So Long, Long Distance

The Olympic Games are now history, but not AT&T's (NYSE: T  ) $25 million ad campaign to redefine its image. After years of getting clobbered by the regional Bell companies such as BellSouth (NYSE: BLS  ) , Verizon (NYSE: VZ  ) , Sprint (NYSE: FON  ) , and MCI (Nasdaq: MCIP  ) , the company has turned its business focus from traditional phone service to networking.

In July, AT&T announced it would discontinue offering new long-distance service to residential customers in seven states. This is a long way from its "Ma Bell" phone company image. For decades, AT&T was dominant in the long-distance business. But thanks to the popularity of cell phones and the Internet, customers have been dumping traditional phone services. "Reach Out and Touch Someone" has a new meaning altogether.

As Alyce Lomax reported, the telecom sector isn't out of the woods yet. AT&T was very slow to recognize the changes, and it continued to lose business to the regional bells and start-up companies such as Vontage, which offers calls using Voice over Internet Protocol (VoIP). This technology has been waiting in the wings for several years, but it has begun to take off now that 25% of the nation's homes have subscribed to a high-speed Internet service. This does limit access to those areas with cable or DSL service available.

All of this new technology poses a real threat to the revenue stream of long-distance carriers. How can AT&T compete in the long-distance market? Well, the company has decided to jump on the bandwagon by rolling out its VoIP plan. Verizon and BellSouth recently launched similar services. The cable companies won't be left behind; Time Warner (NYSE: TWX  ) has introduced its own version of digital phone service.

Long distance is a commodity, and competition is driving down prices. Those companies that provide quality consumer service, reliable connections, and flexible calling plans will succeed. Foolish investors should look at these trends in telecom and study the companies poised to compete effectively. AT&T's focus on networking rather than traditional long-distance business may very well be a smart move. Perhaps now the company can make a turnaround from the market it once dominated.

Fool contributorKelvin Taylordoes not own shares of any of the companies mentioned.

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