Internet Calling Article

["CHRIS PEABODY" <>]

Good article, and I really love this line from the article-

"There are people in Washington who are experts in killing new
companies," said Timothy Wu, a Columbia University law professor who
specializes in telecommunications. "The [Federal Communications
Commission] and others will have to stand firm."

CBP


Phone Firms to Take On Internet Calling Rivals

By Yuki Noguchi and Arshad Mohammed
Washington Post Staff Writers
Tuesday, September 13, 2005; D05



Traditional telephone companies are likely to fight back as eBay Inc.
acquires Skype Technologies SA and expands the reach of Internet phone
service, experts said yesterday. Many competitors will offer their own
version of online telephone technology, expand into broadband and
television services, and work to limit upstarts such as Skype through
regulation.

The free Internet phone calls offered by Skype and others are
"definitely a threat" to traditional telephone companies, said Andy
Belt, senior vice president at consulting firm Adventis Corp. "If the
future of the business is moving toward an all-you-can-eat,
download-for-free business model, obviously that's not attractive at all
for the Bells."

The "Baby Bells," or regional descendants of the old Bell telephone
monopoly, already see the world changing as cell phones, e-mail, instant
messaging and lower-cost Internet phone providers such as Vonage
Holdings Inc. provide consumers with alternatives to the plain old
phone. Revenue from traditional local phone business has eroded, and
companies have had to invest more in high-speed Internet and
mobile-phone services.

The change in the competitive landscape is by no means a death knell
for the big phone companies, because services like Skype depend on
broadband Internet access that most Americans can get through only phone
and cable companies.

The number of people using free Internet voice services such as Skype,
Google Inc.'s Google Talk, America Online Inc.'s Internet phone service
and Yahoo Inc.'s Messenger with Voice is still relatively small --
several million in the United States, compared with 178 million landline
phone subscribers.

Luxembourg-based Skype logged 1.3 million U.S. users in July, and the
number of users increased 178 percent in the year ended in August,
according to Nielsen/NetRatings, which tracks Internet usage. With
eBay's backing after a $2.6 billion purchase, Skype would gain an even
greater foothold in the country -- tapping eBay's 58 million-strong
monthly audience.

Free voice service also is a chance to tie in voice calling with
e-mail, news and entertainment, said Brad Garlinghouse, a Yahoo vice
president. It does not act as a substitute for a normal phone, just as
e-mail has not eliminated the need for physical mail, he said.

But for some users, online calling has replaced traditional
long-distance service because it is free regardless of location. Skype
also sells a service called SkypeOut, which allows members to call
outside of the network for a per-minute fee.

For example, with 54 million users worldwide, Skype was particularly
appealing to the National Democratic Institute, a District-based group
with offices in 50 countries. In April, the group instructed its
employees to use Skype when possible to help cut down on phone bills.

Regular phone companies will fight such threats by pushing for
increased governmental oversight of their online rivals, experts said.

"There are people in Washington who are experts in killing new
companies," said Timothy Wu, a Columbia University law professor who
specializes in telecommunications. "The [Federal Communications
Commission] and others will have to stand firm."

The FCC ruled last year that computer-to-computer phone services should
not be subject to the same rules and fees as regular phone providers.
But the phone companies may demand that regulators require Skype to pay
into the government fund that subsidizes telephone service for rural
Americans, as well as provide some 911 emergency service and ensure that
federal agents can wiretap calls when warranted.

"I consider those to be public safety issues, national security issues,
underlying safety-net issues, and so I just think that's something all
of us have to bear as a cost of doing business," said Herschel Abbott,
BellSouth Corp. vice president for governmental affairs. "I regard them
as a serious competitor."

Even advocates of Internet phone systems say traditional phone
companies will retain a major hold on the industry because they own the
pipes that run into homes.

"In the short term, it threatens their revenue," but in the long term
regional phone companies will make money by charging for network access,
said Jonathan Askin, general counsel for Pulver.com, which runs a free
Internet calling service. "They still control the single most valuable
asset, which is the network."

Staff writer Jonathan Krim contributed to this report.

© 2005 The Washington Post Company