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There’s Rough Terrain Ahead as AT&T, TCI Move to Offer Local IP-BasedPhone Service, Bundled Offerings

Posted: 08/1998

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There’s Rough Terrain Ahead as AT&T, TCI Move to Offer Local IP-Based
Phone Service, Bundled Offerings

By Paula Bernier and Ken Branson

Following their proposed merger, AT&T Corp. and Tele-Communications Inc. will be
able to offer long-distance services, wireless, cable TV, Internet service and the @Home
online service (including access via high-speed cable modems) and, of course, local phone
service.

That impressive palette of services, paired with the AT&T name (these services will
be offered under the name AT&T Consumer Services following the merger), would seem a
venerable threat to other, smaller carriers such as the competitive local exchange
carriers (CLECs). And it very likely will be.

But it’s not all going to happen at once. The future AT&T Consumer Services says it
will step up the upgrade of TCI’s cable plant, but it will take time to integrate the two
organizations’ networks, including billing and customer care systems, and their personnel.
Engineering and maintaining the cable network to support voice will also be a major
challenge, although AT&T executives and engineers are trying to downplay that fact.

"The period of invention is over," says Dave Nagel, AT&T Labs president
and AT&T’s chief technology officer, explaining that AT&T has been working
internally and with the cable TV industry on how to offer two-way services over cable TV
networks.

Yet despite owning coaxial cable that reaches into 23 million U.S. households, TCI now
only offers circuit-switched local phone services over its cable plant to 500 customers.

Of course, with the recent move from proprietary to IP-based telephony systems, cable
companies and their vendors have had to make a sudden change in course as far as equipment
and technologies. And TCI’s move to offer both circuit-switched and IP-based voice
services over its cable network will be expedited as a result of its deal with AT&T.

But only about 10 percent of the homes within TCI’s territory are capable of supporting
two-way services such as voice and Internet access today. Offering two-way services over
cable TV systems requires the installation of new, two-way amplifiers within the network,
and fiber needs to be driven closer to customers, so each fiber node services about 500
homes (as opposed to the standard 1,000- to 2,000-home fiber nodes for today’s one-way
cable networks). AT&T says TCI’s newly upgraded two-way plant will pass 59 percent of
the households in TCI’s serving areas by the end next year and 90 percent of those
households by the end of the year 2000. That upgrade is expected to cost $1.8 billion,
with TCI expected to have already spent $500 million of that total by the time the
AT&T deal closes.

But that’s just for circuit-switched telephony. Packet-based telephony, which will
allow more efficient use of network bandwidth and more integration between voice and data
for new user applications, will require an advanced set-top box to support digital
telephony as well as high-speed data. AT&T expects to offer IP telephony and
high-speed data services to most customers in TCI’s serving area by the end of the year
2000, with the possibility of some customers getting service as early as 1999.

It will cost AT&T about $175 per video subscriber to provide the first generation
of digital set-top boxes, which will not support IP telephony, to its subscribers. Adding
IP telephony capability to that down the road is expected to result in total network costs
of $400 to $500 for new system subscribers with existing set-tops and $300 to $400 for
existing customers of the video services.

In addition to its years of experience with the circuit-switched network, AT&T
offers a significant purse and experience with IP telephony (AT&T WorldNet offers
residential customers long distance IP telephony service in San Francisco, Boston and
Atlanta). But offering local service, in which reliability for lifeline services is
paramount, over a cable plant remains a big challenge. For example, AT&T plans to
power phone lines through set-top boxes, backed up by home-based battery units. But that
would seem to be a tricky proposition to ensure all the home-based battery backups in a
several thousand home cable system are working in case of a power outage, for example.

Teleglobe to Acquire Excel

Canadian carrier Teleglobe Inc. intends to acquire Excel Communications Inc. for $3.1
billion in stock to create the fourth-largest long distance company in North America. The
merged phone company would employ about 4,800 people serving more than 275 carriers
worldwide, 109 Internet service providers (ISPs), nearly 6 million residential customers
and some 65,000 business customers, according to the companies.

