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BellSouth's DSL starts talking

Internet phone upstart Vonage is helping the company launch a new service that uses high-speed Web connections to make phone calls.

Internet phone upstart Vonage has helped launch a new BellSouth service that uses high-speed Web connections to make phone calls.

The two companies, although publicly at odds over regulatory issues, recently launched . Under the plan, BellSouth is reselling Vonage's unlimited dialing plans. It's the first sign of a larger set of services to come, according to a source familiar with the launch.

Internet, or voice over IP (VoIP), telephone services allow people to make phones calls that travel over the Internet rather than solely across wires owned by long-distance phone companies. Such calls can be made from telephone systems that tap into the Internet and from PCs. The cost of making such calls are about 30 percent less than those of basic long-distance service because the calls bypass the phone companies' lines. As a result, many large corporations and tech-savvy consumers are using VoIP to make long-distance calls.

John Chang, a senior analyst at Strategy Analytics, said BellSouth is "one of the pioneers" for offering VoIP calling plans to its DSL (digital subscriber line) customers. Most major DSL providers have stayed on the VoIP sidelines and have allowed Vonage or Net2Phone grab the earliest of DSL users, he said.

Chang believes BellSouth is acting partly out of self-defense after losing 14 percent of its small- to medium-sized business customers to VoIP. "The local exchange carriers like BellSouth and Verizon have all been experimenting with it," he said. "But BellSouth is among the pioneers for offering a service."

A BellSouth representative did not return calls for comment. In an earlier interview, Randy Sanders, BellSouth's director of regulatory affairs, said the company had been conducting a trial of such services with Vonage but wouldn't comment further.

A Vonage representative confirmed the service trials but did not provide any more details.

Meanwhile, the two companies have been engaged in a public spat. BellSouth, Verizon Communications and Qwest Communications are quietly pushing a proposal that could create hang-ups for up-and-coming Internet telephone rivals.

At stake are rules used to divvy up the 5.2 billion unassigned phone numbers set aside for use in North America, one of the biggest potential markets for VoIP telephone services. BellSouth, Verizon and Qwest want VoIP service providers to follow some of the same federal regulations they do. Currently, VoIP companies aren't as thoroughly regulated.

The use of high-speed Web connections--both cable and DSL--to make phone calls is growing in popularity. About 10 percent of all U.S. cable broadband subscribers have signed up for a voice service, a number that's expected to increase this year, according to Chang. Research from Strategy Analytics showed that broadband connections to U.S. homes will grow by 40 percent in 2003 and "soar" to 59 percent of all U.S. homes by 2008.

The most popular way to get high-speed Web services in the United States is through cable lines. Most cable companies, including Cox Communications, already sell VoIP plans to millions of customers.