10, 9, 8, 7, 6, 5 . . .

Long-distance companies keep popping up out of nowhere, and rates keep plunging. While the biggest players were still touting 10 cents a minute, Tel-Save Holdings made a splash with its offer of nine. Qwest entered the game at 7.5. A number of newcomers soon began offering services for little more than five. Now, I-Link says there's no reason to stop there. It announced a rate of 4.9 cents a minute. We'll see how long that remains the industry low.

The plunge is, in fact, not that surprising. The computer industry has for decades followed Moore's Law, which says the cost of computing power will drop 50% every 18 months, and phone switches are just specialized computers.

The real issue is that it's taken so long for prices to go into free fall. Now, companies are making up for lost time.

Companies such as Qwest and I-Link have set up their phone systems to be more like the Internet, which is a relatively dumb network that links smart computers and that takes advantage of Moore's Law faster than phone companies can upgrade their enormously expensive switches. Qwest and I-Link use a technique known as packet switching that is the distinguishing feature of the Internet's architecture. I-Link even routes part of its calls over the Internet.

"We don't have to undertake the enormous and time-consuming expense of installing a completely new nationwide infrastructure," says John Edwards, I-Link's chairman, "because we can leverage other existing physical facilities."

Regulators may still slow the newcomers. Companies that route calls over the Internet have so far been able to avoid some of the fees that telephone companies pay—for instance, to cover service in rural areas, where it's unprofitable to run and maintain lines. So, regulators are talking about leveling the playing field by forcing companies such as I-Link to pay their fair share of such fees. Some of their price advantage may disappear.

Still, with the logjam on phone prices breaking, a few years from now we may not be able to believe we ever paid as much as 4.9 cents a minute for calls.


IN CONTEXT

"I tell people—and I believe it firmly—that we are at the Kitty Hawk stage of electronic commerce. We know 2% of what we will know 10 years from now."
—Jeff Bezos, founder, Amazon.com


HIRE THE CHILDREN

A foundation run by US West is spending $1.9 million to have kids teach adults how to use personal computers and to navigate the Internet.


THE CRYSTAL BALL

As traffic continues to flow onto the Internet, research groups are finding some expected consequences—plus a few surprises.

• A study by Killen & Associates projects that 40% of auto loan originations will move to the Internet by 2005.
  
  
• Dohring found that the number of people willing to purchase a car through the Internet without even a test drive more than doubled over the past year, rising from 4% to 10%. The firm found that 38% of people aged 35 to 49 said they would use the Internet during the car-buying process.
  
  
• Odyssey reports that the number of U.S. households making an on-line purchase reached seven million in the second half of 1997, more than double the year-earlier number. The 1997 figure represented 30% of households with an Internet connection, Odyssey said.
  
  
• The Irish Internet Association says females now account for 31% of the on-line population, up from 25% last year.
  
  
• A study by Catholic U.S. bishops found that the Catholic church is using the Internet to recruit priests, brothers, and nuns. The study found almost 90 Web sites dedicated to the purpose and reported that numerous religious orders have found recruits over the Internet. "If Jesus were walking the earth today," Bishop Paul Loverde said, "I'm convinced He would have an e-mail address."
  
  

FREE THE PERSONAL COMPUTER

It started with toasters. Banks used to give them away when patrons opened accounts. Then, wireless phone companies modified the idea and began handing out free phones. Now, Internet service providers are talking about giving away personal computers.

Wholesale prices for used and older PCs are low enough that the service providers can snatch them up and, if necessary, refurbish computers powered by a Pentium or 486 chip. The companies will recoup their money over time through fees, because they will make customers sign long-term service contracts in return for the free PCs. Maybe more importantly, service providers will bring onto the Internet a new wave of users, who might otherwise not have been there. And those new customers will attract others, given that the growing reach of the Internet is what keeps drawing more people to it.

If the idea takes off, its proponents think, the Internet could soon be flooded not only with browsers but actual electronic shoppers.


OOPS!

"Back in 1991, industry analysts projected that by now there would be only 34 million mobile phone subscribers."
—Harvey White, president. Qualcomm


CONSULTANT—GAG THYSELF

Making the rounds on e-mail earlier this year was this list of comments you'll never hear a consultant say. At least not any of the ones we know.