"This merger unlocks value for shareholders of both companies. Combining
Teleglobe’s global reach and its portfolio of products and services with Excel’s marketing
savvy and its proven distribution system is a perfect fit that satisfies each company’s
greatest strategic needs," says Charles Sirois, chairman and chief executive officer
of Teleglobe.

The combined company will be named Teleglobe Inc. and will be headquartered in
Montreal. Its global telecommunications operation will remain in McLean, Va., and Excel’s
existing operations will continue to be directed from Dallas, according to the companies.

"This is a perfect strategic fit," says Kenny Troutt, chairman, chief
executive officer and president of Excel Communications Inc. "The combination of
Teleglobe’s global network and licenses with our strong distribution channels will create
a global player that can market a host of products, including Internet access, calling
cards, prepaid calling cards and operators services to residential and commercial
customers in the United States, as well as in an increasing number of other countries as
they open their markets to competition."

But some industry experts say Excel’s distribution system–based on multilevel
marketing–won’t wash in foreign countries.

"It’s counterculture, and you can’t remove culture from the way sales are
handled," says Richard P. Nespola, president of The Management Network Group, a
telecommunications consulting firm based in Leawood, Kan. "You won’t get any take
rate. People in France, Hungary and Spain don’t buy telephone service off the street
corner like here in the United States."

Nevertheless, Nespola thinks the merger is a good move and lifts Teleglobe up the food
chain: "The telephone guys will make the Excel model work."

The boards of directors of both companies obviously agree, having unanimously approved
the merger, which is subject to approvals by U.S. and Canadian authorities as well as
other closing conditions.

Upon completion of the merger, Sirois will serve as chairman and chief executive
officer. Kenny Troutt will become vice chairman, president and chief operating officer,
and remain as chief executive officer of Excel Communications. Paolo Guidi will continue
as chief executive officer of Teleglobe Communications Corp.

Revenue Enhancements and Operating Synergies Resulting from the
Merger

  • Global network and operating licenses in 18 countries, which will provide a platform for
    the geographic expansion of Excel’s relationship marketing channels into new geographic
    markets.
  • The introduction of Teleglobe’s products and services–such as international long
    distance, operator services, calling cards, Internet connectivity and international
    business services–to Excel’s existing customer base.
  • The integration of Teleglobe’s global and Excel’s U.S. network to reduce international
    and U.S. long distance termination fees currently paid by the companies to other networks.

CALEA Issues Loom Large

By Carol L. Bowers

The U.S. House of Representatives at least has recognized that it will be nearly
impossible for telecommunications carriers to meet requirements of the Communications
Assistance for Law Enforcement Act (CALEA) until 2000, in part because those requirements
remain in dispute.

Carriers say they are willing to work with law enforcement agencies to conduct
court-ordered wiretaps and some technical standards have been agreed upon. Still, a
so-called "punch list" of nine items requested by the Federal Bureau of
Investigation (FBI) on behalf of the Department of Justice (DoJ) still are in dispute.
Carriers of all types claim the FBI and DoJ want more network access than the law calls
for, access that also is questioned by privacy groups, and, as a result, Attorney General
Janet Reno has asked the Federal Communications Commission (FCC) to step in and resolve
the standards dispute.

In the meantime, industry associations including the Telecommunications Industry
Association (TIA) and the United States Telephone Association (USTA) have been fighting
for an extension of the deadline by which companies will be expected to comply with the
law. TIA had argued in a May filing with the FCC that the already agreed-upon standards
are "valid" and that the FCC needed to provide a "reasonable transition
time" for a transition should the FCC mandate a different technical standard.

In late June, the House passed a spending authorization bill for the DoJ that included
language changing the CALEA compliance date to Oct. 1, 2000. The bill also grandfathers as
compliant any equipment installed prior to that date. By our deadline, the Senate had yet
to consider the House measure; all spending bills must originate in the House.

