Bells Chime In With Voice-Over-Net Hype

But typically, VoIP reliability and sound quality don't match that of conventional phone calls. And there are still-unsolved issues surrounding mandatory call-tracing capabilities and 911 service. Even so, industry watchers point out that the wireless industry rode to great success, despite its tremendous shortcomings.

Three years of strong competition and a weak economy have forced the Bells to cut staff and contain costs. In this penny-pinching era, the beleaguered Bells have slashed spending on ambitious network upgrades and funneled much of their cash toward debt payments.

"Capital spending has fallen below historical norms," says Greenholtz. Average spending in the industry has been between 15% and 18% of revenue. During the late '90s, that figure rose to the 20% range. Since then, capex has dropped to about 11%, says Greenholtz.

Subsequently, any talk about VoIP among executives at the Bells has been merely that: talk, says Greenholtz.

The good news for suppliers, though, is that spending has to increase at some point. The telcos will one day shift from maintenance spending to expansion and modernization work. Qwest signaled just such a move Wednesday when the Denver local phone giant picked Lucent (LU) to upgrade its switches toward IP.

The Lucent deal didn't specify a cost but did call for a three-year timeframe, which is in line with analysts' predictions for VoIP progress. It also highlights the likely beneficiaries of the trend, namely Lucent and Nortel (NT).

"We do expect carriers to deploy VOIP gear, but we expect a deliberate, evolutionary approach that will likely favor incumbent providers," CIBC World Markets analyst Steve Kamman wrote in a research note Thursday. "We do not expect a wholesale 'rip-and-replace' transition."

But don't expect the Bells' bombastic press releases to reflect any such caution.

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