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.

How Does VoIP Work?

VoIP (Voice over Internet Protocol) simply means using your broadband Internet connection -- either cable or DSL -- to speak to anyone in the world over your ordinary home or office telephone. If you've never heard of VoIP, you'll be glad to know that it lets you make unlimited long distance calls using the Internet, instead of your local phone company and the Bell Telephone system circuits.

To use VoIP phone service, all you need is a broadband connection to the Internet and an inexpensive Analog Telephone Adapter (ATA) – also known as a "VoIP box" -- a small box about the size of a paperback book. You plug the VoIP box into your modem or router, and plug your phone into the VoIP box. Pick up the phone and you've got dial tone. It sounds just like the Bell System dial tone and it works much the same. Simply dial the number you want and hear a crystal clear connection to the person at the other end. But after that, there's a huge difference.

With VoIP you can call on an unlimited basis throughout the USA and Canada with no restrictions, no per-minute charges. It's no more expensive to call across the country than it is to call across the street. And, you can call internationally at rates as low as 2 cents per minute. In fact, if your international partner is also using VoIP, you'll have a free call – with no per minute charges.

What's more, the features you get from the Bell System – either as a bundled package, or that you pay extra for each month -- are generally free with VoIP phones. Call Waiting, Caller ID, Call Return, 3-Way Calling and many others are simply part of the VoIP package. VoIP telephone service gives you far more service for far less money each month.

As Michael Powell predicted, VoIP phone service will drive the largest shift in personal communication since the invention of the telephone. And what's more, as people continue to make the change to VoIP, the billions of dollars now going to the Bell System each will begin flowing to VoIP providers. Therein lies the "transfer of wealth."

David Brin, in his landmark sci-fi novel, Earth, envisioned the entire planet being interconnected by what he called "The Net." He began writing the novel in 1987 and set the story in the year 2038. We're a couple decades ahead of Brin's best predictions – a rarity in the world of incredible sci-fi imaginings. The Internet is truly becoming the way we all communicate – via the web, by email and now by VoIP phone. Jump on board!

Allan Ramsay is a 25-year veteran of the I.T. industry and principal at http://www.VoIP-USA.net, providing voice over IP phone service, landline, long distance plans, cellular phones, cellular calling plans, broadband access to the Internet and a host of Internet and telecommunication services to residential, SOHO and small business customers nationwide.