FCC Reduces Size of Universal Service Fund

By Carol L. Bowers

Even as the Federal Communications Commission (FCC) reduced the size of the portion of
the Universal Service Fund that will be used to help wire the country’s schools, libraries
and rural health centers for Internet access, Chairman William Kennard began a campaign to
resell the initiative to Americans.

"Today’s actions respond as fully as possible to the concerns voiced by Congress,
yet reflect my unshakable commitment to implementing the Telecommunications Act’s
directive that schools, libraries and rural healthcenters are afforded access to
communications," Kennard said in announcing the changes in early June. He then went
on a campaign trail, addressing the annual conference of mayors and touting the benefits
this portion of the universal service program will bring to their communities.

Dubbed the "e-rate"–a takeoff on the "E" tickets once issued for
Disneyland’s best rides–the program to get schools, libraries and rural health centers is
aptly named because getting them on the Information Superhighway so far has been a bumpy
ride.

First, the commissioners agreed to change the organizational structure combining into
one the two administrative companies it formed to run the program–corporations the
General Accounting Office says the agency had no authority to create in the first place.
Then, the agency cut the salaries of the chief executive officers of the program, after
members of Congress expressed outrage at the remuneration.

Finally, the commission directed the Universal Service Administrative Co. (USAC) to
collect and disperse no more than $650 million in the last six months of 1998 and the
first and second quarters of 1999. The FCC also says funding collected for the fund would
be three-quarters of 1 percent of total telecommunications revenues. The rural health care
contribution level was set at no more than $25 million per quarter for the third and
fourth quarters of 1998.

The Universal Service funds, originally to be administered by the USAC, the Rural
Health Care Corp. and the Schools and Libraries Corp., now will be administered by the
USAC, which must submit a joint plan of reorganization.

Kennard also took aim at long distance and other carriers who have begun listing the
item on consumer telephone bills. "I’m also proposing ‘truth-in-billing’ to require
carriers to tell consumers the whole truth about their phone bill," he said in his
statement. "The truth is long distance rates have never been lower and the e-rate
will not cause any consumer’s rates to increase."

The e-rate notation on some companies’ bills has raised the ire of both Congress and
the FCC, not to mention customers, but the companies maintain that while universal service
contributions previously were included in the overall rates charged for long distance
service, those contributions primarily were aimed at providing affordable service in rural
and high-cost areas. The companies have argued that funding the e-rate program is an added
expense that should be passed through to customers. Kennard’s speech to the country’s
mayors and other recent remarks are clearly attempts to reduce consumer backlash over the
separate line-item.

BTI Sees the Light

By Bob Titsch, Jr.

BTI Telecom Corp., an integrated telecommunications service provider throughout the
Southeast, lit the first leg of its new East Coast fiber optic network from New York to
Washington. The network is a self-healing synchronous optical network (SONET) ring
featuring OC-48 (2.5 gigabits per second) transmission equipment and dense wave division
multiplexing (DWDM) technology.

"This is yet another key step in our strategic plan to build a 21st Century
telecommunications network," says Mike Newkirk, president of the Raleigh, N.C.-based
carrier. "It gives us the control and capacity to better serve our expanding customer
base and aggressively grow our local dial tone, long distance, high-speed data, frame
relay, Internet access and paging businesses as well as our wholesale business to other
carriers."

The long-haul network complements BTI’s local buildout across the Southeast, where it’s
deploying a number of 5-ESS digital switches from Lucent Technologies in strategic local
exchange markets.

The switches are up and running in Raleigh, Greensboro and Charlotte, N.C. Two more are
being installed in Atlanta and Orlando, Fla., and are expected to be turned up by the
third quarter of this year. Additional switches are scheduled for delivery in other
southeastern cities this fall and in 1999, according to Newkirk.

"BTI’s model is significant for the long distance community," states Casey
Freymuth, president of Group IV, a Phoenix-based research and consulting firm. "It’s
on track to become the first super regional carrier to emerge from the long distance side
of the house."

