Copyright 2004 Gannett Co. Inc.

USA TODAY

November 16, 2004, Tuesday, FIRST EDITION

SBC Communications, angling for a bigger piece of the broadband market, plans to start selling Internet-based phone service to consumers early next year and Internet-based TV service by the end of 2005.

The plan, expected to be announced today, is the latest salvo in what’s fast becoming a high-stakes race between phone and cable-TV companies. Both are hoping to woo customers with a full menu of phone, data and video services.

“It’s a game of chicken, to a certain extent,” says Scott Helbing, SBC’s senior vice president of consumer marketing. “Cable operators have been pushing to get into our bread-and-butter business, and now we’re going to get into theirs.”

The “bread-and-butter” for SBC is basic phone service. For all the buzz around Internet-based services, basic phone service — delivered over old-fashioned copper phone lines — still accounts for the bulk of the company’s profit.

Most of the big phone carriers probably would prefer not to sell Internet-based phone service, because it competes with their own higher-profit basic service.

But SBC, Verizon and the other big carriers really don’t have a choice. Cable companies are rapidly rolling out Internet phone service — called VoIP, or Voice over Internet Protocol — which competes with traditional phone service. At the same time, cellphones are gaining favor as a substitute for traditional “wired” phones.

The two developments, driven by advances in technology, are forcing SBC and the others to respond. Verizon, based in New York, already offers VoIP for consumers.

“None of the Bells have a choice,” says Raul Katz, a longtime telecom consultant. Katz says the cable industry’s bold push into phone service has forced SBC and other carriers to counterattack by invading the cable industry’s turf.

The main beneficiary of the battle between phone and cable operators is consumers. Trying to stake their claim, a lot of carriers are slashing VoIP prices. With SBC’s entry, pricing pressures are bound to intensify.

SBC isn’t blinking. “We’ll be as competitive as the market forces us to be,” Helbing says.

The San Antonio-based carrier has committed $4 billion over the next three years to build an advanced high-speed fiber network, with the aim of offering a bundle of voice, data and video services. VoIP and Internet-based TV are just two components of what SBC hopes will become a thick package of digital offerings.

“This keeps us competitive,” Helbing says.

SBC’s VoIP service will be offered throughout its 13-state Western territory, which includes about 40 million households.

“This is all about owning the customer,” Helbing says. “That’s what this is really all about.”