Net Phone Threat May Ring Hollow for Bells

That could put VoIP's crucial price advantage in jeopardy. And make no mistake: The notion that Net calling will be cheaper than regular calling is seen as just as important a selling point as the oft-discussed bundling opportunity.

"VoIP has real price appeal, since it's about $10 to $15 lower than what people typically pay for phone service" every month, says analyst Brumfield. If that advantage is mitigated by a raft of government taxes and fees, as is the case with regular phone service, VoIP could lose some potential users.

Still, there's no question that VoIP does represent a major technological breakthrough for phone competition. Suddenly, cable companies have the valuable so-called first mile that they don't have to rent from the Bells. At long last, cable has the nails to start building the Bells' coffin, say analysts.

The "circuit switch service isn't going to die tomorrow, but clearly every customer that cable gets on VoIP is an incremental threat," says Jefferies & Co. analyst Rick Klugman, who has a neutral rating on the Bells. As Metcalfe's Law dictates, each VoIP customer increases the size and value of the VoIP network.

Or as Klugman puts it: "It's like the first fax machine, which was worthless until you had other fax machines to fax to."

But as with any new technology, the hype has a tendency to move far ahead of the results.

"History has shown that new products overpromise and underperform," says CIBC's Horan. "We've seen that happen often -- I'm sure that will be the case here."

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