Competition

The unbridled chase for voice customers that just three years ago inflated a gargantuan economic bubble is over. The financial and technological realities are that voice is important, and IP is the way to deliver it, but the economy has rerouted the itinerary and the timetable.

The CLECs, which depended on their competition for network basics, have been whittled down to a dozen or so. Fixed wireless has pretty much abandoned voice and is focusing much more conservative business plans on high-speed data delivery and, more recently, cellular backhaul. And cable is still perfecting its voice-over-IP delivery, understanding that voice is tough to deliver.

Meanwhile, the ILECs need the computer-based subscriber features that IP offers, along with its cost advantages to retain and regain customers drifting away to cellular and cable operators.

The irony of 2003 is that those who usually resist innovation will be counted on to drive new technologies. For VoIP to develop in the traditional telephony space, the ILECs must commit to it. And early indications are that this will happen as a reaction to growing outside pressures.

Increasingly, ILECs are being pushed only by a cable industry that is growing its voice base by aping competition. When cable moves to VoIP, it will have yet another advantage: It will be unhindered by federal regulations because it is delivering voice services over networks primarily used for high-speed data and video.

If that happens, “the ILECs are going to go wild and complain about the lack of regulation concerning VoIP,” said Steve Greenberg, CEO and vice chairman of VoIP provider Net2Phone. “It's going to be cable vs. the ILEC in terms of who owns the customer, who owns the customer's ear and who owns the customer's eyeball, because everything — video, data, voice — all comes over one pipe.”

Even without IP, cable is a thorn in the competition's side. Cox Communications has nearly 700,000 telephone subscribers and AT&T Broadband — now part of IP-focused Comcast — has more than 1 million. Both use traditional constant bit-rate telephony technology, and both are acquiring subscribers at the incumbents' expense by offering better prices, more features and bundling everything into a package with traditional video and high-speed data.

Cable voice competition, via IP, will show signs of life in 2003, but it won't percolate until 2004. “The last thing that we would want to do is introduce what we would consider to be a technology, not a service, and cause any hiccup whatever in the success we're having in circuit-switched telephone,” said Chris Bowick, Cox's chief technology officer. “Telephony is much more complex than we realized going into it. It was a very steep learning curve.”