Google (Nasdaq: GOOG) has fired another shot across the telecom industry's bow -- and this one's going to sting. Last week, the company announced a service which provides free telephone calls anywhere in the United States and Canada for Gmail users. Calls will be free for the remainder of the year, and possibly longer, according to Google. International phone calls can cost as little as $0.02 per minute, depending on where the call is being made. The long-distance service is also cheaper than competitors' rates, and the fee will allow Google to maintain its free-of-charge domestic service.
Traditional telecom giants feel the pain
The concept of the Internet-based Google phone was introduced last year, amid heavy protest from the telecom giants that provide landlines and cellular service. Companies such as Verizon (NYSE: VZ) and AT&T (NYSE: T) are saddled with infrastructure costs, regulated by the Federal Communications Commission (FCC), and subject to much greater regulation and higher operating costs as a result. Google's online phone service does not fall under this umbrella, which certainly gives the company an upper hand on a cost basis.
These telecom giants have already been facing significant revenue landline losses, as more and more customers began using their cellular phones as a primary means of voice communication. The proliferation of the Google Gmail phone as an easy-to-use built-in phone line will only continue to pressure these providers.
The old office phone conference device
While the telecom giants remain hardest-hit by new online communication programs, they won't be the only companies to suffer. Polycom (Nasdaq: PLCM), a provider of voice and video solutions for businesses and government entities, may also face a world of hurt.
You may know Polycom better as the makers of the funny spaceship-shaped devices your company might use for conference calls. Polycom mainly competes with Cisco (Nasdaq: CSCO) in the world of telecom and online business conferencing. These companies can provide crystal-clear HD conferencing and high-level customer service. However, their services also add thousands of dollars in software and hardware costs for customers. Google does not yet provide these services, but it offers a similar service with little or none of the cost. Polycom and Cisco have already seen their teleconferencing business cannibalized by low-cost Internet conference provider Skype, forcing them to move to more upstream offerings.
Speaking of Skype...
The company was recently spun off from eBay (Nasdaq: EBAY), filing an initial public offering this month. Good thing, too; Skype could use the cash flow, now that Google is flexing its muscle in the space. On Monday, rumors circled Wall Street that Skype was in talks with Cisco about a possible takeover.
Skype lets customers make free computer-to-computer video calls; however, computer-to-phone calls can cost anywhere between $0.01 or $0.02 per minute.
In October, Skype will roll out its new corporate packages, which include subscription fees. The packages will allow the corporations the same sort of teleconferencing abilities offered by low-end Polycom or Cisco systems. While pricing for these packages has not yet been established, they will certainly cost corporations much less than Polycom or Cisco's services.
Back to the point
In the current tumultuous economic environment, businesses and consumers will do whatever it takes to cut costs. The online Google phone does not eliminate the need for the businesses I have mentioned in this article, but it certainly lowers switching costs dramatically. Google can't match these companies' service and expertise, but you can bet it won't take the Big G long to improve its model and programs. Next time you're on a conference call in the meeting room, make sure to let your boss know that he never even had to leave his desk.
