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Voice-over-IP to skyrocket

The specter of Net-based phone service will undercut most long distance firms' margins and force them to reevaluate their plans.

SAN FRANCISCO--Voice communications over the Net is for real, according to market researcher International Data Corporation.

For typical long distance firms, the specter of Net-based phone service will undercut their long distance margins and force them to reevaluate their plans, according to Mark Winther, group vice president for telecommunications research.

The industry research firm estimates that use of the Net--and, as a consequence, IP (Internet Protocol)--to transmit voice calls internationally will grow from a $600 million business in 1997 to a $20.5 billion opportunity by the year 2002. For domestic calls, revenues are predicted to reach $3.9 billion in 2002 from $100 million in 1997.

"They're going to go through tremendous, wrenching changes and a lot of it is going to be due to IP communications," said Winther, who spoke at an IDC conference here.

The change is already being felt in some circles. In reaction to discount long distance initiatives from the likes of Qwest Communications, AT&T is planning to bolster its voice-over-IP story via its WorldNet service.

IDC also predicts that by the year 2002, 11 percent of all minutes for international or domestic long distance calls will be carried over an IP-based network.

Winther said the voice services industry is currently in a state where "price arbitrage" dominates, but with the dawn of the year 2000, value-added services on top of voice-over-IP will be the new battleground, with multimedia and universal messaging functions coming into play as priorities to customers.

He also noted that IP-based phone service may require intervention from the feds, since it bypasses local access charges.

One place where IP-based voice communications will still face barriers is within corporate intranet settings. Winther said use of internal networks for voice traffic will face hurdles, because voice is not viewed as strategic to many companies, unlike high-speed data networks.

"Corporations are going to adopt this--but we don't see them doing it for cost savings, but because of specific applications," Winther said.