As giant telcos retreat from the conventional consumer phone business, the Internet calling wave is rolling in. On Thursday, AT&T ( T) joined struggling long-distance rival MCI ( MCIP) in de-emphasizing the fast-eroding consumer business. Hard hit by falling prices, the companies intend to focus on the more lucrative business segment. But just as the long-distance companies are ending their conventional consumer marketing push, the nation's biggest local phone service provider, Verizon ( VZ), is stepping into the breach. The New York telco on Thursday unveiled a national voice-over-Internet-protocol, or VoIP, calling plan that promises unlimited calling priced about $20 below standard monthly phone service. Ma Bell's decision to turn its back on the very market it created a century ago is certainly of historical significance. But industry watchers say the move away from conventional consumer phone service was inevitable. "They were going down this road anyway," says Forrester Research analyst Lisa Pierce. "Concentrating on business services plays to AT&T's strength." On Thursday, AT&T slipped 20 cents to $14.12.
Last month, in the wake of a sweeping pricing rule setback, MCI, the nation's No. 2 long-distance phone company, began shutting down its small-business sales unit and made plans to back away from the traditional consumer market. Meanwhile, even as AT&T said Thursday that it would stop spending money on consumer services, the struggling giant outlined plans to continue sales of VoIP services, both to businesses and to consumers. Both AT&T and MCI hope to reallocate resources in an effort to better focus on sales to large businesses and government agencies, where they are the top two players. The dramatic moves underscore the competitive challenges each company faces amid cut-throat pricing and shifting trends in communications technology. The long-distance telcos, already battling severe price pressure in their core business services market, have found it increasingly difficult to contend with the bundling of phone, Internet and even wireless services by the Bells to win customers.
Even though AT&T tried a last-minute bribe of promising 5,000 new U.S. jobs to help gain support for the deal, the Justice Department filed a complaint to fight the combination of the nation's No. 2 and No. 4 wireless carriers.