Voice over Internet takes on telcom firms

"A few years ago they said it was a toy. Now, the biggest companies in the U.S. are adopting the technology," he said.

That "toy" is a technology called voice over Internet protocol, or VOIP, which transmits phone calls the same way e-mails are sent over Internet broadband connections and at much lower costs than conventional calls.

"It will be the main conduit through which humans communicate over long distances, absolutely," Fu said.

VOIP has been around for several years, but has taken off recently as technology improves and the spread of broadband Internet connections make it easy to use the service.

Verizon Communications Inc., the largest telephone company in the United States, launched VOIP services last week.

The cost savings it offers make VOIP a threat to big telecommunications carriers. AT&T Corp., the largest U.S. long-distance phone firm, said this month it would no longer seek new residential customers and would instead concentrate on corporate clients due to rising competition in long-distance services such as VOIP.

Gartner Inc. forecasts that about 17 percent of North American phone lines will be replaced by VOIP services by 2008.

Taiwan's Chunghwa Telecom Co. faces similar challenges.

"Chunghwa has the most to gain because it is the largest provider of broadband access. But on the other hand, it has the most to lose because it has the largest share of long-distance service," said Fu.

Tough position

Chunghwa is aware of that.

"The company is prepared for these future developments," said Hank Wang, Chunghwa's director of finance, referring to Internet voice services. "But there is no timetable for the rollout."

The problem for Chunghwa is that any benefits from the new technology would cannibalize its traditional fixed-line telephone services, which made up 39 percent of revenues in the first half but continued to decline.

"Chunghwa is in a tough position," said Fu Chi-chung, a vice president at Seednet, a distant second to Chunghwa in the Internet service provider market. Seednet launched IP-based telephony earlier this year.

The decline of traditional telephony is good news for Fu and his company, DSG Technology Inc., which saw net earnings more than double in the first half of 2004 after more than tripling last year.

The 41-year-old Fu makes money by buying Internet access time at wholesale from Internet service providers and then reselling it along with IP phones and other equipment to customers.

According to U.S.-based Atlantic-ACM, global wholesale VOIP minutes during 2001 exceeded 10 billion minutes and will reach 300 billion by 2006.

About 90 percent DSG's clients are overseas, with the majority in the Middle East and Africa where long distance rates are high.

"My customers often thank me for cutting their telephone bills by up to 90 percent," Fu told Reuters at his company, which listed in February.

The United States has been a leader in VoIP because of a relaxed attitude from regulators and a large long-distance market, while Japan has been a pioneer in Asia with companies such as Yahoo Japan Corp. pushing the new technology, say analysts.

In the rest of Asia, the acceptance has been slower due to regulatory problems and smaller domestic markets.

"It will happen in Asia, no doubt about it," said Andrew Chetham, a telecoms analyst with Gartner in Hong Kong. "Businesses particularly will be looking to lower costs, absolutely."

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