VoIP and the End of Monopoly

By Joseph L. Bast

April 19, 2004

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An economic phenomenon is occurring that may have consequences for virtually every person in the U.S. and around the world, regardless of their age or economic circumstances. It's happening so quickly few people are even aware of it. Yet it involves investments of hundreds of billions of dollars and risk-taking on an almost unprecedented scale. It is forcing fundamental changes in regulatory policy.

The change I'm describing is the rise of voice-over-the-Internet Protocol (VoIP) technology, a convergence of telephone and Internet technologies that could, in 20 years or less, replace the current Public Switched Telephone Network (PSTN). VoIP uses the Internet's alternate "packet-switching" technology to carry telephone conversations wirelessly or over cable, fiber optic lines, DSL lines, or even (possibly) common electric powerlines.

On February 25, David Dorman, chairman and chief executive of AT&T, told Bloomberg's Brian Sullivan, "We think that we have the opportunity to transform our core network to all IP, but continue to offer what I'll call legacy services to customers that are on those legacy services during that transition, but be the leader in Voice over IP adoption."

Two weeks earlier, on February 10, Vonage CFO John Rego told a group of investors that VoIP would completely replace the PSTN within 20 years. According to Comm Daily, which covered the conference, no one on the panel, which included representatives from Verizon, Cablevision, and Comcast, disagreed.

Verizon's president of network services, Paul Lacouture, told the group he believed traditional circuit switches would be traded out and replaced over the next two decades. Cablevision President Tom Rutledge said his company's Optimum Voice product already was E-911 compliant and would comply with any federal regulations imposed. Comcast Senior Vice President Mark Coblitz said the capital costs of VoIP were dropping so fast he couldn't seem to budget low enough.

Scott Cleland with Precursor, the firm that hosted the investor conference, said his analysts calculated VoIP required just 1/50th the capital expenditure outlays of traditional telephone service.

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