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FREEING UP THE PHONE

The way you make calls is about to get cheaper and better. And we’re not talking cellular.

Text: DON TAPSCOTT

JUL '04

Using the Internet to make a phone call used to be a frustrating exercise. Only computer nerds got excited by it. The caller plugged an earphone and microphone into a computer, while the person on the other end of the line did likewise. The quality was lousy, and the lag time between sending and receiving made the conversation stilted, much like talking on ham radio.

But yesterday’s ugly digital duckling is blossoming into an attractive and multitalented swan. Technology has come a long way, and residential and business customers can soon say hello to fancy new features on their phones. To put it bluntly, we’re looking at a future of virtually free long-distance calling.

The technology is called Voice over Internet Protocol, or VoIP. Most people associate VoIP with cheap long distance, but it also promises to undermine the monopoly of Canada’s telephone systems. Cable companies will use VoIP to compete with phone companies in providing primary local service to homes, a business worth more than $5-billion a year.

New VoIP systems no longer restrict the user to conversations through a computer. You can now use your existing home phone system. The wiring will plug into a box that, in turn, connects to your broadband Internet service provider. Sound quality is as good or better than your existing system.

Many commentators speak of the telephone and Internet systems converging, but that’s like talking about a hen converging with a fox. Rather, the telephone system is being swallowed by the Net since the Net’s digital efficiencies are unmatchable. This is why none of us really have a choice whether we’ll eventually use VoIP. In a few short years, that’s all that will be available as the phone companies phase out their existing systems and replace them with Internet technology. Bell Canada plans to move all of its old telephone traffic to an Internet backbone within three years.

The cable companies are equally ambitious. Rogers Communications Inc. says it wants to offer local phone service over its cable lines to 1.8 million households by this time next year. The plan will require more than $200-million in capital investments. The benefits to both residential and business consumers should be twofold. First, we can all hope that the competition will drive down monthly bills. Currently, the phone companies ratchet up revenue by charging stiff fees for niceties, such as call waiting, voice mail and call display. Though the cable and phone companies will be keen to avoid an all-out price war, the temptation to throw in added services for free will be strong since these additional bells and whistles cost almost nothing to provide.

The second benefit will be service innovation. Once phone calls become digitized, all sorts of new tricks are possible. Smart companies are jettisoning their clunky corporate phone systems and installing VoIP to run on their corporate computer networks. Call a number by dragging someone’s name from your computer database or e-mail directory onto an icon of a phone on the screen. When on the road, tell your telephone to forward certain calls to your cellphone, certain calls to your voice mail and others to your secretary. Whether you’re in your hotel room or a Starbucks hot spot, callers will think you are sitting at your desk. Since the system is software based, any changes can be made with a click of the mouse. The business VoIP market is set to explode.

Residential customers will need a bit more persuasion. Most of us respect our traditional phone companies and trust their ability to deliver around-the-clock reliable service. We don’t have the same faith in cable. During last summer’s massive power failure in Ontario and the northeastern United States, Ma Bell’s land lines stayed in business while it was lights out for the cable folks. Much of the capital investment the cable companies are making in VoIP is simply to beef up the reliability of their equipment and buff up their reputation for shabby service. The silver lining for consumers is that cable companies will likely try to overcome their poor reputation with aggressive pricing and good service.

Thanks to VoIP, it’s possible that in a few years, even more companies will offer residential phone service. Earlier this year, the U.S. Federal Communications Commission gave the green light for pilot projects to deliver the Internet over power lines. And the technology for wireless high-speed residential service continues to improve.

The more the merrier. Our telephone monopolies across the country provided us with one of the best phone systems in the world. Monopoly was the right business model for the time. But now competition makes more sense, and the benefits will ring loud and clear. [ ]

ADD YOUR COMMENTS > dtapscott@enroutemag.net

JUL '04