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Customers Seek Cheaper Rates

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A Call To Change
Internet Revolution Reaches The Telephone Business As Customers Seek Cheaper Rates, More Features

September 19, 2004

By Suzanne King

You may have seen some of the $25 million ad campaign AT&T Corp. rolled out during the Olympic Games.

There was the ad about the mother whose smart little girl sets up a conference call with her friends and in minutes organizes a street hockey game, the one about the father who waits for the baby sitter to call his home telephone while he and his family run errands all over town, and the one about the man who sleeps peacefully while his telephone system blocks early morning calls from his mother-in-law in Ireland.

If you were wondering what all this fuss was about, the answer lies in the Internet.

The company is advertising its version of Internet phone service, the newest wave to sweep the telephone business.

Like the Internet revolution that captivated us last decade, Internet telephone services, such as AT&T's CallVantage, are poised to take the world by storm as consumers look for cheaper telephone service with richer options and features.

At least that's what AT&T and dozens of smaller Internet phone companies are hoping as they compete to take customers from traditional local phone companies.

“Consumers now have a choice,” said Jason Talley, chief executive of Nuvio Corp., a Kansas City-based Internet phone company that sells its service through independent Internet providers. “And the choice is to switch totally outside the provider you have.”

But predictions about Internet phone service dominating the consumer market have yet to be realized.

For now, Internet phone service is relatively untested by most of the public. Analysts estimate that by the end of the year there will be around 700,000 Internet phone users — still a relatively paltry number.

Although signs are pointing toward growth — one estimate expects the number of users to swell to 7 million by the end of 2008 — many consumers still haven't heard of the service.

Daryl Schoolar, a senior analyst with the research firm In-Stat/MDR, said Internet phone companies will pick up customers in coming years for two primary reasons: They can sell their service at cut-rate prices, and they can include state-of-the-art extras such as portable phone numbers and customized voice mail that traditional phone services can't offer.

“Price gets the consumer in the door, and the value-added features close the door,” Schoolar said.

But there's a catch.

To save money and get the new features that come with Internet phone service, you'll need a broadband Internet connection. That means consumers who aren't already paying $30 or $40 a month for DSL or cable modem service won't have Internet phone service until they do.

The technology

What exactly is Internet phone service?

Think of it as an application like e-mail that rides over your high-speed Internet connection.

Internet phone service, known as VoIP, for Voice over Internet Protocol, transmits phone calls by translating them into digital packets and then sending them over the Internet.

Vonage, which is one of the biggest Net service providers, Nuvio and AT&T all send calls over the public Internet. But other Internet phone service providers, like Time Warner Cable, send calls over a private Internet protocol network.

Time Warner and other cable companies carry their voice traffic in part on Sprint Corp.'s network. Sprint retails its own voice over Internet service to business customers, but not to consumers.

An adapter is necessary to hook up an Internet phone service. That adapter, which connects to your high-speed Internet connection, allows a regular telephone to work on the digital network.

For the most part, Internet phone calls look and feel like regular phone calls. The technology has grown up since the early days less than 10 years ago when Internet calls were choppy or echoed.

But because most Voip services rely on the Internet, call quality is only as good — and as reliable — as the Internet connection. If your cable modem service goes out, or your DSL line is on the fritz, forget about making a phone call.

The same is true for your electricity. When the power goes down, so does your phone service. You can, however, get a battery backup to keep phone adapters running when electricity is down.

Another disadvantage is that most Internet phone services don't include emergency 911 service. Internet phone companies are trying to get around this problem by asking customers to register an address for their phone number. Time Warner's Digital Phone offers the same 911 service consumers get from traditional local phone companies.

What's the tab?

There are differences between Internet and traditional phone services that become selling points for the new services. A big one is price.

Preston Bowman said he ended up saving more than $45 a month on his Web development business's phone bill when he moved his company to Gardner. He ordered local phone service from Sprint, the local provider there, but had trouble getting everything set up. That's when he found Nuvio.

“I very much enjoyed calling Sprint and saying we found another solution,” said Bowman.

