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Talk Is Cheap With Vonage

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Start-Up Finds Talk Is Cheap With Vonage

July 28, 2004

By Michelle Kessler

PALO ALTO, Calif. — What do hundreds of phone calls from Bolivia to Silicon Valley cost? Tech start-up Vazu pays only about $50 a month.

Vazu uses a new kind of phone service that travels over the Internet instead of traditional phone lines. Internet telephony bypasses most of the tolls and fees that make long-distance calls cost so much.

"It's fantastic," says Ramiro Calvo, co-founder of Vazu, which operates a data-transfer service for mobile phone users. "The beauty is the old-fashioned dial-tone," adds his partner, Soujanya Bhumkar.

Bhumkar and Calvo weren't looking to be pioneers when they signed up for Internet telephony last year. They just needed a phone number. But since Vazu hadn't yet found office space, they couldn't sign up for a traditional phone line.

A friend told them about Vonage, a young company based in New Jersey. Its service is simple. Vonage sends customers an Internet phone box, which looks like a small cable TV box. The box plugs into most high-speed Internet connections. Almost any telephone plugs into the box.

The phone works like any other phone, but Vonage is routing the calls over the Web. (If the person on the other end of the line is not a Vonage user, the call will hop onto a regular phone line for the very last leg of its journey.)
The phone number stays with the Vonage box, no matter what Internet connection it is plugged into. Vazu's business phone line, at first, was plugged into the DSL network at Bhumkar's house.

When Vazu found offices in downtown Palo Alto, moving its phone number was as easy as unplugging the Vonage box and plugging into the office network. "It was just plug and play," Bhumkar says. "Incredibly straightforward."

As Vazu grew, Bhumkar and Calvo realized the other great advantage of Internet telephony: the price. For $50 a month for businesses and $30 a month for consumers, Vonage offers unlimited calls in the USA and Canada. International calls are extra, but much less than a traditional phone line. For example, Vonage calls to London are 3 cents a minute, while Sprint charges $3.74 per minute for some calls there. (Prices can fall to about 10 cents a minute with a Sprint International plan.)

When Vazu hired new employees in Seattle, Philadelphia and India, the company bought them Vonage service, too. Then Vazu landed its first contract, with a Bolivian cell phone carrier. Calvo headed to South America to get the deal rolling. He expected to stay about two weeks. At the last minute, he tossed a spare Vonage box into his suitcase.

"Three months later, I was still down there," Calvo said. "And I did not miss a beat." Adds Bhumkar, "Had it not been for Vonage, he could not have stayed there for three months."

Calvo used Vonage in the offices of Vazu's customer, his hotel and even in private homes he occasionally visited. Since his phone number was contained in the box, he received all his normal calls. Traditional phone line users who rang him only had to pay for a call to Silicon Valley — not to Bolivia. And Calvo's own phone bill didn't change much.

Not for everyone

More companies are likely to turn to Internet telephony as the technology takes off.

While a very simple service such as Vonage works well for tiny start-ups, most will install corporate-grade systems, which travel mainly over private corporate computer networks instead of the public Internet. They are generally more secure, and offer more features, than a public service such as Vonage.

But building in-house systems can be very expensive. Gartner telecom analyst Jeff Snyder says 99% of businesses need to upgrade computer networks before adding voice — a project that easily costs hundreds of thousands of dollars. "The basic cost savings (on phone tolls) are generally not enough to justify it," Snyder says.

Maintenance is expensive, too — about 15% more than traditional telephone networks, says Meta Group telecom analyst Elizabeth Ussher. Telephone technicians can be hired for about $75 an hour, but the computer programmers needed to run an Internet system start at about $115.

Internet systems are "trickier. There are so many more things involved than a traditional phone system," Ussher says.

And since Internet telephone systems run on computer networks, they can crash in the same way. If the power goes out, so do the phones. A virus could take the system down if not secure. And network glitches can cause call quality to suffer.

To make the risk and cost of Internet telephony worth it, companies need to take advantage of the technology's advanced features, Snyder says.

Because Internet calls are sent over networks much as e-mails are, they can be manipulated in the same way. For example, Vazu's telephone voice mail system converts each voice message into a computer sound file. It sends those files, as e-mail attachments, to several Vazu employees. That way, staffers can ensure that a message is answered promptly.

Companies can buy special Internet phones designed to handle data as well as phone calls. The phones, which cost several hundred dollars, look like regular phones with a small screen attached. Those screens can display phone book listings, stock quotes or images.

Officials in Herndon, Va., get reports of missing children sent directly to their Internet phones, along with photographs.

In Internet telephone systems, "Voice mail and e-mail are integrated," says Charlie Giancarlo, chief technology officer at network gear maker Cisco Systems, which makes Internet telephony equipment. "If you can download e-mails onto your PC, you can download phone voice mails, too. And you can be alerted of a new e-mail while you're on the phone."

Although Internet telephony's drawbacks still mean that companies might not want to tear out existing telephone systems just yet, the technology is too promising to ignore, Gartner's Snyder says. For companies installing new phone systems, "If you don't go with (Internet telephony), you're missing the boat," he says.

Vazu's Bhumkar and Calvo are convinced that Internet calling is here to stay. Both now use Vonage to talk to relatives overseas. "My parents are in India, and I talk to them almost every day," Bhumkar says. "It just works," says Calvo, who calls relatives in Bolivia. "It's really cool."

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†AK and HI residents pay $29.95 shipping. ††Limited time offer. Valid for residents of the United States (&DC), 18 years or older, who open new accounts. Offer good while supplies last and only on new account activations. One kit per account/household. Offer cannot be combined with any other discounts, promotions or plans and is not applicable to past purchases. Good while supplies last. Allow up to 2 weeks for shipping. Other restrictions may apply.

1Unlimited calling and other services for all residential plans are based on normal residential, personal, non-commercial use. A combination of factors is used to determine abnormal use, including but not limited to: the number of unique numbers called, calls forwarded, minutes used and other factors. Subject to our Reasonable Use Policy and Terms of Service.

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HIGH SPEED INTERNET REQUIRED. †VALID FOR NEW LINES ONLY. RATES EXCLUDE INTERNET SERVICE, SURCHARGES, FEES AND TAXES. DEVICE MAY BE REFURBISHED. If you subscribe to plans with monthly minutes allotments, all call minutes placed from both from your home and registered ExtensionsTM phones will count toward your monthly minutes allotment. ExtensionsTM calls made from mobiles use airtime and may incur surcharges, depending on your mobile plan. Alarms, TTY and other systems may not be compatible. Vonage 911 service operates differently than traditional 911. See for details.

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