Cost Of Net Phone Calls May Rise ... but what else did we expect?

Internet phone calls aren't toast, but the business model is certainly being raked over the coals.

A new ruling by the U.S. Federal Communications Commission (FCC) says that companies who sell voice-over-Internet Protocol (VoIP) telephone service must automatically link customers to a 911 emergency service and provide emergency responders with an originating address for the call.

Carriers will have until October to comply. But many VoIP providers and supporters say the challenges of providing 911 service could put serious pressure on their business, adding cost and potentially slowing the explosive growth of VoIP services.

An even bigger concern of the VoIP providers is that the 911 ruling will make them vulnerable to their largest competitors, the traditional phone companies. Since those carriers control the phone connections to 911 centers, they'll be able to bill the VoIP vendors for handling calls that are transferred along those lines--or block them entirely. The traditional phone companies have lobbied hard for 911 regulations, hoping to slow down the explosive growth of VoIP services.

"The [traditional phone companies] have a lot to lose, and need to protect their turf as best as they can," says Jon Arnold, an independent telecom analyst. "They're trying to put a line in the sand and say to the regulators, 'If these guys are going to do it, they're going to have to do it right.'"

The expense of implementing 911 service could lead VoIP vendors to raise prices. "I think it's going to kill the pricing model," says Arnold. "It's probably going to force them to reexamine their cost structure."

Internet phone service has become increasingly popular over the last year, helped in large part by marketing pushes from companies including Verizon (nyse: VZ - news - people ), Comcast (nyse: CMCSA - news - people ), Cablevision Systems (nyse: CVC - news - people ) and Vonage. According to market research firm IDC, the number of U.S. subscribers to residential VoIP services will grow from three million this year to 27 million by the end of 2009. Customers have been attracted to VoIP service because it is cheaper than traditional phone calls, and customers can retain the same phone number regardless of where they live.

But many new subscribers to the service don't realize their new phones don't connect directly to 911 services, and that even if they do, emergency responders may not get the same information they would if the call came from a regular phone line.

Internet phone systems route calls to a particular computer on the Internet, not to a specific physical location. Many VoIP providers have sold this as a feature, pointing out that users can get online anywhere in the world and still place and receive phone calls from the same phone number. But it also makes it difficult to provide a specific address for an Internet caller, and vendors worry about the cost and complexity of adjusting their systems to do so.

Some VoIP vendors, including 8x8 (nasdaq: EGHT - news - people ), already offer 911 service to customers. Market-leader Vonage is also close to compliance, and already offers 911 to customers in Rhode Island.

But many companies will have to scramble to update their systems to make 911 service possible. "That could be bad, especially for the smaller companies who are trying to scratch and claw to get customers any way they can," says Arnold. "It could lead to the departure of a lot of the little guys."

Even if they're able to cross the 911 hurdle and retain their customers, VoIP providers also worry that the FCC ruling represents a change in the government's hands-off attitude towards the new technology. Former FCC Chairman Michael Powell was a strong supporter of Internet telephony and presided over a number of rulings that kept a hands-off attitude.

But Powell resigned in January, and VoIP supporters fear new Chairman Kevin Martin may not follow in his footsteps. The 911 ruling could indicate his preference to side more with traditional phone vendors, which would be bad news for VoIP providers trying to get off the ground.

Then again, it may be too early to put Martin into either camp. "This isn't an issue of 'Who's his favorite vendor?' It's about public safety," says Elizabeth Ussher, an independent telecom analyst. "Anything that is going to insure that information gets through in a timely manner, that makes it as accurate as possible and easy for authorities to help people is a leap forward."

Ussher says it won't be a major problem for VoIP vendors to comply with the ruling. "I think it'd be OK if they took less time complaining about it and more time fixing it," she says.

Meanwhile, the FCC isn't the only governmental body putting pressure on VoIP companies. On Thursday, only hours before the FCC made its ruling, bills were introduced into both the Senate and the House of Representatives that would require Internet telephone vendors to connect to 911, and also permit state and local governments to tax those services in order to help pay for these 911 services.

Handhelds will soon replace PCs as the primary Web appliance of the digital age. Get ready for the investment boom in wireless applications.

