Telecom threat: New technology could shake up the telecom market--and Telmex knows it.

Telmex, beware. With the sudden arrival of VOIP (see box) in Mexico, suddenly it doesn't take a multi-billion-dollar network to place a customer's long-distance call, opening the door for more competitors to Telmex, the nation s former telephone monopoly.

The ease of becoming a long-distance company using the Internet is enticing:

"It doesn't take much more than a few analog (telephone) lines, a T-1 (high-speed data wire), and a connection to the Internet. Hell, we could do it on a shoestring ... have a million bucks in your back pocket?" a telecom consultant pitched to this BUSINESS MEXICO reporter.

That's a bit much on a reporter's salary, but an investment of that size is peanuts compared to Telmex's US$26.5 billion market capitalization.

If VOIP is cheap for operators, what about for consumers? Well, prices start at FREE (that's not another acronym, that's zero cents a minute) for low-quality calls using services such as Yahoo! Chat between computers that have speakers, microphones and Internet connections. A middle road is phone-to-phone calls through VOIP long-distance companies that offer good quality U.S.-Mexico connections at around 10 U.S. cents a minute. A recent survey by telecommunications research firm TeleGeography shows Mexico as the top destination for international VOIP calls from the United States, with 35% of all calls. (The no. 2 destination is China, with 7%.)

The technology also allows companies with multiple offices to run phone calls alongside their emails and other data, on dedicated data pipes between sites, at a much cheaper cost than circuit-based calls.

In the face of these low-cost competitors, Telmex residential daytime long-distance rates to the United States hover around 60 U.S. cents a minute. It's no surprise that national and international long-distance calls continue to be the company's no. 1 and no. 2 profit sources--but as competition heats up, how long will those profits last?

Illinois-based GlobalNet plans to acquire one of the 20 country-wide long-distance concessionaires in Mexico, which would pave the way for the company to establish the first fully Internet Protocol (IP)-based telecommunications network in the country. Mexico's scrappy no. 4 long-distance carrier Pronet offers IP calls as well, through a partnership with U.S. IP company iBasis.

But Telmex is no sleeping giant when it comes to smelling danger. For now, the company's Prodigy Turbo Internet service contract contains an intimidating but not enforced clause that threatens to cut the connection of any user who makes Internet phone calls. But the company estimates it has some breathing room before it really has a challenge to face. Arturo Elias Ayub, the company's Communication and Institutional Relations director, says VOIP could change the face of long-distance calls within five to 10 years.

"Telmex is focusing strongly on a more complete data strategy, which along with other things, is going to merge with long distance (calls)," he told local press.

With its biggest money-maker at risk, you can bet that focus will be intense.

* RELATED ARTICLE: What the heck is VOIP?

If you haven't heard of it already, add VOIP (Voice Over Internet Protocol) to your alphabet soup of technical jargon. It's a means of breaking up a phone call into a bunch of little digital bits that can then be routed much more efficiently--and cheaply--than the regular circuit-based calls thatwe all used to make back in the 20th century. If you're getting lost, just think 10 to one: You can have 10 times as many phone calls going across the same wire if you use the new VOIP instead of the old circuit technology. Old-school calls are called circuit-based because they open up a circuit between the two callers, a back-and-forth electronic loop that is dedicated exclusively to them. The exclusivity of the connection makes circuit calls clearer, but with enough bandwidth a VOIP call sounds pretty good-and the price sounds even better.