As long-distance telecommunications undergoes global deregulation, the next challenger to the Sprints and MCIs of this world may be a small, United States-based Internet company. The Global Reach Internet Consortium, also known as Gric, is an Internet service provider with one key asset - a membership of more than 300 ISPs. Subscribers to these ISPs can travel and access the Internet through a local call by dialing a fellow Gric ISP's phone number. Gric makes money by taking a small slice of the revenue earned from 'roaming' Internet users, which is also split between the home and host ISP. But Gric has even bigger money-making plans. By leveraging this ISP network, Gric plans to announce early this month that it will offer Internet telephony to subscribers to member ISPs. The idea of picking up a handset, dialing long-distance and not worrying about exorbitant IDD toll charges is very appealing. Hong Chen, president, chairman and chief executive of Gric, said Internet telephony was 'about to explode' on to the market and would change telecommunications as we know it. US technology consultancy, Killen & Associates, agree. Killen forecast that the global market in 2003 would be worth US$8 billion for ISPs offering Internet telephony, Internet fax, or Internet video. 'IP telephony services will not be a 'hard sell' for ISPs as the technology improves over the next few years,' president Michael Killen said. But many analysts do not see Internet telephony happening soon in Hong Kong. There are too many obstacles facing this much-hyped technology. The market for long-distance services is just beginning to open up. With Hongkong Telecom planning to abandon its long-distance monopoly, other carriers will be able to offer international services at lower prices next year - low enough, some say, that even inexpensive call-back services will be given a run for their money. Internet telephony, which should also enable cheap long-distance calls, may have the added burden of bad sound quality. Current compression technology provides voice quality that is often compared with CB radios due to 'latency' - the brief but annoying delays preceding the voice at the other end of the line. 'The major challenge is offering reasonably reliable service,' said Raymond Ho, an analyst at Dataquest. 'Public perception of quality is not very good.' For example, in Japan, Asia's largest Internet telephony market, service quality was not great, and customers had a limited number of countries they could call, said Jason Ma, managing director for Asia-Pacific of iPass, Gric's chief competitor in Internet roaming. Mr Ma said iPass was not embracing Internet telephony with the same fervour as Gric. The cost of Internet telephony was not low enough for most people or organisations, for that matter, to justify its implementation. The cost of implementation might even contribute to 'premature price erosion and relatively low profit margins for service providers', he said. Mr Chen said that quality of service was the number one concern among customers and service providers. But he predicted that networking companies such as Cisco and Lucent would develop products that improved quality of connections and reduced latency. Nevertheless, Internet telephony may not be something that all ISPs in Hong Kong will want to offer. Charles Mok, general manager of Hong Kong ISP, HKNet, said offering Internet telephony would pit ISPs against telecoms giants like WorldCom and MCI, which already offered long-distance services at competitive prices to North American customers and were no doubt eager to enter the highly regulated and, consequently, high-priced Asian markets. Mr Mok said telecoms firms 'are also already looking into the future possibilities of voice over IP technology. It will be tough for local ISPs to compete'. Mr Ma agreed: 'The large PTTs worldwide will not just sit there and not compete.' This was why ISPs would have to work together, Mr Chen said. 'We need to form partnerships to unify a coherent IP-based network. As a group, we can deploy a network together faster.' HKNet's Mr Mok said even if Hong Kong's Office of the Telecommunications Authority was to offer every ISP in the SAR a licence, it would still be some time before Internet telephony took off, partnerships or not. 'Quality of service will gradually improve, but you can't expect satisfactory service if you're calling countries with limited bandwidth like China and Taiwan, even if Net telephony is legal there. These countries just don't have the bandwidth to support it.' Not to be left out, however, Mr Mok acknowledged that as a Gric member, HKNet was looking into VPN licences and international simple resale (ISR) licences for data or voice when they become available. ISR would allow companies to buy leased-line capacity in bulk from Hongkong Telecom at low charge rates and resell it to customers. HKNet offers some VPN services for fax and data, and has not yet ruled out offering voice services in the future. Gric's Mr Chen believed local ISPs would still rely on dial-up revenues, with IP telephony merely being a supplement. 'I do not believe carriers and ISPs will offer Internet telephony as a primary service,' Mr Chen said. IP telephony would proliferate through Europe faster than it would in Asia, Mr Chen said, but 'we're helping local carriers to go global by leveraging the experience we have in Internet roaming and fax'. Mr Chen said he was preparing for the day the market was ready to accept the technology. Meanwhile, Mr Ma said iPass would continue to take a cautious approach.