The nuisance caller that's bugging BT

Dawn Hayes on the US firm planning an Internet coup

BT should beware. When IDT Corp, an upstart phone company in the US, started marketing its cut-price international phone service, the freephone number that its customers were invited to call went like this: 1-800 SCREW ATT.

AT&T, the targeted giant of the US telecommunications industry, responded with a lawsuit. But IDT won the day, and six years later has grown into a company with pounds 125m in sales. IDT turned profitable this year and now it plans to open an office in London, on BT's home turf, in the next three months.

The New Jersey-based company is one of a growing band of upstarts that have carved a business out of undercutting the telecommunications establishment around the world.

Now they are turning to the Internet to extend their market reach. Technology is developing that allows people to make voice calls over the Internet for as little as 10 per cent of the price charged by traditional phone companies.

The Internet is already siphoning revenues from telephone companies worldwide for data traffic. Now it has begun challenging the 90 per cent of their revenues that originate from ordinary voice calls.

The technology is still in its infancy but by the turn of the century it won't just be nerds with specialist software who will be calling friends over the Internet, according to a new report issued by consultants Phillips Tarifica.

Internet phone calls could squeeze well over pounds 1bn in revenue worldwide from conventional telephone companies in the next few years, the report forecasts.

"If Internet telephony stole only 6 per cent of US phone traffic, this could potentially eliminate the profits of the US public phone companies in the absence of volume growth or increases in the price of leased lines," according to another report released last week by the United Nations agency, the International Telecommunications Union (ITU).

The phenomenon does not apply just to the US: BT will lose pounds 44m in revenues to Internet phone services by 2001, based on current usage patterns, the report estimates. That figure could rise to pounds 103m, including e-mail and fax revenues, it said.

The figures are still small compared with BT's overall revenues of pounds 14.9bn for the year to March. But although there are only 60 million people around the world using the Internet, compared with 741 million ordinary phone users, the rate of growth in use of the Internet has doubled each year for the last decade, according to the ITU.

Other phone companies will lose more, Phillips Tarifica estimates. AT&T will lose the equivalent of pounds 145m in voice call revenue to the Internet in the same period, some pounds 218m when fax and e-mail revenues are included.

Telephone companies are watching quietly. Some of them maintain that the quality of Internet phone calls is sufficiently poor for them to ignore the phenomenon for the moment. So far, they are right in many cases.

When the technology was introduced earlier this decade, conversations were hampered by delays in the caller's words reaching the other end of the line. And whole chunks of sentences can go astray when the routes are congested.

Now the technology has improved to the point where the delay is less than a second, though still annoying in some instances.

The telephone firms are beginning to get worried. Last month Deutsche Telekom bought a 21 per cent stake in VocalTec Communications, an Israeli company that makes software for Internet phone calls.

Non-telephone firms are also moving in. At the Net Conference in Boston later this month, Microsoft plans to lead 30 companies in a demonstration of a technology standard that can mix voice, data and video .

IDT's president, Jim Courter, believes that Internet and traditional phone calls can both survive - but not exactly in perfect harmony.

Many telephone companies are selling Internet services in addition to their public phone services. And they make money from selling leased lines to service providers.

"With global deregulation moving apace, we think we can compete favourably with all other telephone companies," said Mr Courter. "They have enjoyed a monopoly so far, and they now need a radical restructuring."

Last year IDT introduced a service that allows customers with access to a personal computer and special software to call anyone with an ordinary phone over the Internet. The service has already attracted around 200,000 customers.

Now the company has introduced a US service tapping the Internet that allows anybody with an ordinary phone to call another conventional phone customer at a flat rate of eight cents per minute. "Customers won't need to have a computer, so it's going to broaden our audience by as much as 100 per cent,'' said IDT's director of sales, Mordy Rothberg.

Customers make a local call to IDT's network, which connects the call from the public phone network to the Internet and back to the public phone network at the other end. The company plans to roll the service out internationally.

It said that it has partners in international markets - including Marubeni of Japan, Daewoo of Korea and Telint of Italy - to distribute the service in their domestic markets by the end of the year.

"London is going to be our hub for Europe," said Jon Peters, managing director of IDT's UK operation.

"We're a new kid on the block in the UK, but we plan to do what we did in the US."

IDT took the industry by storm in 1991 when it started selling a dial- back telephone service, which offered cheap US prices to customers in countries where prices were considerably higher.

