Pick Up the Phone, Talk on the Net

Forget those dime-a-minute promotions and those anytime/anywhere come-ons.

If you really want to save money calling long distance, use the Internet instead.

That's the message shouted from the rooftops by several new companies.

For as little as a nickel a minute - and with nothing more sophisticated than a home telephone - many consumers can use the Internet to call long distance: 24 hours a day, seven days a week.

The prices are so cheap because long-distance calls don't travel on the traditional long-distance network.

Let's say you're a mom living in New York and want to call your son, the college sophomore who never phones from his dorm in Los Angeles. The process typically works like this:

1. You pick up the phone and dial a special access number (just as you would to make a calling-card call). The call connects you to your Internet phone company's nearby switch.

This first leg either is, or will soon be, a local call in major metropolitan areas.

2. The Internet company then bounces the call onto the Net.

3. The call travels to the Internet company's switch with the Pacific Telesis system - your son's local phone company - where it, again, gets treated as a local call.

Most of the savings occur in Step 2, where the call zips through the Internet, which is cheaper to use.

By law, traditional long-distance services pay a fee to local phone companies for a connection to their network. But Internet-based companies don't have to pay that fee, at least not yet. And since those fees are especially high on international calls, such calls via the Internet are particularly attractive

Internet-based IDT Corp., for example, sells calls to London for 9 cents, Sydney for 10 cents, and Japan for 20 cents a minute.

Right now, Internet phone service is offered by small companies. But if traditional telephone carriers enter the business, as expected, the Internet could become a serious rival to today's phone network, driving down prices for all long-distance and international calls.

"It has gained a lot of momentum," says Karl Duffy, director of telecom services at Killen & Associates, a Palo Alto, Calif., market-research firm. He expects revenues from Internet-based telephone and fax service to grow to at least $8 billion by 2003, more than 10 times today's total.

"If it's priced appropriately, it can offer some competition," says Heidi Sander, an analyst at IDC/LINK, a market-research firm based in Framingham, Mass. Some of the companies' price advantage may disappear, however. The Federal Communications Commission is proposing to levy the same access fees that traditional long-distance carriers now pay to connect calls to and from local phone networks.

So far, the government proposal hasn't dampened business.

"It's really going crazy," says Sarah Hofstetter, spokeswoman for IDT, which started a national ad campaign in March. The Hackensack, N.J., company has signed up more than 25,000 customers since it started the service last September. It expects half a million by year's end.

But while those customers will save money, they lose some convenience and voice quality.

Using Internet phone means dialing extra numbers to get connected, like using a phone credit card. And voice quality, for now, tends to suffer slightly.

The quality issue keeps some traditional carriers from committing to the technology. "We've been looking at it," says Russ Robinson, spokesman for Kansas City-based Sprint Communications, the No. 3 long-distance company. But "you have to be willing to give up some quality."

Internet-based companies disagree.

"The quality is going to be equal to the quality of the switched network," says Scott Chase, spokesman for ICG Communications, based in Englewood, Colo. "The technology is just leap-frogging itself every three to four months."

Actually, several players are moving to marry the two networks.

ICG, a traditional telephone carrier, recently acquired Internet service provider Netcom. RSL Communications, a Bermuda-based company with an international telephone network, late last year increased its stake in Internet telephone pioneer Delta Three.

"We have a fully meshed network," says Elie Wurtman, chief executive officer of Delta Three. So a customer's call could go over the telephone network or the Internet, whichever is cheapest at the time.

Such a strategy could draw in the traditional carriers. "By the end of this year, I would expect a lot of movement on the part of the major players," says Itzhak Fisher, president and chief executive officer of RSL.

"Voice over the Internet ... is the network of the future."

If You Wanna Save, Who You Gonna Call?

Several companies offer low-cost long-distance telephone service over the Internet.

So far, no company has rolled it out nationwide, but that's expected soon. Here's a partial list:

* IDT Corp. will not only sell you Internet-based phone cards, it's also offering a free one-minute trial of its service. Call 800-CALL-IDT for instructions. Phone cards cost $25 and work anywhere in the United States, with rates starting as low as 5 cents a minute. You must initiate calls, however, from one of the cities in its network.

Those cities, currently 50, include:

Boston

Chicago

Dallas

Miami

New York

San Francisco

* Qwest Communications, one of the bigger Net-based carriers, charges 7.5 cents a minute for interstate calls within the US. The company plans to be available in 125 cities by mid-1999. (800-466-0116 or www.qwest.net).

At present, calls must originate in one of nine cities:

Anaheim, Calif.

Denver

Kansas City, Mo.

Los Angeles

Oakland, Calif.

Sacramento, Calif.

Salt Lake City

San Francisco

San Jose, Calif.

* ICG Communications plans to be operating its Internet phone network by midyear in Los Angeles, San Jose, Calif., and Denver. Plans call for 166 cities eventually. The company will charge 5.9 cents a minute for long-distance calls between cities on its network and 7.2 cents a minute for calls that originate in one of those cities. (888-424-1144 or www.icgcomm.com)

* IXC Communications is building a nationwide Internet telephone service that already has 121 cities online, including New York, Boston, Philadelphia, Atlanta, Houston, and Los Angeles. The company doesn't sell its service directly to consumers but resells it to various smaller Internet phone companies. To find who might be serving your area call 800-984-9253 or check the Internet (www.ixc-comm.net).

* RSL COM USA targets small and mid-size businesses but also offers consumers a calling card for international calls. The company aims to be 40 percent cheaper than traditional international phone rates (212-588-3600 or www.rslcom.com).