GST Turns Up Long-Haul Network in California

GST Telecommunications Inc. strengthened its presence in the $11 billion California
telecommunications market by turning up its 500-mile fiber optic network, linking together
the competitive local exchange carrier’s (CLEC’s) San Francisco, Fresno and Los Angeles
fiber optic networks.

"GST stands well-positioned to capitalize on California’s profitable
telecommunications market. Sixty percent of California’s long distance traffic is
intrastate and 40 percent of worldwide Internet traffic originates and/or terminates in
the state," comments Joseph A. Basile, Jr., president, chief operating officer and
acting chief executive officer of GST. "This network represents a significant
milestone in our long-term strategy to link our local operations and provide integrated
service throughout the western United States. GST’s seamless fiber optic connectivity from
San Francisco to Tucson allows us to manage access and transport costs while providing
leading-edge voice and data services on our own facilities."

In addition to local and long distance service, the network enhances the reliability of
high-speed Internet access, data services and the transfer of video and digitized graphic
images, according to Basile. To accommodate the large data demand of California
businesses, GST has deployed CIENA’s dense wavelength division multiplexing (DWDM)
equipment to expand its fiber optic capacity. The DWDM technology divides a single
wavelength into multiple channels, significantly increasing the capacity of the fiber and
expanding bandwidth without the additional expenses of adding more fibers.

GST has been aggressively building network in California. Earlier this year, the
carrier turned up six Northern Telecom Inc. (Nortel) DMS 500 voice switches in California,
and provides local telephone service throughout most of the state. GST first established a
presence in California’s secondary markets by building fiber networks in areas adjacent to
the major metropolitan areas of San Francisco and Los Angeles. The development of
infrastructure throughout the East Bay area and the Inland Empire facilitated GST’s
entrance into the tier-one cities.

"As expected, the demand for fiber optic facilities has been significant in this
telecommunications-rich state. Recognizing that demand, we’ve built the necessary
statewide infrastructure and have already turned up our first customer on the newly
completed network and are provisioning additional customers. It’s obvious that GST’s
500-mile route has met a critical demand."

FCC Puts Brakes on Ameritech-Qwest Joint Marketing Agreement for 90 Days

The Federal Communications Commission (FCC) has stopped one of the first end runs
around the Telecommunications Act of 1996 in its tracks–at least temporarily–by ordering
Ameritech Corp. to stop marketing local telephone service packages that include a
discounted long distance component provided by Qwest Communications International Inc.

In a rare unanimous decision, the commissioners said their obligation "is to
ensure that the competitive landscape is not changed in ways that violate" the
Telecom Act. "Because the commission has not previously addressed the issues raised
in connection with this agreement, it concluded that these issues must be decided before
there are any lasting effects resulting from this arrangement."

Specifically, the five commissioners said they were concerned about portions of the act
that restrict regional Bell operating companies’ (RBOCs’) entry into the long distance
market and said Ameritech and Qwest must stop the joint marketing for 90 days while they
decide if the practice is legal. Customers who already receive the service will not be
affected by the "standstill"; no new customers may be enrolled.

Both Ameritech and US WEST Communications Inc. have joint marketing agreements with
Qwest, and the three companies have defended the deals as legal because neither RBOC
actually is providing the long distance service itself. The deals were challenged in court
by AT&T Corp. and MCI Communications Corp., but federal judges in Chicago and Seattle
remanded their respective cases to the FCC, with the Seattle judge ordering US WEST to
stop marketing the service. Qwest has filed to intervene in the lawsuits and the FCC case.

Congress Urged to Review Telecom Act

By Carol L. Bowers

A repetitive theme is emerging in the testimony before key Congressional committees
this season: There may be a need for Congress to tinker with the Telecommunications Act of
1996 after all, or at least offer some supplements in the antitrust area.

