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Qwest, AT&T join Internet telephony

Qwest said it has begun offering Internet phone service to some customers in the Minneapolis-St. Pauland would expand parts of its 14-state area in the first half of next year. AT&T said it would begin offering the service to consumers in the first quarter of 2004.
/ Source: The Associated Press

Qwest Communications International Inc. is becoming the first Baby Bell to offer residential Internet phone service, embracing a technology that could undermine the traditional phone business.

And AT&T Corp., which already provides such service to hundreds of business customers, announced Thursday that it would broaden its Internet telephony offerings next year to consumers.

The announcements follow one from Time Warner Cable earlier this week that it would begin offering the lower-cost service, which routes voice calls over the Internet more efficiently than the traditional circuit-switching network.

Long-distance carriers, including AT&T and MCI, as well as big companies increasingly use the Internet to route calls.

Denver-based Qwest said Wednesday it has begun offering Internet phone service to some customers in the Minneapolis-St. Paul area and would expand the service to other parts of its 14-state area in the first half of next year.

AT&T said it would begin offering the service to consumers in the first quarter of 2004 in select major cities that it did not specify.

Several smaller companies are already offering consumers Internet phone service, sometimes with unlimited calling plans at prices $20 and more below the competition, not including the cost of high-speed Internet service.

Neither AT&T nor Qwest offered pricing details, but an advantage of the technology is that it can cut costs by eliminating some network-access charges paid to regional carriers.

"The future of voice communications will be based on the Internet, and Qwest is excited to lead the way for customers," said Richard Notebaert, Qwest's chairman and chief executive.

The technology, known as Voice over Internet Protocol, or voice over IP, lets users make calls as normal, using a special phone or a regular phone connected to an adaptor device. The phone or adaptor is connected to a DSL or cable modem at the customer's home.

In a traditional phone call, calls are converted to electronic signals that traverse an elaborate network of switches. Regional carriers get paid for calls that pass through their switches.

Internet protocol converts a call into small packets of data _ about 50 packets for every second of conversation _ scatters them across the Internet, and reassembles them into sound on the other end of a call.

While the calls can be cheaper, perhaps the biggest reason the technology threatens the Baby Bells is that cable TV companies are beginning to use it to offer phone service, enlarging the "bundles" they can sell to customers. Time Warner's plan, announced Monday in conjunction with Sprint and MCI, would fuel phone service in 31 markets, including Minneapolis-St. Paul.

One analyst described Qwest's move as "inherently defensive" and said that Qwest would see some of its traditional customers switch to the newer technology.

"They're going to self-cannibalize, but the goal is to maintain the customer," said USB Warburg analyst John Hodulik. "So you'd rather make less money on a given customer but keep that customer versus having that customer switch providers."

Hodulik said he expected major carriers to make similar announcements soon, so AT&T's on Thursday was not a surprise. Still to weigh in are regional Bell giants including Verizon and SBC.

Because voice over IP can link phone calls with other data, it makes several kinds of new services possible. Qwest said its voice over IP customers would be able to:

_Go to a Web site and view a call log of missed, incoming or outgoing calls as well as dial with the click of a mouse.

_Specify call forwarding locations for different groups of callers.

_Schedule calls to automatically forward to an alternate number during designated times and days of the week.

Qwest also said customers eventually would be able to view and listen to voice mail messages online.

The Federal Communications Commission has named a task force to study whether Internet calls are subject to the same taxes and regulations as calls using conventional telephones. A federal judge in Minneapolis ruled in October that states should not be allowed to regulate Internet phone companies the same as traditional phone companies because doing so would conflict with federal law and could slow growth of the new technology.