http://www.usatoday.com/tech/techinvestor/industry/2005-02-19-ld-demise_x.htm
By Bruce Meyerson, Associated Press
NEW YORK The acquisitions of AT&T and MCI by larger rivals are the most
dramatic evidence of long distance calling's steady decline as a business
distinct from "local" phone service.
But other signs are aplenty.
This past week, in addition to the $6.7 billion takeover of MCI by Verizon
Communications, came news of a large budget hotel chain, Microtel Inn
Suites, whose list of amenities has been expanded to include free unlimited
long distance and wireless Internet access.
There's little to lose with the new marketing pitch: The calls don't
cost the company very much. And with so many travelers toting around
cell phones with national calling plans, long-distance calls don't
generate that much extra revenue any more, even at the inflated rates
hotels often charge.
The past week also brought an announcement from a small company named
Northland Cable Television, which introduced unlimited local and long
distance for a flat $38 a month in rural areas of the Carolinas served
mostly by BellSouth as well as Verizon.
Because such plans have become so prevalent on both wired and wireless
phones, the concept of local and long distance as different types of
calls may be fading fast among consumers and businesses.
"All-distance" calling plans were first popularized by AT&T Wireless,
whose "Digital One Rate" helped blaze the trail for similar offerings
from wireless rivals and local Bells like Verizon and SBC
Communications Inc., which two weeks ago agreed to buy AT&T for $16
billion.
But increasingly, new rivals are also trotting out their own
unlimited, all-distance calling plans at a discount to traditional
phone service, especially in the cable TV industry.
The Northland Cable service is being delivered by Internet bubble
survivor Net2Phone using VoIP, for Voice over Internet Protocol, an
increasingly common technology which eliminates a great deal of the
cost involved in connecting a call around the block or across the
country.
By contrast, unlimited local and long distance packages from the Bells
using non-VoIP technology typically cost from $50 to $60 a month. That
doesn't include $20 or so in additional fees and taxes on those
bundles, compared with no extras on the Northland plan and perhaps $5
a month extra on many other VoIP services.
That's one reason why Verizon is competing with itself by offering its
own VoIP service for $30 to $35 a month, hopeful it can keep at least
some of the revenue that it might lose to rivals with a customer who
switches to VoIP. SBC plans to do offer its own VoIP service soon.
By late 2004, more than 400 different companies were offering VoIP
service in the United States, according to VoIPAction, an online
marketplace featuring assorted VoIP resources. Many of those companies
offer unlimited domestic calling as an option.
How can so many companies afford to compete in a business long
dominated by fewer than a dozen companies?
During the Internet bubble of the late 1990s, predictions of explosive
growth in Web traffic fueled a construction boom for fiber-optic
networks.
The long-distance industry has since been plagued by price wars and a
huge glut of unused capacity.
According to TeleGeography Research, only about 3% of the fiber
capacity built during the boom is in use today, while Internet
bandwidth for a typical route such as New York to Washington now costs
less than a tenth of what it cost just five years ago.
That helps explain why it's so cheap for companies to offer VoIP
service, which transmits phone calls over the Internet as data packets
mixed with all the other online traffic. A traditional phone call
requires a continuous circuit to be "opened" across the network.
"When you have to dedicate a line to connecting two people on opposite
ends of the country, that uses a lot of resources," said Jerry Ellig,
senior research fellow at the Mercatus Center at George Mason
University.
With VoIP, "You can cram a lot more phone calls into the same amount
of network at the same time."
As brand names, AT&T and MCI will likely prove useful enough to their
new owners to persist for years to come. Both companies have extensive
Internet trunk lines for carrying data, which Verizon and SBC aim to
use to deliver all kinds of rich data, from business services to
television.
But the products those brand names are know for seem destined to
become another quaint memory of the telephone industry like party
lines, switchboard operators and rotary dials.
Contributing: Associated Press Writer Elliott Minor in Georgia
Copyright 2005 The Associated Press.
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