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7/5/2006
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Telecoms Industry: Reports of My Demise Were Greatly Exaggerated

The young reporter knocking on Mark Twain's door to enquire after the report of Twain's death was stunned when Mark Twain himself answered the door.  Reportedly, it took a few moments before the reporter was able to state his mission and the word count expected by his editor.

Twain's response was classic: "You don't need nearly that many words: Just tell them the reports of my demise were greatly exaggerated."

I've seen many reporters knocking on the door of the telecoms industry enquiring after its demise.  If it were to answer, to paraphrase Mark Twain, the industry would tell us that the reports of its death are greatly exaggerated.

That doesn't, however, mean that things aren't changing.  A shot across the bow of the industry was the founding of Vonage in 2001.  Vonage promised customers a feature-rich, cost-effective, SIP-based Voice-over-IP solution at a low monthly price.  The next shot was Skype, launched in 2003 by the creators of Kazaa.  Unlike other Voice-over-IP offerings, Skype's software and audio connections are based entirely on the same peer-to-peer infrastructure that powered Kazaa.  The pièce de resistance: Skype users could call other Skype users, anywhere in the world, for free.  Skype followed up with SkypeOut, in 2004, allowing calls for as little as two cents per minute to many domestic and international destinations.

Shot 3: Skype, in May of this year, announced free SkypeOut calls to non-Skype phones.  The cost for calls from North America to other destinations varies, but can be as inexpensive as $0.021 per minute to Austria, Germany, and the United Kingdom (for landline phones; calls to mobile phones cost more).

Two or three years ago, proponents of instant messaging and other collaboration solutions predicted that knowledge workers would type their conversations more and speak them less.  Today, it appears that there has simply been an increase in all forms of collaboration.  

People who came of age before the 1960s still think of long distance as expensive - and still think of long distance calls in terms of pre-Divestiture pricing.  Well, in the post post-Divestiture world, with falling prices, pricing is becoming a non issue.

The primary reason for falling prices is that the cost to deliver voice communications over the Internet is far less than over the PSTN (public switched telephony network).  Legacy technology directs a call through switching centers to its destination.  A call placed over the Internet is broken up into small packets of data, no different than an e-mail or Web page, and then delivered to its destination.  Companies providing VoIP services use the Net's infrastructure, which is far less costly although quality of service may vary.  

In fact, if everyone were to place and receive calls only over the Net, the cost per call would be nothing.  As soon as a call leaves the Net and enters the PSTN (say, for a SkypeOut call placed from a computer to someone's home phone), costs which range from government fees to the cost of interconnecting to the PSTN, come into play.  Of course, that doesn't even begin to account for general and administrative costs, sales and marketing, and the company's own infrastructure, not to mention profit.

With respect to the deathwatch on the telecoms industry, a lot of things will change in the next 12 to 18 months.  More and more individuals will use the Internet as the on ramp for traditional telephone calls and the local exchange carriers, including AT&T and Verizon, see DSL, a broadband technology that uses the traditional phone line as its transport, as the service that will keep them in business.  For the past several years, some of the largest cable companies, including Time Warner and Cablevision, have been offering local phone service in concert with broadband and their traditional cable TV services.

So whose demise are we actually reporting?  Perhaps the answer is, just the cost of a phone call.

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