Did you know that the larger editions of some of our favorite newspapers
cost more than $30 per issue to produce? These are the same newspapers that
cost less than $2 to purchase on the newsstand. Does this surprise you? It
certainly blew me away. But should we be surprised to learn that advertisers
subsidize the printing of newspapers? If you live in the U.S. or are reading
on the Internet, you haven't paid for INTERNET TELEPHONY magazine,
which is also supported by advertising. Are you a station changer or channel
flipper? I am. We have the luxury of changing stations when we hear
commercials because advertisers support television and radio stations,
making them free as well. There are free fax services, free e-mail services,
and even free unified messaging -- but what is next?
Since you are reading a publication titled Internet Telephony, you may
have made the connection that the next logical medium for free service is
long-distance calling, and in fact, the premiere issue of this magazine
printed back in February of 1998 had the words "Free Speech" on
FROM PC TO PHONE, A FREE CALLING MODEL'S SEEDS ARE SOWN
You may ask (and rightly so) why I am making a big deal about free
long-distance if we had a cover titled "Free Speech" over two
years ago? Beyond that, we have been discussing various forms of free
long-distance for years. The answer is that this time it's different. In the
past, you would need NetMeeting
or a similar software package on each end of a PC-to-PC conversation to have
a free Internet or IP telephony call. You could have even used an Internet
telephony appliance from a company like Aplio.
Now it's become much easier. For the first time ever, you can make free
PC-to-phone calls. What this means is that the person on the other end of
the line just picks up an analog telephone and nothing more. Their phone
rings normally and they may not even know you are calling over the Net.
Do you know how such service would be supported? Just think about it, if
long-distance is free from any computer and there are hundreds of millions
of PCs on the market, some poor Internet telephony service provider has to
terminate a lot of long-distance calls. Who's going to pick up the tab? How
is this business model supported? Well if you've followed me so far, you
probably guessed that advertising would again support free long-distance. It
is a logical conclusion -- to me -- that soon, all long-distance will be
free or at least incredibly inexpensive due to advertising support. In fact,
I think it's so obvious that even a child can see that this is the next
wave. (Hence the nursery rhymes scattered throughout this month's column,
and on the cover.)
You likely read this magazine to learn about the future of technology, so
in addition to my views I decided I would treat you to the viewpoint of one
of the world's leading Internet telephony service providers (ITSPs), Net2Phone.
I asked Sarah Hofstetter, vice president, corporate communications, some
questions about the future of free PC-to-phone, advertiser-supported
RT: It would seem that the success of companies like
dialpad.com proves that the free product/service model supported by
advertising has come to the long-distance market through the use of Internet
telephony. Does this mean that we will all enjoy free long-distance calls
from this moment on?
SH: Smaller companies who are offering free telephony are limiting
this to a domestic marketplace. Net2Phone is a worldwide company that is
carefully examining the ramifications of offering free telephony. This is
certainly an exciting phenomenon and we are rapidly building our wholly
owned IP network to support even more customers than we have today.
RT: Do you feel a free long-distance model that is supported by
advertising and perhaps paid enhanced services will generate more or less
revenue for service providers? Will service providers of the future remain
SH: The phenomenon of offering free telephony is still new and
revenues from these companies offering free telephony are either slim or
non-existent. As a revenue-driven company with gross margins of over 40
percent, we plan on offering similar solutions with enhanced (paid and free)
services, but only once the advertising can fully support the revenue.
Additionally, from a capacity point of view, as a leader in Internet
telephony services with millions of current customers and a worldwide brand
name with top investors like AT&T, AOL, and Yahoo, we have to be
prepared for a worldwide onslaught of customers should we move to a free
RT: Should service providers let their customers know that
calls are traveling over IP networks (whether public or private networks)?
SH: Provided that the service is toll quality (like Net2Phone's),
there is no need to let the customer know whether or not the call is routed
over IP. The quality should be so good that it is irrelevant.
RT: Why should customers currently use IP networks when PSTN
long-distance is available for just pennies per minute?
SH: Firstly, convenience. For customers that have only one
telephone line at home, customers can use the same line for both data and
voice. Secondly, enhanced features. Customers can get more for their money
by using IP-based services such as unified messaging, conference calling,
call forwarding, etc.
RT: Do you forecast a day when all long-distance calls will be
free? If so, will this be a U.S. or worldwide phenomenon? Would it apply to
the wireless market?
SH: This is certainly a trend that we expect to continue for the
next few years in the U.S., but internationally, there are some geographies
that will not allow it. Net2Phone has a worldwide sensitivity as more than
half of our customers are outside the U.S.
RT: Is free long-distance going to generate interest in
enhanced (i.e., paid) services (caller ID, voice mail, etc.)?
SH: At least for the first two years. End users are accustomed to
paying a phone bill along with other utilities, and they won't mind shelling
out a few extra dollars for enhanced services provided they don't have to
pay for long-distance.
I'm really excited about the prospect of free long-distance service and look
forward to testing many of the new free or reduced rate services. I have
already tested and written about dialpad.com last month and I'm looking
forward to doing the same with new entrants in the future. If you're
experimenting with alternative long-distance providers and think you have a
story worth sharing, please drop me a line at firstname.lastname@example.org.