His company, SurfSignals, pays around $30 a month for phone service, including local and long distance, a Kansas City phone number and numerous features. But regular phone service from Sprint would have been $75 a month, not including long distance.

Because Internet phone calls are data like anything else flowing through the Internet, regulators don't tax them the same way they tax regular phone service. This is a topic of ongoing debate at the state and federal level, but at least for now, fewer fees and taxes is one reason Internet phone services tend to cost less.

AT&T's CallVantage, for example, costs about $35 a month for unlimited long distance and local calling. On top of that, the company charges about $3 for taxes. But SBC Communications' traditional phone service, which includes unlimited local and long distance service for around $50, costs an additional $10 or so in taxes and surcharges.

Remember, you still need to account for the $30 or $40 a month you're spending for a broadband connection.

And if you don't use much long distance on your home phone and don't need or want add-on features such as call waiting and caller ID, you may not be able to save money by switching to Internet phone service. It's possible to get a traditional bare-bones service — basically just a dial tone — for around $20 a month, including fees and taxes.

Special features

If the finances make sense, features that come with Internet phones also are a selling point. Some of them are features that traditional phone carriers can't offer.

Rodney Tatum, who lives in the Northland, said he and his wife decided to sign up for AT&T's CallVantage service largely because of some of the features they could get.

A big one, Tatum said, is the service that lets them screen calls when their twins are napping.

“It frustrates my wife when someone calls and wakes up the twins,” Tatum said.

But with their new phone service, they can program the phone so calls go to voice mail. Callers get a message that allows them to leave a message or press 2 to have their call put through if it can't wait until after naptime.

Tatum said he also likes that he can access voice mail through e-mail and that he can program the phone to ring on his cell phone or any phone number.

Internet phone service also is portable. A customer could carry an adapter box on trips, hook it into any phone and any Internet line, and receive calls just like home.

The portability factor also allows customers to have a number with almost any area code. That means callers can make “local” phone calls from an ocean away. For example, someone who lives in Kansas City and has family and friends in London could sign up for a London phone number. That would allow a person to accept and make calls just like being in London.Talley, of Nuvio, said his company is seeing a lot of interest from people in rural areas who want an urban phone number.

“I can just as easily have a New York City phone number in Kansas City as a Kansas City number,” Talley said.

Josh Garrett, whose company, FuturaVoice, sells Nuvio's service, said he's seen the greatest interest in the service from residential customers, although the company also sells to businesses.

He often sees “people being just totally fed up with the local providers all across the board.”

Early on, people often signed up for the service as a secondary phone line. But that reluctance is beginning to subside, Garrett said.

“It's seamless,” he said. “People cannot tell any difference.”

Still, average consumers should tread cautiously and keep their eyes open about what they're getting into if they sign up for an Internet phone service, said Schoolar, of In-Stat/MDR.

For one thing, if you move your phone number to an Internet phone provider that goes out of business, you risk losing your phone number — not to mention your dial tone.

“This is a new market,” Schoolar said. “You have a lot of new players entering it just as you did in the ISP (Internet service provider) market in the 90s. Common sense tells you not all of these players are going to make it.”

To reach Suzanne King, technology and telecommunications reporter, send e-mail to or call (816) 234-4336.

Net calls: What you need to know

Shop carefully

Internet phone services, also known as VoIP, for Voice over Internet Protocol, let you receive phone calls over the Internet.

Pluses: Costs less; includes advanced features like getting your voice mail through your e-mail and forwarding phone calls to any phone number.

Minuses: No 911 service (for many carriers); when you lose power or your broadband connection, you lose phone service.

Before you sign up for Internet phone service, here are some questions to ask the carrier:

  • Will all my telephone extensions work on the system, or is special wiring required?

  • Will my fax machine work on the Internet phone system?

  • Can I keep my phone number?

  • How can I reach dispatchers in an emergency?

  • What fees and taxes will I pay?

  • What about setup or activation fees? For example, Nuvio charges about $30 to activate its service.

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