IM OK, you're not IM

While the jury is still out on cable telephony—and specifically on AT&T's success at delivering it on a wide scale—early adopters of IM already have delivered an indictment.

Last week's normal flow of industry pronouncements, harangues and shrill cries emanating from our nation's capital were focused on the Telecom Act. It was just five years ago last Wednesday that the “sweeping” reform brought on by the act was put into law.

As expected, competitive carrier associations and their various minions decried the lack of competition, pointed to the fact that incumbent telcos still hold north of 90% market share and shrieked over Wall Street's recent about-face that turned new carriers from darlings to dogs. Incumbents and their lackeys are no doubt celebrating the “victory” of open competition, noting that there are now hundreds of competitors, thousands of lines being served and open markets. In fact, they're so open there's really no reason to hold back those 47 other Section 271 applications.

Here's a little secret: The act and its indirect beneficiaries won't matter in another five years to the residential voice market. There may still be some of the elements of the 14-point checklist, and the interconnection rules will remain. But telcos will be facing a whole new ballgame in five years, and it has nothing to do with cable operators or CLECs encroaching on their turf.

Buried in the hot air of political rhetoric was a little item about MSN and Net2Phone. Last year, the two companies, in an effort to peel away AOL's huge base of Instant Messenger users, teamed up to offer free voice calls via PC to anyone using MSN Messenger. Last week, the two said they would now limit those calls to five minutes in an attempt to generate more ad revenue. (Users must listen to audio ads before their calls are completed). Whether anyone in the executive suites of Verizon, SBC or Qwest took notice, it was the shot heard 'round the world in the battle for local residential voice customers.

Instant messaging software, that harmless little screen that sits on the upper right hand corner of every AOL user's view (and an additional 10 million or so others who have downloaded AOL IM), is the biggest looming threat to the local telco revenue base. While there are about 40 companies running around with different versions of IM clients, AOL and MSN represent the vast majority of the nearly 100 million people who use IM.

What's more, some software with integrated presence management capabilities is aimed squarely at corporate users. MSN already offers voice services, and AOL Time Warner could just as easily begin providing voice though its AOL IM or ICQ software.

While the jury is still out on cable telephony—and specifically on AT&T's success at delivering it on a wide scale—early adopters of IM already have delivered an indictment.

Consider this telco nightmare: AOL Time Warner decides it wants in on the residential voice game. Instead of being the biggest reseller, the equivalent of an 800-pound gorilla on LSD, it strikes a deal with a smart vendor of IP phones that allow you to chat via IM software. AOL Time Warner now is not only in the game, but has a product that looks and tastes like phone service. And it has 20 million-plus users to go after. Moreover, it doesn't have the regulatory requirements or the cost factors that have dampened cable telephony's rush.

Like the street corner drug dealer who gives a kid his first hit “free” but starts extorting money the next time around, MSN and Net2Phone have baited enough customers that they can cut them off now from the gratis chow line. Although the companies haven't specifically said they're going to charge, the implication is that users will have to pay up soon if they want their “old” service back. If AOL Time Warner alone doesn't keep telco executives up at night, perhaps the addition of a competitor by the name of Microsoft will.

Contact Vince Vittore at vvittore@intertec.com