The old-time phone company isn't going away anytime soon, but it is losing some of its competitive advantages to hold onto business customers.
The so-called legacy carriers, such as BellSouth, Verizon and SBC - the former baby bells created by the antitrust breakup of one-time telephone giant AT&T - are facing a new competitor that threatens to upset the apple cart of how telephone services are provided.
The promise of Voice over Internet Protocol (VOIP) telephone service has been apparent for several years. Industry watcher Gartner Dataquest has estimated that businesses spent in 2003 $2 billion on Internet protocol-capable telephone equipment in North America and expects that number to rise to $4.2 billion by 2007. Research firm IDC is forecasting the sale of IP-telephone equipment having a compound annual growth rate of 48 percent for 2003 to 2008.
In a recent interview with Network World, Cisco Systems Chief Technology Officer Charlie Giancarlo predicts half the U.S. (residential) consumer market will be on VOIP by the end of the decade.
Cisco, a leading technology company, provides VOIP service to Ford Motor Co. and Bank of America. The company services more than 40 customers having more than 5,000 lines and another dozen companies with more than 10,000 lines. Giancarlo points out that Cisco itself has 60,000 phones in its own VOIP system.
For a business customer, VOIP service will begin to look attractive when you compare that a trunk line (T1) with a PBX has a maximum of 23 phones and provides no Internet access while VOIP over that same T1 allows 30 phones and Internet service. That versatility also comes with a savings of between 30 and 60 percent over older telephone services.
Despite those numbers, it hasn't proved as simple to overcome business customers' fears that the technology would be unwieldy or require a large capital investment to switch from existing telephone private branch exchange (PBX) equipment.
"The biggest barriers to adopting VOIP now are if companies have [long-term] telephone service contracts or have recently purchased legacy PBX equipment," said ISDN Net President Jerry Dunlap. "BellSouth knew this was coming and has been locking up customers."
In a traditional PBX, each call is given a unique circuit all its own by which to complete the call either inside or outside of a business. While it is in use, no other calls can use that circuit. In practice, a business typically needs less actual circuits or "dedicated PBX lines" than its maximum number of usable phones, because not every phone is in use at the same time. This is the origin of the "all circuits are busy" message that callers sometimes hear if everyone in a PBX system tries to make call simultaneously.
The earliest versions of VOIP technology mirrored that limitation by artificially dedicating a fraction of a high-speed data connection for voice transmissions and the remainder for data. That resulted in computer networks that were both slower than their maximum capacity and a cap on possible phone users at all times.
Now, the technology is more flexible and so-called "quality of service" VOIP switches allow phone service to grab priority status on the computer network automatically as it is needed and otherwise gives as much of the available network to data when the phones aren't in use.
The technology guarantees voice takes priority and data traffic slows automatically during those peaks, so that if 15 phones are served by one VOIP network, then each phone can be used at anytime, Dunlap explains.
It was that ability that led Nashville attorney Jeff Greene two years ago to become one of the early adopters of VOIP technology.
"It seemed the wave of the future to have the ability to put a phone extension anywhere you have the Internet," Greene said. And he estimates the initial equipment cost outlay was recouped in less than a year.
Greene, an ISDN Net customer, purchased a set of standalone VOIP phones that plug into any available high-speed Internet connection anywhere and give him the ability to use his voice network with its local Nashville number. That lets him work from home or, say, Alaska without any hassle or clients even knowing he's not in the office.
That flexibility helped keep Greene's family connected when his wife Jennye moved briefly to New Hampshire to minister to their ailing son Byron. "She was able to stay connected to her Nashville community because you can answer the phone anywhere you can plug in a laptop," Greene said.
"I was going to send a phone with my daughter when she went to Paris, but she wasn't that interested in staying in touch," Green added.