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Monday, July 27, 1998 Published at 16:59 GMT 17:59 UK

Business: The Company File

BT, AT&T seek Net gains

Say goodbye to the old "dog and bone" and hello to the data phone

By BBC Internet correspondent Chris Nuttall

British Telecom and AT&T's new global alliance says it's still good to talk but, profits-wise, it's going to be infinitely better to exchange data in the future.

The Internet's ability to enable long-distance phone calls for the price of a local one has long been seen as a threat to telcos. But the big players are now recognising there is major money to be made in providing the backbone for globally transporting the data that becomes voice, fax, e-mail and online transactions.

Internet telephony in infancy

Voice calls over the Internet amount to only $20m of a $70bn dollar global telecoms market at present.

But companies such as BT and AT&T do see the importance of moving from their voice networks to an Internet Protocol (IP) network which can handle all of their clients' business

The joint venture being set up will invest $1bn a year in an IP network and will build a 200 gigabits-per-second pipeline linking 100 of the world's major cities over the next five years.

"We intend to provide the transport of lots of bits to lots of places," AT&T's chairman, Mike Armstrong told a financial analysts' conference call on Monday.

Telcos take to the Net

The major telcos have responded to the challenge from Internet Service Providers, cable companies, wireless technologies and satellite by either winning or buying into a share of the multiplex of methods being developed to convey information.

AT&T announced last month that it would buy the US cable television giant Tele-Communications Inc.

It acquired the Teleport Communications Group earlier this year, a provider of local phone services to businesses, and entered into marketing agreements with Lycos, Infoseek and Yahoo! to gain a foothold in the Internet hubs of information known as portals being developed.

In the UK, BT has become one of the leading Internet Service Providers (ISPs) and is offering a new ISDN service called Home Highway for consumers in the autumn.

Overseas, it already has joint ventures in Ireland, France, Switzerland, Spain, Germany, Italy, the Netherlands, Sweden, New Zealand, Japan, Singapore, Malaysia and India

The battle over bandwidth

Transatlantic Internet traffic is doubling every year, and overtook voice traffic last September. The predictions are that by 2000, Internet traffic may account for 75% of all transatlantic traffic.

BT and AT&T are now pitting their telecoms might against the frontiersmen who have built the existing Internet infrastructure, such as Cisco Systems, 3Com and Bay Networks.

Their new company, yet to be named, will also be competing directly with companies such as the Hawaii-based Digital Island, which has been attracting corporate customers with its bottleneck-avoiding "Overnet".

BT's chairman, Sir Iain Vallance, said customers would believe that a company backed by itself and AT&T would deliver. "I believe we are going to be the prime player in this market," he said.

Business applications the telcos promise include:

  • Highly secure, global virtual Intranets and associated IP-based applications.

  • Multimedia networks with point-to-point and multicast data, video and audio capabilities.

  • New communications services to support the traveling executive and allow virtual meetings to take place with anyone, anywhere.

But the explosion of growth in electronic commerce, estimated to be worth $220bn in 2001, is at the heart of a strategy targeted at becoming the carrier of choice for the transactions of the future.

And the partners are trying to ensure that the Internet industry does not steal a march on them in future by investing $1bn in American businesses involved in high technology and emerging communications markets.

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