical force, so they have that on their side, too, because it will take effort to convince phone users to switch. This will make it easy for the traditional telephone companies to offer broadband plans to save money and keep the majority of their customer base. Not only do the incumbents own the copper wires from your home, they own the central offices to which they connect. If they don't take advantage of these two giant leaps ahead of their competition, they deserve to go bankrupt.

Part of the reason the traditional telephone companies are getting into this market is simple: if people want broadband phones, and the telephone companies don't have broadband phones, customers will leave. That hurts the feelings (and bottom line) of even the biggest company.

It will be interesting to see how these companies will market these services. How do you say that traditional telephone service is old-fashioned and useless today, when you're busy signing up the majority of new customers to the traditional telephone service? How do you price broadband phones, with all the features that come standard, while charging ten dollars per feature to your traditional phone customers?

Maybe these companies have all this figured out. After all, Ford sells sporty cars, minivans, and pick-up trucks from the same dealership.

2.3.2. Verizon and AT&T

Of the incumbent local carriers, Verizon is the only one actively selling a deployed broadband phone service (as of early 2005). AT&T pushes their service, but since they no longer have an installed base of local telephone customers, I hold up Verizon as the example for the other three Ma Bell children.

The Verizon broadband phone service is called VoiceWing. They don't explain what the term VoiceWing has to do with Internet Telephony, however. It does have a nice feeling of freedom, though, don't you think? Then don't read the fine print about Verizon charging you in advance for each month's service, because that doesn't sound freeing.

Verizon's feature set is about average. (A description of all the broadband features available awaits you in the next chapter.) They do not have support for 911 calls as of this writing. They also offer a discount on bundled services that include a DSL line. This will supposedly stop customers already buying cable service from Time Warner from signing up with their broadband phone service.

AT&T offers almost exactly the same services at the same price point as Verizon. AT&T also offers DSL connections for Internet access, which of course is necessary for broadband phones (the first word is broadband, right?). They also work with a cable broadband modem, since the telephone adapter they ship to you works with either.

911 service comes with AT&T's CallVantage plan, although you must register your phone details and physical address with local emergency services.

2.3.3. SBC and Qwest and BellSouth

The rest of the incumbent telephone companies are dipping their toes into the Internet Telephony water, but haven't jumped in fully yet. Why? I believe because the cable companies are doing a better job replacing the phone for people than the phone lines are doing replacing cable. You can get telephone service over your cable TV and cable Internet connection now, but you can't get movies over your telephone wires.

Note: Von...Van...What?If Call Vantage sounds much like the Vonage name, Vonage noticed that as well. In fact, Vonage sued AT&T in March 2004, claiming the CallVantage name comes confusingly close to the Vonage name. Vonage, CallVantage, Vonage, CallVantage, hmm. No doubt the courts will have to get involved. But if you say Vonage like my friend in London, "VoNaaahhgge," there's no confusion.

There are two types of cables running to most homes in the United States: telephone and cable TV. Early on, the two monopolies coexisted warily if not peaceably. Both industries wanted to get more of the consumer's money, but they didn't know how.

Cable companies started delivering broadband Internet access before the telephone companies got DSL regulated, supported, and priced for consumers (the phone companies really had broadband years earlier but limited it to high-priced business networks). Cable companies engineered their systems to deliver a fair amount of bandwidth to the customer, necessary for delivering television, where each channel needs about 6 Mbps throughput. Cable companies have been fairly generous with bandwidth for their Internet access customers, providing 2 Mbps from early on and often upping that to 3 Mbps or 6 Mbps for no additional cost as they built up their capacity. Physically, broadband cable could deliver 100 Mbps and more to each home with backend upgrades on their facilities.

It's a tough job to sell a customer on Internet telephony over a DSL line when the customer already has a high-bandwidth cable Internet pipe spewing bits all over the place. Some 100 million or so American residences are within the service area for cable Internet service.

So SBC and Qwest and BellSouth are playing with pilot projects and selling Internet Telephony to their business customers buying high-bandwidth data-networking links from them. Cable may have bandwidth to the consumer, but the telephone companies have been supplying bandwidth to businesses long before DSL was available. So the phone companies have a large customer base of data clients eager to switch to Internet Telephony to lower the cost of their data network connections. Of course, the phone companies lose money from long distance charges the businesses avoid by using Internet Telephony, but half a loaf of customer phone payments are better than no loaf.

Note: Dump Which?Cable TV companies have an easier time convincing customers to dump their telephone lines than phone companies have convincing customers to dump their cable.

Remember how the telephone companies have a huge installed base of copper wires to homes? In many cases, those wires can be souped up with new flavors of high bandwidth DSL and provide enough bandwidth to even sell television services over that link (theoretically, but the few pilot projects underway here and there haven't expanded).

What if those copper wires could be replaced, or at least augmented, with a fiber optic cable? That would mean hundreds of megabits per second of bandwidth to homes, delivered by the phone companies leveraging their huge number of wire installation employees and expertise.

This is called Fiber to the Premises (the clumsy acronym is FTTP), and it has become the mythical promise of every phone company around the country when a grand plan is needed. When municipalities get upset with the slow pace of broadband access or modern services delivered by telephone companies, the phone company executives pull out their Fiber to the Premises dog and pony show. Every phone company has one small pilot project underway, usually sending high speed fiber to every home in expensive new subdivisions. They use these projects to "prove" they are working toward a better bandwidth tomorrow.

The problem for telephone companies? Customers they convince to buy broadband phones are already their customers, so they don't gain customers. Of course, keeping customers, even at a slightly lower revenue, is better than losing customers.