Blog Post

When the Bells attack! (Part I)

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Earlier this month, in one of my posts I had mentioned that the Baby Bells soon will embrace VoIP and it will be end game for most of the VoIP upstarts. Well that moment is here and now. Even as the Federal Communications Commission deliberates over VoIP, the Baby Bells are planning an all out assault on the VoIP business. (Is it me or someone else wonders about the people who are making their presentations today have a vested interest in the VoIP business and there is no Bell presence. Believe me I am no Bell apologist!)

Wall Street Journal reports, “Rattled by growing competition from cheap phone services relying on a technology called Voice-over-Internet-Protocol, or VoIP, big regional Bell companies say they are getting ready to offer their own discounted services.”

Actually this is not surprising. In order to make cheap phone calls people need a broadband connection. It could be cable or DSL (or something else, though in America that is tough to figure out what.) That means about $40 a month on broadband connection. By offering VoIP phone service to the consumers, Baby Bells can insure that they capture the $40 a month (for DSL) charges. In order to get DSL, the phone line, the “real bell monopoly” still stays intact. In otherworldly, they make sure their customer still remains their customer.

Now lets take part two of the VoIP equation: the service. Lets say you subscribe to Vonage, which costs about $40 a month for unlimited calling. Bells these days are charging about $25 a month for unlimited calling (as part of a bundle.) They make less money on the old voice. However, the lower costs of VoIP means they can squeeze some dollars out of the services part of the broadband equation. (I have oversimplified, but you get the drift.)

But that’s not all – there is a certain freedom to the whole VoIP regulation debate. If the FCC regulates the VoIP business, it is bad news for upstarts, but not for the Baby Bells which work in a highly regulated anyway. Incase the regulation does not happen, then Bells are free to do a lot more than people realize. And since they have a chokehold on the last mild, they can out hustle the upstarts. Look guys before you start sending me hate mail, let me remind you about the whole DSL bubble in the late 1990s. Bells won, and they will one more time.

Here is the kicker though. Incase you missed it, last week, SBC announced a new VoIP service for midsize businesses in major cities, across all of the US. Like traditional VoIP, this service will render the ability to consolidate voicemail and email, forward calls to other phones, call from a PC, and conduct conference calls from a web browser. The service will be available immediately in 18 cities and will be available in 30 cities, including NY, by the end of the year. SBC VoIP is going to be everywhere in 2004

This means the stronger Bells with better infrastructure are going to be fighting with their brethren, the other bells for business. I think this is a perfect scenarios for Bells to overcome the whole long distance regulations and other such pesky problems. SBC’s moves are going to be countered by everyone from Verizon, BellSouth, and Qwest. And lets not forget AT&T and MCI .

Okay this is part one of the VoIP scenario, and tomorrow I will post an economic impact of the VoIP madness, who wins and who looses.

Recommended reading:
* Light Reading’s RBOC VoIP
* Why Vonage Might Fail?
* Why VoIP should be regulated?