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PC phone home Featured

10:05am EDT July 22, 2002

Computer networks are doing everything from informing employees to coordinating projects and machinery. Technology exists to use the Internet to place phone calls, usually at a rate cheaper than that of traditional long-distance companies.

Confusion often surrounds Internet telephony, because there are three ways of placing a call:

  • PC-to-PC. This is simply two computers with sound cards and microphones using special software and the Internet to transfer your voice. This is typically a do-it-yourself operation for home users. Quality, which is erratic, is usually not recommended for business functions.

  • Net-to-phone. This technology uses your PC to initiate phone calls and transmit them over the Internet. The call is then routed over standard telephone lines to anyone with a traditional phone. No special equipment or software is needed by the receiving party.

  • Phone-to-phone. This option is the most talked about because no computer equipment is needed at all, and users don't even need an Internet service provider. A third party is routing the call from your traditional telephone over the Internet to the destination point.

"Phone-to-phone is the real force on the market right now," says Zia Daniell, an analyst in the Telecom and Cable Internet Strategies Group of Manhattan-based Jupiter Communications, a technology research and consulting firm. "Phone-to-phone is the more practical solution. There is the opportunity to provide low-cost service to the domestic long- distance market."

Currently, there is a limit on service availability and the number of companies providing it. But changes are expected. ITT is offering service in 166 cities; AT&T is testing service in three markets. Sprint and MCI are expected to announce trials this year. Services offered by long-distance carriers are expected to be an alternative to their traditional service, not a replacement.

"Most players will price services 20 to 25 percent below traditional rates, and you may see some rates 50 percent lower," says Daniell. "You will probably be able to get service for 7.5 cents a minute. Some players may advertise 5 cents a minute, but most will be about 7.5 cents."

With the lower rates comes a lower- quality service. Internet telephony is still a relatively new technology, with only a three-year history. As a result, there are still a few issues that need to be worked out.

"You'll get parts of words dropped," notes Daniell. "You might not hear a word, or there may be slight delays. The quality is not perfect, but it's getting better. The technology has made huge leaps, and continues to improve."

The service also blocks out most background noise, which can be both good and bad. During pauses in speech, the line may be so quiet that the other party may think the connection's been lost.

Currently, the only way to use the service is to buy a prepaid phone card from one of the providers. Users then dial an 800 number to get to the Internet gateway, then place the call. Ultimately, the calls will probably no more difficult than dialing an extra seven-digit prefix at the beginning of a number to gain access to the gateway.

One drawback to using an Internet router for long distance is a reliance on an electricity supply. If the part of the Internet your call is being routed through loses power or becomes overloaded, you'll be disconnected.

"Long-distance companies have no choice but to offer these Internet services themselves," says Daniell. "It's better for them to do it on their own than lose business to third parties. Traditional long-distance service will not disappear anytime soon though."

The price savings for Internet telephony may also be affected by FCC rulings. There really aren't any termination fees being levied on these services. Normally, a call ending in California, for example, would be charged a termination fee by PacBell. The FCC is looking into the possibility of charging a termination fee for Internet calls.

"If they do that, the short-term result will be to drive prices up," says Daniell.