Twelve years ago, AT&T conducted a survey to determine whether cellular phones would ever catch on in the United States. The result? The survey found that, overwhelmingly, people and telecom companies believed the wireless gadgets would never succeed in the marketplace. The audio quality simply wasn't good enough.

Today, it's obvious how wrong that survey was. Cellular phones have reached the saturation point within the telecommunications marketplace because, as it turns out, when given the convenience of portability, audio quality suddenly wasn't all that important after all.

Now, it appears history may be ready to repeat itself. Computer telephony -- the practice of transferring voice and/or data over the Internet -- is on the verge of busting into the mainstream much like cellular phones have over the last five years, and what telephony products may lack in sound quality they are more than making up for in price and convenience.

Since telephony products and services are so new, what effect they will have on state and local governments largely remains to be seen. But one thing is clear: Many of the Internet telephony products and services currently benefiting consumers and businesses could easily benefit state and local governments as well, and the industry's rapid growth may mean those benefits are not as far from reality as they may seem.

A Brief History

The early days of Internet telephony were far from glamorous. For one thing, making a call over the Internet required both parties to sit at a computer while logged on. Sound cards, which were hooked up to a microphone and speakers, had to be installed on both computers. Finally, a software package was needed, and most systems required both parties to use the same software package. Then, as calls were broken into tiny digital packets and sent out over the Internet, they became fragmented. The receiver of the call often struggled to decipher a jumbled mess of words.

Later, it became possible to initiate a call from a computer and have it terminate at a regular phone, so an Internet-savvy person could call grandma, and grandma could answer the phone just as she would a regular call.

Today, phone-to-phone Internet calls can be routed over the Internet without involving computers at all. A calling card is used to dial up a telephony service provider, which then connects the call with Internet Protocol (IP).

The big payoff to any kind of Internet telephony, of course, lies in the price. Since calls travel over the Internet, which does not currently require long-distance tolls, the only cost to complete an Internet call involves the portion that travels from the caller to the Internet, and from the Internet to the call recipient on the other end. What that translates to are rates an average of 30 percent lower than standard long-distance services, with competition among start-up telephony providers pushing those rates even lower. In March, for example, I-Link Inc. unveiled a 4.9-cents-a-minute rate for calls between six major metropolitan areas in the west. Meanwhile, IDT offered 5-cent rates, and Qwest Communications revealed a 7.5-cent charge. At those rates, people, businesses and even government agencies that make numerous long-distance calls can begin to see savings rack up immediately.

The cheap cost of Internet telephony has caused such a stir among consumers lately that even telecom giants like AT&T and Sprint are beginning to take notice. While studies conducted in 1996 proclaimed Internet telephony would never threaten the large long-distance operators, improvements in telephony products and increases in the number of companies offering telephony services seem to have suddenly changed all that. A recent report from British telecommunications strategy consultant Analysys predicted that telephone business across the Internet will take 36 percent of the international call market by 2003.

However, big operators are not standing