The latest chorus of pleas for help in the industry came in a recent House Judiciary
Committee oversight hearing convened to look at antitrust issues in the marketplace.
Committee Chairman Henry Hyde has expressed growing concern regarding antitrust issues
raised by the proposed MCI Communications Corp. and WorldCom Inc. merger on the long
distance side, and SBC Communications Corp. and Ameritech Corp. on the competitive local
exchange carrier (CLEC) side. Several groups urged Congress to step in to stop those
efforts.

"Policymakers must be wary of permitting any more consolidations among the local
monopolies," said Focal Communications Corp. President and CEO Robert Taylor, who
spoke on behalf of the Alternative Local Telecommuni-cations Services Association (ALTS).
He described the CLEC industry as "a David against Goliaths."

"Congress should send a message to those responsible for enforcing the act that
Congress firmly supports them and continues to believe in the benefits of
competition," Taylor says. "The second best way Congress can help is to require
a complete separation and full divestiture of the regional Bell companies’ wholesale and
retail functions." Such a requirement, of course, also would likely have the effect
of eliminating barriers to RBOCs’ long distance entry.

Not surprisingly, executives from SBC and WorldCom defended their rights to merge, with
WorldCom President and CEO Bernie Ebbers insisting that his company’s arrangement would
bring more competition, not less.

"On day one after closing, MCI WorldCom will be operating in over 100 U.S. local
telephone markets as a facilities-based CLEC with the scale and scope to challenge the
major local telcos," Ebbers says. "The newly merged company will have a greater
chance at succeeding with a nationwide local facilities-based strategy than either of its
predecessor companies would have had alone."

New Millennium Communications to Purchase ConQuest Operator Services

New Millennium Communications Corp. has signed a definitive agreement to acquire
Dublin, Ohio-based ConQuest Telecommunications Services Corp. from SmarTalk Teleservices
Inc. for $18 million.

ConQuest provides operator-assisted and long distance services to the hospitality
industry, including franchisees of Holiday Inn, Ramada Inn, Comfort Inn and Days Inn. The
company also supplies enhanced call processing services to long distance carriers and
resellers.

"This [acquisition of New Millennium Communi-cations Corp.] creates an optimal
business relationship, allowing New Millennium to integrate another key ingredient in its
corporate business strategy," says Edward St. Croix, president and chief executive
officer of New Millennium. "The hospitality industry has been the beneficiary of a
strong economy. Supplying value-added services to this sector will allow us to participate
in the market’s growth."

News Briefs

How Low Can LD Go?

I-Link Inc., an enhanced voice and data communications company, is now providing long
distance rates as low as 4.9 cents per minute to customers in the Phoenix metro area. The
rate is available 24 hours a day, seven days a week to I-Link’s V-Link subscribers whose
long distance calls both originate and terminate in calling areas connected to I-Link’s
enhanced network. These V-Link local access areas include calling areas located in the
metro market surrounding Phoenix as well as the metro markets of Dallas/Ft. Worth,
Houston, Los Angeles/Orange County and Salt Lake City. For V-Link calls that originate in
a V-Link local access area and terminate anywhere else in the continental United States,
rates are 6.9 cents per minute.

MCI is Dedicated to ICG Netcom

ICG Netcom has signed a five-year agreement with MCI to be its designated provider of
dedicated access services in eight markets throughout the United States.

As the MCI designated provider, ICG Netcom is granted the right of first refusal for
all of MCI’s dedicated local network and end user access circuits that MCI obtains from an
unaffiliated third party over the next five years.

That essentially means MCI will look to ICG Netcom first to purchase high-volume
bandwidth connectivity such as T1, T3, DS-1 and DS-3, depending on the number of customers
it turns up in the following markets: Cleveland, Akron, Columbus, and Dayton, Ohio; as
well as San Diego, Denver, Charlotte, N.C. and Rock Hill, S.C.

Sempra Energy Solutions, The Furst Group Partner to Offer LD

Sempra Energy Solutions, a local affiliate of Southern California Gas Co., has
partnered with The Furst Group to offer discounted long distance telephone service to
residential consumers and small businesses throughout Central and Southern California.

