Telecoms firms across Europe, already battling high debt levels, are facing a new threat to their already fragile revenues -- the growing success of companies offering phone calls through the Internet.
Several Internet providers are now offering "Internet Voice" services at very low charges as part of all-inclusive packages that analysts believe will force the telecoms giants to adopt new tactics to preserve their fixed-line income.
"The aim is to bundle services, stop consumers comparing prices and make clients more loyal. But fundamentally, Internet Voice is a disruptive technology, just like low-cost airlines," said Cesar Zeitouni, analyst at IT Asset Management.
Internet Voice -- also known as Voice over Internet Protocol (VoIP) -- allows computer users to make calls using a broadband Internet connection instead of through a phone line.
Some services using Internet Voice may only allow calls to other people using the same service, but others enable calls with anyone who has a phone number.
To stop their clients from deserting and to prevent the extinction of fixed-line telephony, traditional telecoms firms are going to have to adapt to the challenge posed by the new technology -- and fast.
France Telecom has begun offering clients of its Wanadoo Internet arm the chance to make calls from a computer to a fixed-line telephone and promises that they will soon have the chance to receive calls too.
"High-speed Internet has trans-formed providers and they now aim to offer services such as games, Internet Voice, video-phoning and television through a domestic unit connected to the Internet," the company said.
But even if the arrival of Internet Voice constitutes a major challenge for traditional operators who count on a steady income from fixed-line operations as their cash cow, their experience means they should be ready for the fight.
"France Telecom is going to respond to defend its share of the market and its client base," Zeitouni said.
But he cautions that France Telecom must nonetheless watch out. "Chief executive Thierry Breton has serious work ahead of him -- he must change a culture that up until now has been one of traditional communication," he said.
Standard & Poor's analyst Guy Deslondes said that he is optimistic over the future of the traditional telecoms firms.
"British Telecom is looking to recoup through high-speed Internet what it has lost in traditional traffic," Deslondes said.
According to Olivier Hersent, head of a firm Netcentrex that offers Internet Voice services, the traditional firms have the financial clout to attract clients to new services centered around high-speed Internet.
"Just as DSL became a major priority for the fixed-line operators, they are prepared to invest a lot in this area," he said.
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