In a move that looks a bit cannibalistic, SBC Communications Inc. (NYSE: SBC) announced last week that it would begin offering residential VOIP service in early 2005, a move that will likely undercut the telecom giant’s own traditional phone services.

The big question here is: Will there be any suprises? So far, the answer appears to be no, as SBC is largely just catching up to the competition. Verizon Communications Inc. (NYSE: VZ), BellSouth Corp. (NYSE: BLS), Qwest Communications International Inc. (NYSE: Q), and AT&T Corp. (NYSE: T) all have announced VOIP initiatives, each in various stages of implementation. Most have developed their VOIP systems in the enterprise arena and later migrated into the residential space, which is the pattern SBC is following.

SBC sees the move as a way to offer next-generation services to its customers, expanding its lineup, and retaining those customers who want to be on the cutting edge. It can also bundle products to offer price savings.In announcing the service, SBC executives have touted the need to include it in a more flexible portfolio of services. But it's more likely they really have to do it because the whole world is doing VOIP.

"By adding VOIP to our extensive consumer product lineup, we gain more flexibility to create an array of innovative and integrated service bundles,” SBC COO Randall Stephenson says in a release announcing the service.

It's true that with VOIP, SBC appears to have most bases covered, including wireless, broadband, video, WiFi, VOIP, and traditional local and long-distance services.

SBC’s VOIP service is currently undergoing testing by DSL customers in Los Angeles, Dallas, Chicago, and San Antonio, and is scheduled to be available to all the company’s broadband customers. The service boasts voice calling, as well as a Web portal with “find-me,” enhanced “do-not-disturb” features, and “click-to-call” capability that lets customers place calls from their computers. It will also have popular calling features, such as voice mail, call forwarding, call waiting, caller ID, and three-way calling -- all mainstays of SBC’s traditional phone service.

So what do the VOIP insurgents say? Jeffrey Citron, chairman and CEO of pure-play VOIP company Vonage Holdings Corp., says that having SBC and other carriers roll out VOIP offerings helps validate the space. “With SBC announcing its offering, every major carrier has now announced its VOIP intentions,” Citron says. “We welcome SBC into the VOIP space and think they have done a fine job with their enterprise VOIP strategies, like their win at Ford. But there is a big difference between business and residential services.”Citron says since SBC hasn’t revealed many details about its service, he couldn’t really comment on its strategy. He did say the move could be seen as a defensive maneuver to help reduce churn from SBC’s traditional switching business. But overall, he did not seem concerned.“We have more than 300,000 users and lead the VOIP field,” Citron says. “We’re adding about 30,000 more a month and we’re going to continue offering quality service and a quality user experience for all our users.”

Now that SBC has completed the trifecta of RBOCs that have entered the VOIP business, it's become clear more than ever how commonplace the technology has become.

According to a report authored by Merrill Lynch & Co. Inc. analysts Tal Liani, Vivek Arya, and Pat Chiefalo, carrier VOIP represents the fastest growing segment of the global telecom equipment landscape. And while the Merrill Lynch analysts expect legacy switching vendors to dominate the future market, they predict that carrier VOIP growth will not offset the declines in circuit switching. “In 2004, we estimate the circuit switch equipment market is $9 billion, while VOIP is less than 10 percent of that amount,” the authors write. “By 2008, we expect the circuit voice market to decline at an annual rate of 10 percent, to $5.9 billion, while the VOIP market grows at a 51 percent rate to $4 billion. These two trends will offset each other to produce a relatively flat overall voice equipment market in the next four years.”

SBC’s VOIP announcement comes on the heels of another ambitious initiative, Project Lightspeed. Unveiled earlier in the month, Project Lightspeed is its plan to build a fiber optic-based network using IP technology to deliver digital TV, VOIP, and super high-speed broadband services to 18 million customers in two to three years (see SBC Sheds Light on 'Lightspeed').— Chris Somerville, Senior Editor, NGS