Customers buy special telephone cards, each of which has a code number and an IDT phone number assigned to it. They dial the IDT number, let the phone ring once and then hang up. The IDT computer picks up the call and rings the caller back with a US dial tone.

Start your day with The Independent, sign up for daily news emails
ebooksAn introduction to the ground rules of British democracy
Latest stories from i100
Have you tried new the Independent Digital Edition apps?
Independent Dating

By clicking 'Search' you
are agreeing to our
Terms of Use.

iJobs Job Widget
iJobs Money & Business

SThree: Experienced Recruitment Consultant

£20000 - £40000 per annum + OTE + Incentives + Benefits: SThree: Established f...

SThree: Trainee Recruitment Consultant

£20000 - £25000 per annum + OTE 40/45k + INCENTIVES + BENEFITS: SThree: The su...

Recruitment Genius: Collections Agent

£14000 - £16000 per annum: Recruitment Genius: This company was established in...

SThree: Trainee Recruitment Consultant

£20000 - £25000 per annum + OTE 40k: SThree: SThree are a global FTSE 250 busi...

Day In a Page

Isis profits from destruction of antiquities by selling relics to dealers - and then blowing up the buildings they come from to conceal the evidence of looting

How Isis profits from destruction of antiquities

Robert Fisk on the terrorist group's manipulation of the market to increase the price of artefacts
Labour leadership: Andy Burnham urges Jeremy Corbyn voters to think again in last-minute plea

'If we lose touch we’ll end up with two decades of the Tories'

In an exclusive interview, Andy Burnham urges Jeremy Corbyn voters to think again in last-minute plea
Tunisia fears its Arab Spring could be reversed as the new regime becomes as intolerant of dissent as its predecessor

The Arab Spring reversed

Tunisian protesters fear that a new law will whitewash corrupt businessmen and officials, but they are finding that the new regime is becoming as intolerant of dissent as its predecessor
King Arthur: Legendary figure was real and lived most of his life in Strathclyde, academic claims

Academic claims King Arthur was real - and reveals where he lived

Dr Andrew Breeze says the legendary figure did exist – but was a general, not a king
Who is Oliver Bonas and how has he captured middle-class hearts?

Who is Oliver Bonas?

It's the first high-street store to pay its staff the living wage, and it saw out the recession in style
Earth has 'lost more than half its trees' since humans first started cutting them down

Axe-wielding Man fells half the world’s trees – leaving us just 422 each

However, the number of trees may be eight times higher than previously thought
60 years of Scalextric: Model cars are now stuffed with as much tech as real ones

60 years of Scalextric

Model cars are now stuffed with as much tech as real ones
Theme parks continue to draw in thrill-seekers despite the risks - so why are we so addicted?

Why are we addicted to theme parks?

Now that Banksy has unveiled his own dystopian version, Christopher Beanland considers the ups and downs of our endless quest for amusement
Tourism in Iran: The country will soon be opening up again after years of isolation

Iran is opening up again to tourists

After years of isolation, Iran is reopening its embassies abroad. Soon, there'll be the chance for the adventurous to holiday there
10 best PS4 games

10 best PS4 games

Can’t wait for the new round of blockbusters due out this autumn? We played through last year’s offering
Transfer window: Ten things we learnt

Ten things we learnt from the transfer window

Record-breaking spending shows FFP restraint no longer applies
Migrant crisis: UN official Philippe Douste-Blazy reveals the harrowing sights he encountered among refugees arriving on Lampedusa

‘Can we really just turn away?’

Dead bodies, men drowning, women miscarrying – a senior UN figure on the horrors he has witnessed among migrants arriving on Lampedusa, and urges politicians not to underestimate our caring nature
Nine of Syria and Iraq's 10 world heritage sites are in danger as Isis ravages centuries of history

Nine of Syria and Iraq's 10 world heritage sites are in danger...

... and not just because of Isis vandalism
Girl on a Plane: An exclusive extract of the novelisation inspired by the 1970 Palestinian fighters hijack

Girl on a Plane

An exclusive extract of the novelisation inspired by the 1970 Palestinian fighters hijack
Why Frederick Forsyth's spying days could spell disaster for today's journalists

Why Frederick Forsyth's spying days could spell disaster for today's journalists

The author of 'The Day of the Jackal' has revealed he spied for MI6 while a foreign correspondent