The world's telephone companies are becoming their own cannibals -- eating their own bodies to survive. The companies are in the process of stealing the customers of their traditional telephone service by expanding into competing telecommunications services including wireless communications and Internet data and voice provision.

AT&T's $31.7 billion purchase of cable TV giant Tele-Communications Inc. (TCI) brings into focus this vision of the telecommunications industry that all companies in the sector are striving to attain.

In a smaller form, but of no less importance to the people and businesses in Bermuda, the same scenario is being fought out in the local arena.

Commentators are calling the AT&T move an attempt by the company to offer all telecommunications services under one roof -- from telephone to high-speed Internet access. In an even more farsighted move, telecommunications companies foresee the eventual convergence of telephones, televisions and Internet services.

AT&T is latching on to TCI's plan to leverage its cable by providing ten million advanced set-top boxes over the next three years to deliver hundreds of TV channels, Internet access, and on-line banking to homes.

Meanwhile competitor Sprint earlier this month said it was building a system that offers voice and data transmission over one network, bypassing the traditional network of switches that limit and slow traffic.

What's happening is everyone wants faster Internet access. And everyone is pushing for cheaper long distance voice services via the Internet, or the Internet method. While the quality of voice using the Internet protocol hasn't been of the standard required to make it really take off, you can bet people are working on making it so.

Right now the quality is inferior, but for an increasing number of people it's good enough for the price and that's the real challenge to the telephone companies.

As Michael Bloomberg of Bloomberg Business News said in a speech here, he can compete on being the best in providing a financial service. It's the upstarts developing technology away from his service -- especially on the Internet -- that's got him worried.

"Is there someone who's now building a business away from us?'' he asked.

"It's the one who's providing a service that's just good enough that worries me. The question for companies like us is not whether we are better but `Is the other guy's product adequate?' '' Mr. Bloomberg then went on to explain why he had started up an Internet service in competition with the regular more expensive service.

"If we are eaten for lunch by a `.com' then it's better that it's our own `.com' he said.

The same argument applies to the telephone industry and the challenge the Internet poses. Basically on the Internet voice is being packaged in the same way data is being transmitted, making voice more efficient and cheaper to be sent down the line -- whether that conduit is a telephone line or a cable line.

Telephone companies, which previously have been happy to rent out their lines to Internet companies to use for access, are now wary their own traditional service will be torn apart by the newcomers.

The telephone companies, with all their vast cash reserves, are not about to let that happen.

On one front they're building or buying Internet services and looking at more efficient and faster methods of transmission through cable.

The other front is the regulatory battleground. Traditional telephone companies now want Internet service providers to fall under the same regulatory framework as they do. The regulatory change will make the companies pay interconnection fees for the use of the telephone companies' infrastructure, make competition equal, and at the same time maintain that competition for customers, they argue.

The real issue of course is the money. Telephone companies really want to reduce as much as possible the price advantage Internet companies have in providing voice and data transmission.

The telephone companies are thinking if the competition is going to come from the Internet then they'd better get into the business themselves. The same scenario holds with the push for expanded and more sophisticated wireless telephone services. Wireless and Internet telephony will steal customers from traditional telephone service.

It's what Bermuda Telephone Co. Ltd. (BTC) president and chief executive officer Lorraine Lyle calls a "conscious cannibalisation'' of traditional telephone services. The companies are stealing from themselves so somebody else doesn't come along and steal from them.

BTC has made all the right moves in the market so far. It bought into the Internet with the purchase of Internet-service provider and networking company Logic Communications Ltd.

Before the purchase Logic was on the verge of offering an Internet telephone service that was going to be a threat to BTC and Cable & Wireless revenues.

According to a source Logic was going to offer a system whereby a customer made a local call into the company's computer system, which would then make the long distance connection over the Internet at a fraction of Cable & Wireless' rates.

Since the BTC purchase, there has been no news of when this service will be offered. Perhaps it will have to come from BTC competitor Quantum Communications or Internet service provider North Rock Communications (owned by ACT Ltd.) before BTC allows Logic to go ahead with the competing technology.

Quantum executives have promised roll-out of Internet services soon. You can bet they're also looking at voice service using the Internet method.

BTC's other interesting move, made a few years ago, was the purchase of what it thought was control of the Island's cable TV lines by buying a majority stake in Bermuda CableVision. However CableVision's ultimate ownership is still hung up in the courts and so BTC's vision for that technology is on hold while it sorts itself out in the new competitive marketplace.

Ms Lyle said BTC made the purchase when it had a vision of what cable could be used for but the technology being developed to use the cable for other types of transmissions hasn't come up to the standard required -- yet.

With AT&T's bold statement, shel might have to reconsider when to leverage BTC's stake in CableVision, if and when local courts allow the company to proceed marrying cable's bigger pipe with Internet, voice, data, video, and other services.

But then again, since BTC has a good hold on the cable and Internet market at present and is not being hounded by other competitors very closely, it's not in any hurry to make such bold moves. But eventually it may have to.

Tech Tattle focuses on technology issues. Contact Ahmed at 295-5881 ext. 248 or 238-3854 or techtattle ygazette.newsmedia.bm