US telecoms giant reveals internet telephone challenge to BT

Move could halve the cost of international calls writes, Chris Godsmark Business Correspondent

The world's first world-wide phone service using the internet computer network to send signals was unveiled yesterday, a move which its backers predicted could more than halve the cost of international phone calls.

USA Global Link, the world's largest discount reseller of call time, is to spend $1.2bn (pounds 750m) building the network, which will provide the biggest challenge yet to the established giants such as AT&T and British Telecom. The company has expanded rapidly since its formation in 1992 by buying bulk capacity on long-distance lines and selling it at budget prices to customers.

The first plank of the new network, linking New York with Dublin and slashing the cost of transatlantic calls in the process, will be in place by the end of March. USA Global Link plans to spend $500m on the first three-year phase of the project, which will involve installing 500 computerised switches around the world.

The privately owned group has signed a letter of intent with 3Com Corporation, a US equipment manufacturer, to build the state-of-the-art equipment. Last year the two groups began the first full-scale trials of an internet voice telephony service in Europe in an attempt to end doubts about service quality.

"We wanted to solve the technical challenges. This is not going to be some kind of hack solution with jerky sound quality. It's a real phone system with all the quality people would expect," said Mark Petrick, Global Link's communications director.

The service works by routeing calls through the existing local phone network to a switch, which changes the signal into digital information matching that transmitted on the internet. Many more "packets" of information can be transmitted across long-distance lines in this way than with the older analogue phone technology.

Experts are predicting that internet phone traffic will become a serious challenge to the expensive digital technology being deployed by companies like BT and Energis. A recent report by Ovum, the respected consultancy group, concluded that internet voice traffic could offer more capacity, lower prices and lower billing costs than conventional networks.

Technological strides are already changing the economics of phone systems, with prices for international calls falling to as little as 7p per minute between the UK and the US. USA Global Link predicted it could at least halve the already discounted "reselling" charges to customers.

It said initial switches would be installed in Brazil, Germany, the Netherlands, Japan, Switzerland and Hong Kong, though the company has no immediate plans to offer a UK service. Alongside ordinary voice telephony, the network will offer broadband services such as video links and high-speed data transmission.

To fund the expansion, Global Link is expected to float part of the company on US stock markets later this year. The group, saw revenues grow to $241m last year, was set up by two groups of family investors in Iowa in the Midwest to exploit the potential for cut- price telephony.