VoIP pioneers such as Vonage Inc, which boasts 75,000 pretty happy users, have been touted as revolutionary upstarts which would mortally threaten the incumbent telcos. Vonage offers cut-price telephony using your existing broadband connection for as little as $14.99 a month, and throws in features familiar to GSM cellphone subscribers, such as voicemail and caller ID, that usually carry a premium on landlines.

Advocates of the extinction theory overlooked one factor, however: all it takes for the incumbents not to be completely asleep.

"VoIP is the most significant, fundamental new technology shift in telecommunications in decades," said Death Star's Chairman and CEO David Dorman in a canned statement. "We're on the verge of a VoIP revolution," he told financial analysts this week.

AT&T already says its networks carries more IP packets than anyone else, and its vertical integration give tiny innovators like Vonage a real battle. Vonage has been teaming up with smaller cable operators to simplify the bundle for beginners, but it's likely to face a squeeze between AT&T on one side, and Sprint, MCI and Time Warner Cable on the other. At the start of the week, the three giants said they were also teaming up to provide residential Net telephony.

But the VoIP revolution may not be the starting gun for an economic recovery. AT&T confirmed that it was cutting 8,500 jobs today or 12 per cent of its workforce, up from the 10 per cent it announced earlier. That's in addition to the 3,500 jobs lost a year ago and the 10,000 lost the year before that. ®

Related Stories

AT&T pitches public WiFi at Big Biz
AT&T chops 3,500 staff, turns to Covad for DSL