Internet phone service competition heats up

AOL to offer access in city, 40 other U.S. markets

April 07, 2005|By William Patalon III | William Patalon III,SUN STAFF

Internet-based phone service is quickly emerging as the next big battleground in the telecommunications business.

America Online Inc., the world's largest Internet service provider, will announce today its Voice over Internet Protocol (VoIP) service in Baltimore and 40 other markets nationwide.

AOL will be entering the market a day after Verizon Communications Inc., the nation's largest local phone company, added a bargain plan and enhanced services for the Internet-based phone service it unveiled last summer.

This week, the technology-research firm IDC projected that 27 million American consumers would be using Internet-based telephone services by 2009, nine times the estimated 3 million subscribers today, as more households get high-speed broadband Internet access.

The entry of established giants such as Verizon and AOL into the market could help reassure consumers who might be skittish about entrusting essential phone service to unknown startups, experts said.

Yesterday, AOL emphasized that its service would have an enhanced 911 emergency service in all markets covered in the initial rollout and said its system would be "focused on ease of use, quality, reliability."

VoIP's lack of access to the 911 system has been seen as a major shortcoming.

The entrance of big companies "sends a signal" that VoIP is a legitimate service that is a good value and safe for the mass audience, said William Stofega, a senior analyst at Framingham, Mass.-based IDC. The increased competition will drive prices down, boosting demand, he said.

"There is a lot going on in this area, no doubt about it," Stofega said.

Until recently, the Internet telephone market has been the stronghold of small, highly focused startups such as Edison, N.J.-based Vonage Holdings Corp., the industry leader with an estimated 600,000 subscribers, Stofega said. But competition for VoIP customers will intensify as the marketplace for those services grows because heavyweights such as Verizon or AT&T Corp., which started VoIP service in March last year, really "have no choice," Stofega said.

The major local and long-distance providers are watching their traditional telephone-services businesses erode at an accelerating rate as customers switch to new technologies, such as wireless. Companies in other niches -- AOL in Internet access and Comcast in cable television, for instance--are looking for new revenue sources, Stofega said.

AOL, seeking to diversify away from its mainstay dial-up Internet service, will look to VoIP as a new revenue source and a possible tool to help it maintain its membership, which has been declining.

Cable providers such as Comcast, which plans to begin offering its Digital Voice phone service this summer, aren't losing their traditional TV customers but have made huge investments in their proprietary high-speed data networks. Broadband Internet access via high-speed cable modems is one such additional service, and telephone service is another.

"The investments in the IP-based network have already been made," said Scott Allison, vice president of advanced services for Comcast. "We're now all about trying to create new products and services, and to figure out which of those applications our customers will find useful and want to buy."

AT&T's year-old CallVantage VoIP service has customers in more than 170 markets in 39 states and Washington, according to the company's Web site.

Yesterday, New York-based Verizon said it would offer a $19.95-a-month plan that offers 500 minutes of local and long-distance service and features such as a choice of area codes, visual voice mail that can be attached to e-mails and enhanced call forwarding that demonstrate the flexibility Internet-based telephone service offers, said Michelle Swittenberg, executive director for Verizon's consumer VoIP business.

In July, Verizon introduced VoIP service with unlimited local and long-distance calling for $29.95 a month.

The company's landline phone business serves 27 million households, and it has 43 million wireless customers.

AOL is offering new customers an introductory price of $29.99 for six months, after which the monthly fee rises $10. Current AOL customers can choose from plans beginning at $13.99 for a trial period.

AOL also promoted features such as unified voice, e-mail and instant messaging, enhanced voice mail and call management capabilities, and online presence awareness, in addition to standard calling features.

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