PHONE TECHNOLOGY VoIP: Next big thing on the Net?

New telephone technology is exciting many investors.
CHICAGO TRIBUNE
Running a telecom equipment company seldom elicits much excitement from ordinary people.
But these days, when the conversation turns to the business of making phone calls over the Internet, a telecom executive can become the life of the party.
"When someone heard I was in telecom, they'd ask what they should buy to invest" in Internet phone calling, said Van Cullens, Westell Technologies Inc. president and chief executive, of a recent trip back to his hometown in Georgia. "It's a hot topic."
It is more like a gold rush, and a lot of people are looking for nuggets.
Commonly known as VoIP, for voice over Internet protocol, the technology that routes phone calls over the Web has generated a powerful buzz. Phone giants like AT & amp;T Corp. are building a new business around Internet telephony, start-ups are abundant and cable companies are beginning to launch phone services through high-speed Web connections.
Entrepreneurs and investors are drawn to Internet telephony because there's no clear industry leader and the technology is in its infancy, providing an attractive target for innovation -- and investment.
Still cautious
Yet the sudden interest in VoIP is reminiscent of the dot-com euphoria that led to an ever-escalating stock market in the late 1990s and into 2000. And that worries veteran telecom executives like Cullens, who fears the hyperbole percolating through the media and Wall Street is starting to put air into another bubble.
"Everybody's running around thinking there's going to be a quick buck here," he said. "But this isn't a revolution, it's an evolution. There are too many unresolved issues for this to happen quickly."
Still, Cullens believes Internet telephony is the industry's future.
His Aurora, Ill., firm said in mid-August it will partner with a pioneering VoIP company to develop a suite of Internet telephony equipment for carriers like SBC Communications Inc. and Verizon Communications Inc.
The telecom industry, which is only now emerging from the deep slump following the bust of the dot-com bubble, both craves and fears VoIP.
Internet telephony moves voice over networks in data packets identical to how information moves for e-mail and Web pages. It offers lower costs and versatility that could inject telecom with new vitality.
But implementing VoIP will cost billions, and it's unclear how carriers will generate new revenue. No one has devised a business plan outlining how carriers can make big money.
That deficiency, which was the hallmark of the dot-com boom, is making insiders nervous.
Concern for money
Big phone companies make three-fourths of their money with voice service, and those revenues are shrinking significantly. Long-distance companies, including giants like AT & amp;T and MCI, are financially shaky because their calling revenues are rapidly declining. Local companies like SBC and Verizon, once accustomed to adding new phone lines, are now subtracting them.
If anything, VoIP will accelerate these trends, said Rob Marano, director of global restructuring services for PricewaterhouseCoopers.
Most recognize there is no way that everyone jumping into VoIP -- or even a majority -- can succeed.
"It's a dangerous space," said David Helfrich, managing director of Garnett & amp; Helfrich Capital, a Silicon Valley, Calif., investment partnership. "VoIP is going to happen because it's great technology and clearly the future.
"But it's visible to everyone in the marketplace and there's a lot of competition. I prefer to find a niche with less competition and use that as a base and grow from there."
New strategies
Because so many businesses and investors were burned by dot-com mania, entrepreneurs are seeking new strategies.
Larry Strickling, a former SBC executive who also headed the telecom agency at the Federal Communications Commission, said, "the problem for any start-up trying to work for a Bell company is the lack of a track record. The Bells don't want any undue risk and are always more comfortable working with a company they already know."
While carriers fret over revenue potential, consumers may be disappointed that VoIP underdelivers on promises of cheaper calling rates.
That's because most calls made from a VoIP service end up going to someone with traditional phone service, said Jim Andrew, vice president with Adventis, a telecom consultancy in Boston.
"The cost of carrying a VoIP call isn't significantly lower than for a traditional call," Andrew said. "That's because 96 percent of VoIP calls end up on a traditional phone line."