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Tech industry scrambles to get into Internet telephony

Posted by iNext - 2006-01-08

High-tech companies are scrambling to get a piece of the action of Internet telephony as the new technology gains more ground against traditional phone service.
The shift by consumers to Internet-based calling systems -- referred to as "Voice over Internet Protocol" (VoIP) -- is prompting makers of hardware, software and Web portals to adapt to the new landscape, and is creating a buzz among industry leaders at this week's Consumer Electronics Show (CES).

Skype, a VoIP pioneer recently purchased by eBay, unveiled two Internet telephony partnerships at the Las Vegas show.

With Dutch electronics giant Philips, Skype presented a dual-purpose wireless receiver able to place cost-free telephone calls from a PC or, for a fee, through a landline to another user on a regular telephone. The receiver also enables video conferencing or instant messaging to another Skype user.

Skype has also joined in a similar venture with networking expert Netgear to introduce a wireless device using WiFi technology.

The receiver blurs the difference between landline and mobile phones because WiFi allows a user to use not only a home or office computer, but also WiFi-enabled public PCs in cafes, airports or other locations.

This new type of device comes as no surprise to several VoIP experts.

"The appeal of VoIP is limited if you don't offer more than free PC phone calls," said David Hofstatter, Yahoo's VoIP point man.

Yahoo, which is battling rival Google for telephone calls over the Internet, expects to announce a joint venture with AT and T this year for a service that also allows users to consult their telephone voice mail on the Internet or redirect a call over a PC or landline telephone.

A similar service is also in the works with Britain's BT.

The Internet telephony market has also caught the eye of software giant Microsoft, which this year is expected to launch a wireless telephone in partnership with Philips and Verizon.

"VoIP is definitely a mass market," said Robert Simkavitz, in charge of VoIP for FreelineUSA. "But it's very critical now. We have to prove this technology is not only as good as the technology we replace, we have to prove we can do better."

Bryan Martin, VoIP expert for telephony provider Vonage, said Internet telephony was a way of putting your foot in the door: "Once we've got the service, it becomes simple to tease the customer with other services, like video."

"The challenge is to succeed with a simple value application," said Strategy Analytics expert Jim Penhune.

Independent telecom analyst Jeff Kagan said the landscape in telecom is changing, but that he does not expect free calling to last forever.

"New companies are getting into the business of offering phone service over the Internet using VoIP service. That reality is causing the economics of the telecommunications industry to change," he said.

"We have to ask ourselves, if the phone companies have to build and keep up the Internet and data networks, yet they are seeing less revenues because new competitors are taking their customers, and are also using their networks for free, how fair is that, and how long can that model last before it totally collapses and everyone loses?"

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