Net phones take time to chime

Jeremy Pelofsky

NEW YORK: The long-awaited new era when people can make their phone calls over the Internet faces a slow rollout, telecommunications equipment makers say, as it will take time for companies to deploy the necessary equipment and for regulators to set rules for it.

Phone companies, Internet service providers and cable companies are investing funds into upgrading their networks, and some are already offering the nascent service, known as Voice over Internet Protocol (VoIP), but so far there only a few hundred thousand subscribers.

"VoIP is in the relatively early stages and it represents good and large opportunities in the long term," Lucent Technologies Inc. Chief Executive, Patricia Russo told the Reuters Technology, Media and Telecommunications Summit this week.

Already some business calls are routed over the Internet. But now telecommunications providers are looking to move more of their business and consumer traffic to the Web in an effort to cut costs and expand profits.

VoIP uses high-speed Internet lines to carry voice traffic as digital packets, instead of the traditional wires and cable that make up the public switched telephone network, allowing the companies to avoid connection charges and other fees.

Telephone, cable and Internet companies are racing to roll out the service, but the Federal Communications Commission has yet to resolve several key issues, such as dialing 911 for emergencies and preserving universal phone service.

Russo cautioned that she didn't see a massive rollover from the existing telecommunications infrastructure and that regulators in Washington need to address several important questions so that companies can begin investing.

"Regulatory clarity is really important in our industry at this point," she said. "It's important that the industry continues to be invested in."

Traditional telephone carriers as well as equipment makers have been struggling to adapt to the advent of electronic mail, wireless phones, stiff competition and a sour economy.

Many companies are looking to VoIP to cut costs like connection charges that carriers pay one another and entice customers to buy a bundle of services that can boost profits.

AT&T Corp., the biggest U.S. long-distance telephone carrier, earlier this week predicted that revenue from VoIP from businesses would hit $1 billion this year and soar to $8 billion by 2007.

"We believe voice over IP is the first killer app (application) from a revenue perspective for broadband," AT&T Chief Executive Dave Dorman said at an analysts' meeting earlier this week. The company plans to offer VoIP to consumers 100 markets by the end of the year.

Cisco Systems Inc., manufacturer of key backroom equipment for VoIP, said the service is growing at a faster rate in the business market than the consumer sphere.

"I think the enterprise piece is growing more rapidly. It's definitely here," Dennis Powell, Cisco's chief financial officer, told Reuters. "Service providers definitely recognize it's a space where the future is."

(Additional reporting by Justin Hyde)

(C) Reuters