AT&T buy shows how far voice calling has fallen

AT&T buy shows how far voice calling has fallen | CNET News.com

SBC Communications' plan to buy AT&T illustrates how far the traditional phone business has slipped--and how much it needs to change.

The prospects of the crumbling circuit-switched phone business have fallen so low that AT&T, which once controlled all phone calls across the country, sold itself for a mere $16 billion. The once-impervious phone giants that controlled the nation's telephone networks are being humbled by Internet technology--and the cable television giants and scrappy Net calling start-ups that embrace it. With high-profile Internet-based services driving the market, basic voice calling could become an afterthought.

"Voice service will eventually be low-cost enough that it could be free," said Brad Wilson, a telecommunications analyst with Legg Mason. "It could be a giveaway they bundle with other, advanced products."

The traditional phone company has seen that it can't keep up with cheaper, more versatile Internet technology, so now it's making the painful switch. Industry executives concede that selling voice calls over a vast network of circuit switches has become too costly to make sense in the long run.

The shift in strategy comes none too soon. The Bells have already been facing competition from upstarts taking advantage of cheaper IP technology. Three years after launching, Vonage is the largest VoIP provider. for a flat fee, the company lets users make phone calls over the Internet using their existing broadband connections. Skype, which offers free software for Internet calling, has signed up 28 million users--and counting.