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Ma Bell to have local rebirth online?

SBC will keep AT&T's Net phone service going post-merger, execs say--putting the company back in the market for local calls.

In a remarkable turnaround, AT&T's Internet telephone services might anchor next-generation services from SBC Communications, according to executives at the local phone company.

Last year, AT&T retreated from the residential-call business, saying it had become too expensive a market to compete in using traditional means. In the past, the company had to lease local telephone lines from Verizon Communications, SBC, Qwest Communications International and BellSouth, or from intermediaries.

Instead, AT&T turned its focus to business clientele, by then a major revenue source. CallVantage, AT&T's residential phone service based on Internet connections, appeared headed for a secondary role.

But this week, SBC, which is buying AT&T for $16 billion, told federal utility regulators that CallVantage will continue to operate after the merger closes, which should be this year or next. CallVantage will also likely be a centerpiece for future generations of SBC services, once the carrier's fiber-optic upgrade of its antiquated local phone network is completed, SBC executives said earlier this month.

"SBC intends to continue the AT&T CallVantage service, which will benefit from the merged firm's greater financial and marketing resources," SBC and AT&T executives wrote Tuesday to the Federal Communications Commission.

While there are many hurdles to the plans for the merged company, it appears that AT&T may not only remain in the local phone business, but it may play a major role once again.

It has been able to climb back, thanks mainly to voice over Internet Protocol. VoIP software lets a broadband line double as a phone line by digitizing the calls and addressing them using the protocols that form the backbone of the Internet. It makes for much cheaper phone calling, mainly because the Internet is unregulated.

VoIP lets companies sell telephone service to nearly anyone it wants to, without having to build a network or lease existing phone lines. That's a profound change in the 130-year-old telephone industry, in which to play, companies typically had to pay billions of dollars up front--whether to hire time on local phone networks or to build a network.

The technology is playing a particular ironic role for AT&T. A trust-busting decision by the U.S. government 20 years ago forced AT&T to cede control over its immense local phone network to the "Baby Bells." It's been leasing phone lines from those local carriers ever since.

With SBC firmly behind the service, CallVantage has a better chance for long-term survival and of reaching its earlier-stated goal of a million subscribers by the end of 2005. AT&T has never divulged how many CallVantage customers it has. Net phone services offered by Vonage and the major cable operators each have hundreds of thousands of subscribers.