Remember the excitement over 3G, the so-called third-generation wireless networks? These were touted as the way consumers and businesses could surf the Web and send data at broadband speeds from anywhere a cell phone worked. After billions of dollars in investment and a decade of discussion, delay and disappointment, 3G networks have finally arrived in the U.S.

Verizon Wireless has deployed wireless broadband networks in 30 cities, including Austin, Tex. and Milwaukee. Sprint is upgrading its networks and expects to offer high-speed wireless service later this year. Cingular, a joint venture of SBC Communications and BellSouth, says it will roll out 3G networks this year and expects to offer service in most big cities by the end of 2006.

Many investors are well aware of the 3G-inspired rebound in wireless stocks. As the wireless carriers built out their networks, the stocks of companies supplying the hardware, software and chips required to operate them went on a tear. Shares of Research in Motion, the maker of BlackBerry handhelds, rose fourteenfold from January 2003 to the end of 2004. Sierra Wireless, a maker of wireless modem cards, rose sixfold during the same period. Other players have seen lesser but still impressive gains over the past year or two, among them UTStarcom, a U.S. manufacturer of telecom equipment that generates half its revenue from China, and Motorola, granddaddy of wireless communication. Merrill Lynch's Wireless Holders ETF more than doubled from early 2003 to the end of 2004.

But now, after a two-year rise, wireless stocks are gasping for air. Many investors wonder if the sector's best days are past. However, just as the PC market evolved, with once-strong hardware companies like Wang Computers and IBM giving way to software kings like Microsoft, Oracle and SAP, so will go wireless. The smart money is betting on companies that provide applications--productivity software, games-and-entertainment and collaboration software--to those billion-plus cell phone owners.

Listen to Paul Jacobs, who will replace his father, Irwin, as chief executive of Qualcomm in July. The son runs Qualcomm's Wireless and Internet Group. "We launched EV-DO [high-speed wireless technology] in 1997, and it's only coming to market now," says Jacobs. "We want it to happen faster because the wireless consumer expects multimedia now."

It is no surprise that he is pulling for such applications. Qualcomm created a cell phone operating system called Brew. As more developers create wireless software for it, the OS will increase demand for Qualcomm's CDMA-based chipsets. Qualcomm's plan isn't to develop such applications itself, but to encourage other companies that are developing them. So it is backing a new display technology from Iridigm Display, which it acquired in September 2004, that will make it possible to see pictures and text on your cell phone without consuming so much battery and chip power. Jacobs has also been talking with a company involved in digital rights software management that lets you carry your digital rights to specific music, for instance, in your cell phone. Then, you can visit a friend and download his MP3s to your phone legally.

Another application being backed by Qualcomm: mobile blogging from WaveMarket. This could one day let you leave location-specific messages for specific people. A simple example: You love the frog's legs at New York's La Grenouille restaurant. You pull out your cell phone and leave a message about the dish for your friend. The message hangs in cyberspace indefinitely, undelivered unless and until your friend walks in the door with a cell phone.

Qualcomm is not alone in promoting mobile applications. Verizon, Cingular and Sprint all need to recoup huge investments in advanced wireless networks. Their goal is to get you to sign up for extras like ring tones, games and multimedia messaging when you subscribe to their service, increasing their average revenue per user.

Downloadable ring tones, first sold in the U.S. in 2002, generated $3 billion in sales worldwide last year. Ovum Mobile Research estimates that by 2008 worldwide ring tone sales will reach $6 billion. Sales of mobile games, which generated $91 million in revenue in 2003, came to $217 million last year and will reach $1.8 billion in 2009, guesstimates research firm In-stat/MDR.

Even television is making its way to the smaller screen. Qualcomm announced in November that it would spend $800 million to build a mobile video and multimedia multicasting network across the U.S. It will let you receive broadcast television on a cell phone; you could watch a baseball game even if you are stuck in the office, the mall or traffic on the way to the ballpark. The system will offer 30-frame-per-second quality. Qualcomm plans service from 2006.

For investors, the best way to take part in the coming boom in wireless applications is to own a mix of small and large wireless multimedia companies. The table above lists wireless applications makers with strong growth prospects and reasonable multiples. There is still value to be found among wireless equipment companies. But the group as a whole is more expensive than the application companies.

