The Death of Traditional Telcos?

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It was once shushed as heresy -- touted as a disruptive force that would doom telecoms as we know them. It would steal coveted cash flow from AT&T (NYSE: T), Verizon (NYSE: VZ), and Qwest (NYSE: Q), relegating them to "dumb pipes."

I'm talking about fixed/mobile convergence (FMC), a more than decade-old concept in which mobile phones can connect to Wi-Fi routers and make calls over a broadband Internet connection. Since a majority of calls placed on cell phones happen either at home or work, this could theoretically save consumers a ton of money.

This bothered cell-phone operators for one obvious reason -- they would lose the opportunity to bill customers for all those minutes of yapping. But traditional fixed telcos felt threatened as well, since people would have fewer reasons to keep landline service, especially when compared to the cheap calls offered by Vonage (NYSE: VG) or eBay's (Nasdaq: EBAY) Skype. At the time, any marketing or PR newbie at major telcos who even mumbled words such as "Wi-Fi" or "convergence" drew angry glares and a muzzle.

But those days are long gone; incumbent telecoms and cellular operators alike are now embracing FMC. In addition to the FMC services it already offers in Europe, T-Mobile USA announced a combo cellular/Wi-Fi service in June. Sprint also just announced a trial of an FMC-like service called Airave, which routes calls in a home or business via a broadband connection. Each service comes with additional fees and restrictions, of course.

If FMC was such a bad thing only a few years back, why the big shift now? Look no further than your local cable company. With Comcast and other cable providers pushing digital fixed phone and -- albeit more slowly -- wireless services, telcos are forced to respond.

Manufacturers such as Nokia (NYSE: NOK) and Research In Motion (Nasdaq: RIMM) have been doing their part to provide dual-mode devices for FMC services, as well. AT&T just launched the BlackBerry 8820, with Wi-Fi embedded.

So while telecoms have been forced to shift strategies significantly, investors can take comfort in the expansion of incumbents like AT&T and Verizon into digital television, recouping revenue lost to disconnected landlines. And while consumers may not see all the promises of free Web calls over mobile phones fulfilled, shareholders can breathe easier, knowing that telcos remain alive and well.

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