"Consumers want options when it comes to long distance service, but they also want
to go with a company they trust to provide quality service," says Tom Sayles, senior
vice president of Sempra Energy Solutions. "We intend to be that company."

Ness Thinks FCC Needs to Take Better Care of Consumers

In Congressional hearings on the reauthorization of the Federal Communications
Commission (FCC), Commissioner Susan Ness told members of the House Commerce Committee
that she believes the agency must "escalate" its efforts to prevent slamming,
cramming and "other consumer abuses."

"To this end, we may need to consider establishing an Office of Consumer Affairs
to ensure that these kinds of problems are given priority treatment," Ness said.
"It is imperative that the commission respond immediately to consumer fraud and
abuse."

She also told members of Congress that the agency welcomes their efforts to create
stronger consumer protection through legislation.

John Fudesco Memorial Fund Established

A memorial fund has been established to assist the children of John Fudesco, vice
president of sales for Atlas Communications Ltd. who passed away suddenly in May.
Donations may be sent to:

John Fudesco Memorial Trust Fund
2176 Buttonwood Road
Berwyn, PA 19312
For more information, contact Atlas Communications at (610) 940-9049.

Accutel Selects Info Directions System

Accutel Communications has selected CostGuard, a Windows 95/NT rating, billing and
customer care software solution to support the company’s client base.

"This software gives us complete control over our business," says Donna Kim,
vice president of operations at Accutel. "We like CostGuard’s advanced features such
as Internet billing. Sending invoices via the Internet keeps us ahead of our
competition."

Three-Digit Access Codes Are Running Out

As of July 1, accessing preferred long distance carriers by dialing 10-XXX (where XXX
is the carrier’s access code) requires an extra 10 to complete the call. Under the new
format callers must dial "10-10-XXX" plus the area code and seven-digit phone
number.

The new expanded code will be required to reach preferred carriers from business or
home phones, from cellular or payphones or when faxing or dialing from a computer. Dialing
without the extra 10 will route the caller to an announcement with a reminder of the
change.

The new dialing code will be required for customers of Bell Atlantic’s corridor
services between Northern New Jersey and New York City and Southern New Jersey and the
Philadelphia area. Starting Wednesday, callers using these services must dial
"10-10-NJB" to call New York or Pennsylvania from New Jersey,
"10-10-BPA" to call New Jersey from Pennsylvania and "10-10-NYT" to
call New Jersey from New York.

Due to the proliferation of carriers as a result of competition, the supply of
three-digit access codes is about to run out. In July, the access code itself became a
four-digit code. However, switching equipment requires the addition of an extra
"10" to properly route calls through the telephone network. In the future, the
second "10" will become "11," "12," "13," etc., as
additional codes are needed.

ACTA Prepares for Fall Conference

Although the end of summer nears and temperatures will begin to drop, the
telecommunication industry remains as hot as ever. In this constantly evolving industry it
can be difficult to stay informed.

The America’s Carriers Telecom-munications Association (ACTA) XXVIII conference and
trade show, scheduled for Aug. 30 through Sept. 2 in Chicago, will provide an opportunity
for people involved in the telecommunications industry to observe, test and gather
technical information including the latest equipment, billing and network configuration.
In addition to the information provided by 100 exhibitors, ACTA will sponsor the following
educational seminars: Convergent Technology, Year 2000 Compliance, New Universal Service
Fees, Revisited/ Restructured Access Charges, Dial-Around Compensation, Interconnection
Strategies and Financing Opportunities for Telecom and several others.

ACTA’s previous conference was held April 26-29 in Colorado Springs, Colo., and
included several informing seminars and a keynote address by Mike Shanahan, head coach of
the Super Bowl champions the Denver Broncos.

"It was a great success and participants enjoyed the many exhibits and sponsored
events," says Jennifer Durst-Jarrell, executive director of ACTA.

Bell Atlantic Constructing Long-Haul Data Network

Bell Atlantic has begun construction of a next-generation, packet-switched long
distance network to provide a regional platform for data communications for customers
across the Bell Atlantic region, the nation and the world, the company says.

