Voice over Wi-Fi 'moving industry goalposts'
For AT&T, the increased competition for its traditional stronghold of long-distance service has resulted in shrinking margins. Back in 2001, AT&T was a $52.6 billion company with a 73.4% gross margin. With SBC, AT&T had $43.8 billion in sales in 2005—and a gross margin of 56.2%. Five years ago, AT&T had no voice-over-IP strategy and no longer had a broadband offering (in late 2001, it spun off its broadband unit, which merged with Comcast). Fast-forward to the spring of 2004: AT&T introduced its own voice-over-IP service aimed at consumers, CallVantage, with unlimited calling plans. But the initial results were disappointing. Instead of the 1 million subscribers it expected to sign up in its first year, it landed just 53,000. In the second quarter of 2006, CallVantage subscribers numbered approximately 160,000, according to research firm Telephia.
AT&T says the migration to IP-based telephone service is still in its early days. "We see voice-over-IP as the direction that technology is going in," says Rick Stein, executive director of AT&T's VoIP services for business customers. Stein notes that it's one of the fastest-growing segments for AT&T, though he wouldn't disclose exact numbers of the company's total VoIP customers. Still, he says, it's "dwarfed by traditional phone services." He's right. Upstart VoIP services provider Vonage, for example, had 1.8 million subscriber lines as of June 30, compared with 70 million customers for a combined AT&T/BellSouth. In addition, analysts say, voice-over-IP services still haven't completely ironed out technical details such as finding the location of 911 callers.
And VoIP also hasn't taken hold among business customers as quickly as some expected, according to Counse Broders, research director for telecom services at Current Analysis. "Companies are still getting useful life out of [traditional phone switches]," he says. IP-only voice providers, though, says the genie's already out of the bottle. "For 100 years, consumers had to do things the way the phone company did things," says Michael Tribolet, president of Vonage America. "Voice-over-IP puts the control in the consumer's hands."