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Last Updated: Thursday, 19 May, 2005, 13:23 GMT 14:23 UK
The free phone call revolution
Bill Garrett
BBC Money Programme

Until now, the phone bill has been as unavoidable as death and taxes.

Kath Wilkie
Kath Wilkie enjoyed contacting her son in the US

But millions of people are discovering how to make free calls using their computers.

New businesses offering free call services are signing up hundreds of thousands of users a day.

All you need is an internet connection and a software programme you can download for free.

The Money Programme tested the power of 'the free phone call revolution' by inviting pensioners in Edinburgh to try out one of the new so-called Voice Over Internet Protocol - or VOIP - services; Skype.

"It's absolutely marvellous," said Kath Wilkie, 82, who enjoyed contacting her son in America.

Hitting back

Internet telephony providers tend to have few staff and few overheads and make money by charging for a few additional services like answer phone.

Pensioners with an old fashioned telephone
Pensioners will soon move away from their old telephones

Their arrival presents a problem for existing telecoms companies whose main business is charging for calls.

Britain's biggest is BT, which has a turnover of almost 20bn a year, and most of that comes from renting lines into homes and businesses.

BT acknowledges that revenues from traditional services are already in decline.

BT has an ambitious and expensive plan to hit back, accepting that in future everything will revolve around the internet.

BT wants to cash in on it, and to do so the company wants to build a new network called "21CN" the 21st Century Network.

Entertainment services

The project will in effect replace the old phone network that has been with us for almost 100 years. Consequently, the traditional telephone will disappear.

John Cleese in Fawlty Towers
Stuck in the past: traditional telephone provider are struggling

"In ten years time there will be no phone connection in any of our customers' homes," says Paul Reynolds, chief executive of BT Wholesale.

There will be a broadband connection connecting our customers to a world of service possibilities.

It is clearly a risky strategy, costing BT 10bn to build, but the company feels it will bring returns through new entertainment services like video on demand.

"If you've missed Eastenders you can then go back and click the button and watch it at your own convenience," says Andrew Burke, BT's head of entertainment.

Smaller bills

BT is the first of the incumbent telecommunications networks in the world to attempt this complete re-engineering of its system.

Softbank's internet telephony service BB Phone
Internet telephony services could soon dominate the market

The work involves changing the equipment in every single exchange in the country with new internet type technology.

Analyst Neil McCartney thinks they might find that at the end of the day they don't get the benefits from it they thought they would, but adds "I think really they've got no choice".

Despite being admittedly `non-techy', the Money Programme testers all found that within a week they were hooked on this new way of contacting their friends for free - especially when they found they could call internationally, talk for as long as they wanted at any time of the day or night, and even exchange emails and pictures at the same time.

"If I had that facility when my children were young," says Bruce Northcott who was immediately struck by the financial implications of internet calls, "I wouldn't have the 150 telephone bills I used to get."

BT may have a plan for change, but the rest of the telecoms community is facing a tough change in the business landscape.

As charging for a phone call becomes part of history, so could many of the phone companies that base their business models on the phone bill.

Because of their very nature, mobile phone companies may feel they are not at immediate risk, but the co-founder of Skype, Niklas Zennstrom, already has his eyes on this next market.

Seeing high margins in mobile phone calls he says this is an area "that definitely needs some shake up".

Money Programme: The Free Phone Call Revolution, broadcast Friday 20 May at 1900.


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