A worthwhile metric to evaluate these companies compares the price/earnings ratio to the earnings-per-share growth rate (more precisely, to 100 times the growth rate). Thus, if a stock's P/E is 30 and its growth rate is 15%, its PEGratio is 2. A number of wireless applications companies can be bought at PEGs of less than 1, a bargain compared with infrastructure and hardware plays like Lucent, which has a PEG of 2.39, Motorola at 1.32 and Nortel at 3.36. In the table we use projected earnings to come up with these PEG ratios.

There aren't many publicly traded wireless applications pure plays, but a number of new firms and established software companies are getting into this business. Jamdat Mobile, a developer of mobile games like Tony Hawk's Pro Skater 4, was founded by former executives at Activision. It went public in September 2004 and has a PEG of just 0.9. Another 2004 new issue, Tom Online, is one of the most successful wireless Internet portals in China. The PEG is 0.4. Comverse Technology, which provides the technology that lets multimedia make it into your phone, has a PEG (adjusted for the earnings from two of its holdings, Verint and Ulticom) of 3.

One stock to consider a core holding in any wireless portfolio is Qualcomm. Its PEG of 1.6 is a bit high, but given its stake in wireless chipsets, 3G growth and applications, it may be the best-positioned company in the sector.

Equipment Leasing Can Support Your Growth

Equipment leasing can provide your company with several benefits. These benefits are important as you continue to execute growth plans and strategies that improve your company’s profitability and sustainability. 

• Personal & Timely Service
  
• Complete Confidentiality
  
• Custom Programs

To assist our preferred clients TSG is providing a valuable reference that can be used this year for your equipment leasing programs.

Simply call an WFS associate to discuss your equipment and real estate needs

Mention that Total Solutions Group referred you and receive the following benefits!!

• Deferred payments for 2 months (up to December 2005)
• No initial lease processing fee

Establish your Wirt credit line for future leases and opportunity based transactions

Call now at 1.800.777.9478 to schedule a no obligation conference call assessment or a personal visit by a WFS Associate.

Notes: Benefit is based on approved credit transactions. WFS reserves the right to approve all transactions. Deferred payment benefit applicable to transactions of $10,000 or more. Offer expires on December 31, 2005.

Join our growing list of clients in 2005!
Finally, A consulting firm that pays for itself!

NEW YORK - Internet telephone services have been slowly catching on as consumers get hip to the promise of cheap phone calls and having the same phone number anywhere you can plug in a computer.

But the services on the market from companies including phone carriers such as Verizon Communications (nyse: VZ - news - people ), cable providers such as Comcast (nyse: CMCSA - news - people ) and Internet voice vendors such as Packet8 (nasdaq: EGHT - news - people ) and Vonage aren't particularly portable, often requiring special hardware and making it difficult to access your phone account on a public terminal.

Most voice-over-Internet Protocol (VoIP) systems install on a home computer and require a special modem. They can't be easily set up on multiple machines, and you certainly wouldn't be able to access your phone account on a public terminal.

Atlanta-based phone company i2 Telecom (otc: ITUI - news - people ) has changed that with the VoiceStick, a software-based VoIP phone that is loaded on a flash-based USB thumb drive, the same bit of hardware that's become popular for transferring files between PCs.

Portability is no problem with this phone: It's surprisingly tiny, shorter and thinner than a five-stick pack of Juicy Fruit gum; its weight is negligible; and it easily attaches to a keychain or fits in a pocket.

To use the VoiceStick, you simply plug it into the USB port of any Windows-based PC. The computer should automatically recognize the device and run its software; you can then choose to run the phone directly from the USB drive or install the software on the PC. A phone keypad pops up on the screen for dialing, and an included headphone plugs into the microphone and headphone jacks of the PC so you can hear and speak to callers.

I first tried out the software on the computer in my office. Everything started up and ran perfectly, though once I made my first long-distance call, I found the voice quality lacking. To my ears, the conversation was choppy and digital-sounding.

But the person I was talking to said I sounded perfect--he could even make out the clacking of the keys on keyboards across the room. I chalked the bad reception on this call up to my antiquated, poor-performing PC.

That assumption bore out on the next few PCs I used in testing the device--at home and in friends' houses--all of which were newer and more powerful. On each, the VoiceStick ran properly and provided high-quality sound. It's worth noting, though, that all of these PCs had broadband Internet connections--a dial-up modem would likely provide a far less mellifluous conversation.

