Will VoIP Save AT&T?

To jump-start business, AT&T will bring Voice over Internet Protocol calling services to businesses and consumers in 100 U.S. markets.

Beginning early next year, the carrier will offer local and long-distance, plus enhanced features such as call forwarding, in some cities to customers with high-speed Internet connections.

In recent years, the company’s long-distance revenues have dropped sharply as customers switched to regional telecoms and national wireless providers. By embracing the new technology, which promises lower network management costs and long-distance bills, AT&T could win them back.

Other service providers ranging from startups (Vonage) to Baby Bells (Qwest) to cable giants (Time Warner Cable) are pursuing large-scale VoIP service as well.

“One of our differentiators will be the class of service we provide,” AT&T spokesman Gary Morgenstern told internetnews.com. “We own our Internet backbone so we can control and guarantee the customer experiece.”

AT&T laid the groundwork for VoIP in the 1990s, when it began investing billions to transform its network from circuits to Internet protocol-based standards, such as MPLS .

Industry-watchers applauded the timing of AT&T’s move. So far, regulators are hands-off and network gear performs better and costs less than ever before, said Joe Laszlo, an analyst with Jupiter Research (owned by the same parent as this site).

“This is a technology whose time has come,” Laszlo said. “AT&T is very smart in terms of marketing this.”

Now, AT&T’s biggest challenge is execution. The Bedminster, N.J., company successfully tested the service in three states this summer and fall, but it must replicate those results on a much larger scale.

“As long as they’ve designed their network well and we don’t see users experiencing garbled transmissions or dropped calls, I think they can pull it off,” Laszlo said, adding that there should also be little or no equipment that home users need to enable the service.

Lisa Pierce, research fellow at Giga Information Group, said the most critical part of large scale VoIP adoption is local service, which is “still being cooked in the oven.” She cited issues of scaling and interconections between carriers proprietary systems as challenges.

Industry watchers are less concerned about AT&T’s ability to market the service. The company has a large advertising and marketing budget and still has a powerful brand name. Potential customers are more likely to try the new technology from AT&T than a startup or cable company, Laszlo said.

AT&T has not set pricing, but other providers offer VoIP packages from about $35 to $50 per month for unlimited local, in-state and domestic long distance. AT&T’s Morgenstern said the industry standard is flat-rate unlimited calling.

On the business side, AT&T already carries more IP traffic on its network than any other U.S. company. AT&T has been offering VoIP to business customers through virtual private network services since 1997.

This year, the company experienced a four-fold increase in the number of business customers using its VoIP services — although the total is still only about 200.

The carrier is not alone in noticing an uptick in interest from corporations and government agencies. In a speech before analysts yesterday, Cisco CEO John Chambers identified VoIP as a potential catalyst for growth in the network equipment industry.

Earlier this year, Cisco partnered with AT&T to jointly sell VoIP equipment and service to U.S. businesses. This month the pact was expanded to include overseas markets.

AT&T’s VoIP push comes a week after it named William Hannigan president of AT&T. Today, the company created a new senior executive position to spearhead VoIP efforts across AT&T’s Labs, consumer and business divisions.

Cathy Martine, currently a senior vice president in the consumer division, has been tapped for the job. Martine previously managed the successful employee trial and the subsequent consumer trial of VoIP for AT&T.

News Around the Web