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VoIP Price War Has Started

Vonage In Print News

Voip Price War Has Started, Some Say

October 2, 2004

By Doug Bedell

Drops in pricing for two major Internet phone services signal the start of a price war as providers struggle to attract consumer attention, some analysts said Friday.

The rate cuts raise the question of whether anyone will ever make any money selling Internet phone service, which is also known as voice over Internet protocol.

But AT&T and Vonage, the two providers that slashed monthly fees by $5, have differing takes on whether further cuts will be necessary.

"We think it's probably pretty much bottomed out," said AT&T spokesman Kerry Hibbs. "We can't go down $5 every month."

Vonage spokeswoman Brooke Schulz, meanwhile, says future adjustments are probable. "This is our fourth price decrease since inception, so it's a pretty regular thing for us," she said. "As we scale up, anything's possible."

On Thursday, AT&T said it would cut its monthly charge to $29.99, and Vonage countered by speeding up announcement of a planned reduction to $24.99.

Both services offer unlimited local and domestic long-distance phone service with advanced features such as call forwarding, which are managed over a customer's broadband-connected computer.

Steep cuts

Vonage, which has pioneered commercial applications for VoIP, has reduced its charges twice this year by a total of 30 percent.

The leader in this fledgling market with about 275,000 customers, Vonage now charges $14.99 a month for 500 minutes of local and long-distance calls throughout the United States and Canada.

The company's $24.99 monthly plan is for unlimited calling in the same region and is similar to the AT&T CallVantage plan that is now available in 170 U.S. regions.

AT&T has not released Voip subscriber figures.

Cable companies, Voip specialists such as Vonage and established telephone service providers are all attempting to attract Internet phone customers. The quality of voice transmissions is varied, and it often falls short of that available in cellular plans. And, for a large segment of the population, the technology is confusing, analysts said.

More advanced

Voip requires a computer with a broadband connection and some additional hardware, but because voice traffic is treated like data, the service can be provided much cheaper than traditional land lines.

"Right now it's really for a more advanced technological person," said Bill Hardekopf, head of the phone rate comparison Web site

"There are a number of people who still don't feel comfortable on a computer," he said. "This will never be for them. But I think in the next five years it will become a very significant plan in telecommunications."

Those most attracted to current Voip options are traditional phone service customers who make a high volume of long-distance calls each month, said Vamsi Sistla, an analyst with ABI Research.

"Consumers want it, but they're not completely confident about the technology," he said.

As a result, Voip companies will have to continue to reduce prices to tempt consumers to give them a try, Mr. Sistla said.

ABI estimates that Voip rates could drop anywhere from 2 percent to 6 percent each year, and Mr. Sistla predicted another reduction before Christmas.

"The price war has begun, and it was to be expected," Mr. Sistla said.

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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.

2Shipping and activation fees waived with 1-year agreement. An Early Termination Fee (with periodic pro-rated reductions) applies if service is terminated before the end of the first 12 months. Additional restrictions may apply. See Terms of Service for details.

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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