In era of phone mergers, more ways to drop landlines

2/26/2005

THE BABY BELLS are struggling financially and have sought big mergers to compete in the telecommunication world. But experts say consumers aren't likely to be hurt because alternatives to traditional phone lines are growing.

Among those alternatives are cellular, cable, and Internet phone services. Often they are priced at or below traditional service.

"The only consumers that will be hurt are the ones who don't change providers, which is the way it's been since 1984" when the government broke up AT&T's monopoly, said Judy Reed Smith, head of the telecommunications consulting firm Atlantic*ACM.

Since then, the Baby Bells have merged in their effort to survive. SBC Communications Inc. of San Antonio, Texas, announced this month it has reached agreement to buy its former parent, AT&T Corp., and rival Verizon Communications Inc. has made a bid to acquire MCI Inc.

SBC has reported a drop in its latest quarterly profit, mainly because of customer defections, mostly to alternative phone-service providers.

The number of phone numbers from telephone pole landlines has dropped from 192 million in 2000 to 181 million in 2003, and alternative services have increased.

Cellular or wireless service is furthest ahead. The United States had about 174 million wireless customers last year, according to the Telecommunications Industry Association, a Washington trade group of industry equipment suppliers. It predicted 210 million customers by 2008.

The United States had 3.3 million cable telephone subscribers last year, a figure estimated by the trade group to reach 7.4 million by 2008. Customers of Internet-based phone service, sometimes called VoIP for Voice over Internet Protocol, totaled 6.5 million last year and are estimated to reach 26 million by 2008.

SBC is "furiously trying to replace their voice revenues with any other technology they can find," said Scott Cleland, CEO of the Precursor Group, an independent investment research firm in Washington.

SBC bought a 60 percent stake in Cingular Wireless last year and is now getting into cable as well.

Contributing to the problems of landline companies was a Federal Communications Commission decision last year to side with SBC in its move to charge competitors higher rates to gain access to its phone lines.

That ruling caused AT&T to stop competing with SBC for local phone service, and it curtailed other competition as well.

Ms. Reed Smith said that if the big mergers go through, it's likely that the cost of basic landline service will jump, which in turn will entice more people to consider alternative service.

Wireless is taking the biggest bite out of traditional landline revenues.

Joe Farren, a spokesman for the Cellular Telecommunications and Internet Association, said wireless growth remains rapid because the technology keeps evolving and available service keeps growing even as competition in the sector drives prices down.

"Wireless has always been able to transmit voice, but now what we're seeing is one device that's taking on the functions and abilities of a desktop computer, which is what we hear consumers want: the ability to communicate and connect," he said.

In the Toledo area, wireless plans start at about $30 a month for unlimited local calls, and customers can choose from seven providers.

Prices can be as high as $300 a month, depending on features and use.

Emerging as competitors to traditional land lines are cable television firms.

Comcast Corp., the nation's largest cable provider, plus Time Warner Inc., Cox Communications Inc., and, in northwest Ohio and southeast Michigan, Buckeye Telesystem Inc., are rolling out residential phone service.

Phone calls travel over a cable system's lines using a technology that converts voice into data and sends it along like an e-mail until it reaches the nation's telephone network.

Like wireless, which can combine multiple services, cable companies have the ability to mix phone service with core services, so that Caller ID might appear on a TV or a caller's voice might come over the TV set.

And the companies are rolling out the service so quickly that 80 percent of all cable users will be able to get phone service by 2008, estimated the Yankee Group, a technology consulting firm in Boston.

Cable companies now generally charge about $40 monthly for unlimited calling, but as competitive pressures rise, many plan to start bundling phone service with cable TV and Internet services.

Because there are no noticeable differences between landline and cable's voice quality and connections, people will have a good choice, said Joe Jensen, chief technical officer for Buckeye Cablesystem. The company owns Buckeye Telesystem.

"I think it's really going to come down to a question of consumer preference: Are they going to want to stay with the old guy or go with the new guy?" he said.

Buckeye, after months of trials, is rolling out its phone service to homeowners this week in select spots in the Toledo area. Time Warner offers a phone service in Bowling Green and Findlay.

Where it is offered, it's been popular. Mr. Jensen said about 40 percent of potential customers of Cox Communications in San Diego use its cable-based phone service, and about 1,000 new customers a week are getting it from Time Warner in that firm's Minneapolis cable area.

In northwest Ohio and southeast Michigan, Buckeye Telesystem has a potential 250,000 customers.

It is ready to handle 70,000 customers this year but could support up to 200,000 eventually, Mr. Jensen said.

Further, he said, cable companies could use their lines to provide low-cost videophones. Comcast is testing such a system this year.

Growing rapidly as alternatives to traditional phones are Internet-based phones.

The technology takes a voice spoken into a phone or microphone, converts it to data "packets," and sends it, like an email, via the Internet onto the nation's telephone network where it then can be connected to any type of telephone.

To use it, the caller must have a computer and a high-speed Internet connection. Per month, the service can cost as little as $5 and up to $50.

In northwest Ohio, 12 providers offer the service. But for some, it has two main drawbacks.

It can be slowed and the voice quality can be affected at times of peak Internet use. Also, not all geographical areas have access to high-speed Internet.

"What's unique now is that the Internet is offering consumers a dramatically cheaper alternative that is dramatically better in quality," Mr. Cleland, of Precursor, said.

But SBC, Verizon, and other Baby Bells aren't sitting still.

They have wireless operations and high-speed Internet services. SBC said late last year it plans to roll out residential voice over Internet service in 2005.

Contact Jon Chavez at:

jchavez@theblade.com

or 419-724-6128