Will the Bell System Survive? A Massive Transfer of Wealth from Bell to VoIP is Underway

Will the Bell System Survive? A Massive Transfer of Wealth from Bell to VoIP Is Underway.

The "Internet Revolution" has brought us e-mail, the World Wide Web and quick, convenient ways to communicate that we've come to take for granted. And now it's reached consumers who are looking for a more economical, more flexible way to talk on the phone. Voice over Internet Protocol (VoIP), also known as Broadband Phone or Internet Phone, now allows consumers to use their ordinary telephone to talk over the Internet at rates 50 to 60 percent below those charged by the Bell System, and with robust features that Bell cannot offer.

The Bell System has been our primary "channel" for connecting with friends, relatives and business associates for the last 100 years. Yet, in July, 2004, Michael Powell, the past Chairman of the Federal Communications Commission, which regulates the telephone industry, made this dramatic statement: "VoIP will irreversibly alter the world of communications. VoIP is the most significant paradigm shift in the entire history of modern communications since the invention of the telephone."

Powell was quoted in Forbes Magazine, but why did he speak about VoIP in such striking terms?

For starters, the courts have ruled that VoIP -- voice services over the Internet -- are information services, not telecommunications services. As such, VoIP is not subject to the many taxes, regulatory fees and tariffs that Federal, State and local governments have piled onto the phone company over the years. Take a look at your latest phone bill and you'll see that 30 percent or more of the monthly charge comes from these "junk fees." Moving to VOIP phone service eliminates them, except for a trifling 3 percent Federal Excise Tax.

Second, unlike the phone company, VoIP service providers don't have to install and maintain central offices, millions of miles of copper wire and fiber optic cable to carry your voice from point to point. The Internet is "already there," just waiting to send your voice as a digital packet stream alongside other digital traffic. This huge savings on infrastructure costs, plus the elimination of "junk fees" translates into a savings of 50 to 60 percent per month, every month. A typical $65 per month phone bill usually costs about $25 per month with VoIP; saving a residential customer with a single phone line nearly $500 per year. For homes with two lines, savings can approach $700 per year.

Third, VoIP delivers sophisticated new features the phone company cannot. For example, Find Me service allows you to designate up to five phones that will ring in sequence, or simultaneously, to find you when you're out of the office. Enhanced Voicemail lets you listen to voicemail from any web-connected PC or Mac, and to forward them as email attachments to anyone who might need to hear the voicemail. A web-based Call Manager lets you build a list of contacts you can dial simply by clicking on the person's name. These conveniences not only increase productivity for busy people; they're fun and easy to use. And of course all the features you already use - call waiting, caller ID, call return, etc. -- are included in the standard VoIP service.

These factors working together have led market research firms, including Frost & Sullivan and the Yankee Group, to predict that consumers using VoIP phone service will increase from around one million now to over 18 million by 2007. Other estimates range as high as 30 million by 2007. Losing 18 to 30 million customers in the next few years is very likely keeping conventional phone providers awake at night.

The impact of the Internet on communication is pervasive. In July, 2005, the US Congress voted overwhelmingly (410 to 20) to reform the Postal Service to save it from a "death spiral" brought on by rising costs and declining business due to the impact of the Internet. The next few years should bring more challenges to the Bell System as millions of people drop their phone service in favor of the lower cost, richer features and convenience of VoIP communication