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Telecom Is Betting Big on 2 Tech Advances

Net telephony, wireless networks seen as way to offer consumers more choices at a lower cost.

January 13, 2003|Jube Shiver Jr. | Times Staff Writer

WASHINGTON — Seven years after Congress passed a landmark law restructuring the phone business, hope for the beleaguered telecommunications industry may lie less in federal regulation than in two fast-growing technologies: wireless computer networks and Internet telephony.

From behemoths such as AT&T Corp. to start-ups such as TeleSym Inc., the industry is spending hundreds of millions of dollars with the intent of transforming the staid public phone system.

The more flexible computer-based system envisioned by engineers and executives could slice voice calls into digital packets and transmit them over existing communications networks along with e-mail, Web pages and other data.

"These two technologies ... will revolutionize telephone service [by] enabling consumers to have the ultimate freedom of choice about who will be their service provider," said Jeff Pulver, co-founder of Vonage Holdings Corp., a firm that offers flat-rate calling services over high-speed Internet connections.

At their best, the two technologies work together to create a consumer experience much like using a standard mobile phone -- except that the calls are a fraction of the cost and "voice over Internet Protocol" phones cannot hold signals while the user is moving. At their worst, they don't work at all.

Setting up the gear to do this now is markedly more involved than plugging a phone into a wall jack. Users need a high-speed Internet connection and a wireless network -- both of which are growing in popularity.

Because wireless networks and Internet telephony are based on established standards and relatively cheap computer equipment, widespread adoption of the two technologies would permit entrepreneurs to challenge the Bells and give customers a real choice in local phone service and high-speed Internet access.

Experts say it is unlikely the traditional phone network will be supplanted by a rival technology within the next decade. But they say wireless data networks and Internet telephony could carry as much as 30% of domestic voice traffic and more than 50% of international traffic within three to seven years.

"They really lower the barriers," said Kevin Werbach, a Philadelphia-based technology consultant who served as the Federal Communications Commission's counsel for new technology during the Clinton administration. "These technologies don't require that a company have billions of dollars in order to compete."

Some skeptics, however, argue that no business model exists for either wireless networks or Internet telephony. Neither technology has an established system for billing customers or ensuring quality service. In addition, the Internet telephone has been plagued by voice quality and security problems.

The stakes are high. Regional phone companies such as SBC Communications Inc. and long-distance providers such as Sprint Corp. are locked in a bitter battle over access to the Baby Bells' lines and customers. To spur competition in the industry, the Telecommunications Act of 1996 opened those lines to the Bells' competitors.

The Bells say the lease rates they are allowed to charge are too low and driving down their profits. Competitors fret that without access to the networks -- built with ratepayer money over several decades -- they would have to build their own competing systems, which would be prohibitively expensive.

The FCC is mulling over a proposal to overhaul the rules. On Tuesday, the Senate Commerce Committee is expected to grill FCC members on what has gone awry in the telecommunications industry over the last seven years.

Efforts to get around the Bells are perhaps best symbolized by TeleSym Inc., a Bellevue, Wash.-based start-up backed by computer chip giant Intel Corp. The company offers software that allows consumers with Pocket PCs and other hand-held computing devices to make wireless calls over the Internet, the technology known as voice over IP.

"Consumers have clearly communicated that mobility is important to them, going so far as to pay for two different [mobile] devices -- a cell phone and a PDA hooked to the Internet," said Joe Dodson, TeleSym's vice president of marketing. "With voice over IP, you can put that person on one piece of hardware and let him make calls over the Internet" at a much lower cost.

Although only about 10% of U.S. Internet users have used a computer to make a phone call, both local and long-distance companies have overhauled large parts of their networks to facilitate the transmission of voice traffic in a data form just like e-mail and Web pages.

Motivating the companies is the lower cost and greater efficiency of Internet telephony.

Ordinary phone calls require a dedicated electronic circuit between two people as well as a huge, refrigerator-sized $2-million switch to route the call. By contrast, voice over IP uses off-the-shelf computer and networking gear to send messages more efficiently.

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