While deployment of services over the network depends on regulatory approvals, the
first of which are expected to come in the next six months, Bell Atlantic has selected
Lucent Technologies under a five-year contract, valued at more than $200 million, to
supply equipment and software for the East Coast network components and to integrate
several of the new network’s systems.

The market for data services in the region is expected to double and possibly triple to
between $80 billion and $90 billion a year by the year 2003. The new network will provide
high-speed transport services; platform services such as Internet access and backbone
transport; and a complete range of value-added applications such as virtual private
networks (VPNs), Intranets/extranets, electronic commerce and videoconferencing.

"Bell Atlantic will be able to provide state-of-the-art solutions for the data
communications needs of its major customers headquartered in the northeast and
mid-Atlantic states and the hundreds of colleges and universities in the region with this
network," says Joe Farina, president and chief executive officer, Bell Atlantic Data
Solutions Group. "Bell Atlantic is determined to stay ahead of its customers as their
data needs expand and develop regionally, nationally and globally."

The new network will incorporate advanced asynchronous transfer mode (ATM), synchronous
optical network (SONET) and wave division multiplexing (WDM) technologies. Lucent’s
OneVision software will provide advanced administrative and operations support system
(OSS) capabilities that will enable rapid service provisioning and enhanced network
management. The use of this technology means the carrier will have the flexibility to
deliver bandwidth-on-demand, enabling it to tailor data services to meet a customer’s most
exacting requirements.

The initial deployment will connect hubs in Boston, New York, Philadelphia and the
Washington area. Data routing hubs will be extended to serve all markets in the Northeast
and mid-Atlantic region during the course of the next two years and eventually to other
cities across the United States, according to the company.

BroadPoint to Enhance FreeWay LD Service

By Jennifer Knapp

In June, PHONE+ announced Duquesne Enterprises Inc., a wholly owned subsidiary
of DQE Inc., began signing on customers for FreeWay, its sponsored long distance service
program (PHONE+, June, page 20).

Duquesne made the leap into sponsored communications with an equity stake in BroadPoint
Communications Inc. (www.broadpoint.com), the
company responsible for the patent-pending FreeWay technology. Subscribers to the FreeWay
service listen to 10- to 15-second advertisements in exchange for a corresponding amount
of free long distance calling time.

While sponsored long distance is relatively new to the market, sponsored services hold
a successful track record with e-mail, as demonstrated by Hotmail (www.hotmail.com), for instance. E-mail services are
provided for free to Hotmail subscribers who are exposed to paid advertising on the
Hotmail site. The acquisition of Hotmail by Microsoft Corp. in December 1997 speaks to the
success of the service, which offers high-quality communications for free.

BroadPoint intends to enhance FreeWay to the benefit of both subscribers and
advertisers through the development of direct response mechanisms such as links to 800
numbers and cut-thru, wherein a subscriber can press a series of numbers and go directly
to a call center for further information or a direct connection to the advertiser.

"We will expand the FreeWay concept to cellular, screen phones, video telephony,
international/local calling and certainly opportunities for domestic calling in
international markets," says Perry Kamel, president and chief executive officer of
BroadPoint.

The company opened the doors on a collaboration with a Malaysian technology group in
June, "with a mission to bring new and innovative technology to Malaysia and other
countries within the Pacific Rim," says Kamel. Through partnerships with companies
such as Duquesne, BroadPoint intends to expand its subscriber base substantially
throughout the next year, which pleases current advertisers on the FreeWay system, such as
the Vermont Teddy Bear Co., Shelburne, Vt.

"We have been on the system for a couple of months and we have seen a positive
response," says Irene Steiner, marketing manager for Vermont Teddy Bear. "And,
as [BroadPoint’s] customer base grows, we’re sure that response will grow."

"Personally, I think it is great," says subscriber Richard Schachte.
"Before it was always, long distance, long distance, long distance. Now it’s long
distance, but somebody else is paying for it via advertising. It’s a paradigm shift."


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