Because of its tiny size, the VoiceStick seems like an ideal choice for communicating on the road. Not only can you take your phone with you, but anywhere you plug it in, you get your own phone number. This means co-workers and family can easily reach you--that's the pledge from i2.

But the device's use while traveling is somewhat limited. While VoiceStick will work great if you plug it into your own laptop, it can be tough to get it to work on unfamiliar PCs. Many public machines don't give you access to their USB ports or headphone/microphone jacks. And the firewall software installed on one public terminal I tried wouldn't allow me to make a call at all.

Still, the VoiceStick is a handy tool and a nice alternative for when you don't have a cell signal or want to save a little cash. And since it's basically just a 64-MB memory stick, you can still use it to store and transport important files.

The price is good--$29.95 for the USB stick and headset--but with USB thumb drives so cheap that they're often given away, the price could be lower. A basic calling plan costs $3.99 per month and provides long-distance calls at 2.4 cents per minute. More expensive monthly plans offer cheaper minutes, and for $19.99 per month you can make unlimited calls across the U.S. and Canada. The plans compare well with those at competing VoIP carriers.

The VoiceStick isn't going to replace your cell phone, and if you need to make sure you can make calls anywhere you go, a good calling card is still your best option. But road warriors may find the device a handy and reliable way to keep in touch.
 
 

BellSouth Long Distance, Inc. has applied to the Michigan Public Service Commission for "a License to Provide Basic Local Exchange Service throughout the State of Michigan in the Zones and Exchanges served by Verizon North Inc., Verizon North Systems and SBC Michigan."

While you might at first glance think that maybe, just maybe, a "baby Bell" is actually going to compete for customers in another "baby Bell's" territory, it appears this is nothing to get all that excited about.  

In fact, one might be forgiven for thinking that BellSouth Long Distance intends to "cherry pick" only the most attractive customers after reading this sentence, found in a paragraph on pages 5 and 6 of the application:

".....The company has a very limited market segment it will offer services to. Specifically, BellSouth Long Distance initially proposes to offer local exchange services targeted at large business customers that have a relationship with the company in of the company's core states of Alabama, Florida, Georgia, Kentucky, Louisiana, Mississippi, North Carolina, South Carolina and Tennessee. ....."
 
 

Following Sprint Corp.'s proposed merger with Nextel Communications Inc., the wireless industry will increasingly look like its wireline cousin, with a few huge operators dominating the wireless market, says Standard & Poor's in its semi-annual survey on the wireless industry.

Once these deals are completed, the top four national wireless carriers will represent close to 85% of the U.S. industry's total subscribers. Assuming Sprint's merger with Nextel is approved, the four nationwide carriers will be Sprint Nextel; Cingular Wireless, which acquired AT&T Wireless Services in October 2004; Verizon Wireless; and T-Mobile USA.

"As of mid-2005, Standard & Poor's sees growing competition as the remaining national carriers fight for market share," said Kenneth Leon, Wireless Telecommunications Equity Analyst with Standard & Poor's Equity Research Services. "Increased competition is evident from wireless carriers" service increases, higher handset subsidies, and more minutes of use on monthly plans to renew existing customers or acquire new subscribers.

Another key indicator of the industry's outlook is evidence of aggressive pricing related to increased minutes of use or monthly charges."

"With wireless penetration of the U.S. market above 60%, wireless carriers are strengthening their customer retention strategies. They are also shifting their attention to untapped market segments, such as prepaid services and the youth market, and to wholesale customers, including resellers such as Qwest Communications International Inc., Virgin Mobile Telecoms Ltd., and a growing number of other companies."
 

• Contract Negotiation
• Audit and Recovery
• Billing Acuracy
• Telecom Management
• Network Design
• Network Management
• Future Technology Positioning
• Telephony Maintenance & Installation 
   
   

Jimmy E. Greene  CEO
Amy Suchy  COO
Steve Harris  VP
Tammy Kruse Marketing
Amanda Archangeli: Audit Specialist

2621 Bay Street
Saginaw, MI  48602
Office: 989-793-8128
Fax: 989-399-2266
Toll Free: 877-455-3074
www.TotalsolutionsGroup.org