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SBC readies Net phone service

Last Bell provider to add Internet telephony signs deal with VoIP provider Deltathree.

SBC inched closer this week to launching an Internet phone service for homes by signing a two-year deal with New York-based Deltathree to provide much of the service's nuts and bolts.

Under the terms of the agreement, Deltathree will provide SBC with virtually all the crucial elements for offering and managing a residential Internet phone service, from billing to application development. Financial terms of the deal were not disclosed.

"This wraps it up for the vendor work," SBC spokeswoman Sue McCain said. She added that SBC expects to have the service ready for public consumption as early as February.

The SBC Internet phone service, now being tested in Los Angeles, Chicago, Dallas and San Antonio, is likely to resemble VoiceWing, an Internet phone service Verizon Communications began selling in July.

SBC's deal with Deltathree is another sign of the changing tides for SBC, Verizon, Bellsouth and Qwest, the nation's preeminent local phone providers, collectively known as the Bell operating companies. As cable companies and upstarts like Vonage or 8x8 have shown, U.S. consumers have a growing appetite for a technology called voice over Internet Protocol (VoIP), in which calls travel over the unregulated Internet, thus avoiding the traditional phone taxes and regulations normally associated with local phone calls. There are now about 1 million VoIP subscribers in the United States, each paying up to $20 a month less for unlimited domestic dialing than they would if they bought a plan offered by the Bells.

Once claiming the technology wasn't ready for prime time, three of the four Bells are now offering--or are close to offering--VoIP plans. Qwest was the first Bell to do so, followed by Verizon, and soon to be followed by SBC. Each service is, or will be, available to anyone with a broadband connection, so the Bells can attract customers outside their traditional service territory. That's a big change in service territory for the Bells. Traditionally, the Bells' local phone services has been available only to homes reached by their local phone infrastructure.

"There is definitely a segment of consumers interested in VoIP service," McCain added. "It seems like a niche product now, but we want to have something when it does go mainstream."

While they say its only a matter of time before VoIP goes mainstream, experts disagree on the timing. Jeff Pulver, founder of Free World Dialup, says that VoIP has now reached that tipping point. Analyst firm Instat says the sudden increase in worldwide subscribers will become a steady rise, especially during the 2005/2006 period. By 2008, there will be at least 22 million VoIP subscribers worldwide, the firm predicts.