I.T., Phone Home; August 1995; Scientific American Magazine; by Browning; 2 Page(s)

The Internet Phone is a bargain. A small New Jersey-based company called VocalTec has developed a way of compressing voice into digital data that can travel across the Internet. The result is an inexpensive way to make long-distance calls. Telephone companies are starting to get worried, and Internet service providers should be, too. Whatever else it may be, the Internet Phone is a harbinger of fundamental economic challenges to the Internet and the telephone companies.

Both interests have drastically different ways of pricing communications bandwidth. The Internet is built on flatrate charges. Internet providers buy and sell bulk bandwidth for a flat fee, which remains the same no matter what capacity is used. Telephone companies, in contrast, charge for usage. They make money on chatterers.