AT&T's VoIP Venture

Well, I guess I've seen it all.

The bastion of the old guard in telephony, AT&T (NYSE: T  ) , just weeks after deciding to stop marketing traditional long distance services, is trying to take the reins of the new, new thing: Voice over Internet Protocol, otherwise known as the squeaky acronym VoIP. (Squeaky because of the pronunciation: "voy-EEP.")

Specifically, AT&T wants to develop common standards for Net telephony. Call it enlightened self-interest. The Web needed common standards such as HTML, which pretties up the digital pages you're looking at now, to take off. Why should VoIP be any different? Answer: It isn't.

But don't think there isn't a profit motive here. AT&T wants its specifications to become standard so that the company can build a massive revenue stream, probably through AT&T-compliant equipment from Cisco (Nasdaq: CSCO  ) and others.

Old Ma Bell is betting on VoIP because it's hot. And it's hot because, well, it's cheap. For example, AT&T's CallVantage program offers VoIP for a flat $19.95 per month. Setup is relatively simple, too: Consumers simply plug their phone and computer into the same AT&T box and then plug that into an existing broadband Internet connection.

The cheap factor is hugely compelling for consumers, to be sure. Indeed, in a recent review of my phone bill I found that I was paying almost the same in fees and taxes to MCI (Nasdaq: MCIP  ) for nothing that others pay for full-blown long-distance service using the Net. Talk about your wake-up call.

Millions more like me are out there, tempted by the siren ring of VoIP savings. According to U.K.-based Juniper Research, VoIP will contribute some $32 billion, or 12%, of $260 billion in worldwide telephony revenue by 2009. And big corporate deals are already occurring. Baby Bell rival (and Motley Fool Stock Advisor rec) SBC Communications (NYSE: SBC  ) has reportedly agreed to supplyFord (NYSE: F  ) with $100 million worth of VoIP equipment and services. Obviously, AT&T is attempting to position itself to land the next big customer.

But the truth may be even simpler than that. AT&T has been fading for years, and VoIP may be its last, best hope to resuscitate itself -- or at least generate enough cash to keep paying its 50,000+ employees and fund its rich 6.38% dividend.

For more Fool coverage of VoIP, AT&T, and all things telephony:

  • Fellow Fool David Meier says it stinks to be in telecom, so he's selling his stake in Qwest (NYSE: Q  ) .
  • AT&T bids adieu to long distance.
  • SBC takes the wheel for Ford when it comes to VoIP.
  • Bill Mann and Ben McClure have dueling views over the seaworthiness of telecom stocks. Who do you think is right?

Is VoIP really the next big thing? If so, how can you profit from it? It's these kinds of questions and more that David Gardner answers in his soon-to-be released growth stock newsletter. Be one of the first to get in on the action, and take a free preview.

Fool contributor Tim Beyers is still considering VoIP, although he thinks most Fools can get by just fine with only a cell phone. Tim owns no stake in any of the companies mentioned, and you can view his Fool profile here.


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