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Internet Phone Calls

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In Internet Phone Calls, Broadband's 'Killer Application'

October 27, 2004

By Chris Oakes

PARIS - If you happen to live in France, or have visited the country recently, a current promotion may well have caught your attention. Free, one of the country's biggest Internet service providers, has been offering consumers extra fast Internet access, along with a cable-like package of TV channels.

But Free, a subsidiary of France's Iliad Group, has thrown in one especially striking addition: unlimited free telephone calls throughout France. To start un-metered domestic dialing, the customer plugs a standard telephone into the "Freebox" that comes with the service.

The flat-rate price for the entire "triple play" package - delivered via the service's single DSL, or digital subscriber line, connection - is 29.99, or about $38, per month.

"It's actually the killer app, voice," said Jean Pierre Oliva, managing director of Jipo, a telecommunications consultancy based in Brussels, referring to the voice option's potential to fuel the spread of broadband Internet.

In fits and starts over the last year, voice over Internet protocol, known as VoIP, has begun reaching mainstream consumers. In Europe, Free and similar packages offered by other Internet service providers have suddenly given Voip more visibility by making it a no-extra-charge service option included with a broadband service. Two rivals of Free, Neuf Telecom and Tiscali France, have also bundled voice into their broadband offerings.

Free, which began offering broadband in 2002, claims 768,000 broadband subscribers today. (The voice option was included in the service starting in August 2003.) In Japan, Yahoo Broadband has 3.5 million customers for its voice service.

Neither company indicates what fraction of their broadband subscribers opt to take advantage of the voice option. But some analysts say recent improvements in the quality of Voip calls make it likely that as many as half of subscribers hook up a phone for cheaper calling.

Until a year or two ago, high-speed, or broadband, access to the Internet was hard to come by outside the leading regions - Scandinavia, South Korea, Japan, and North America. And few users knew about, let alone expected, phone service via an Internet connection. But after a sluggish start, broadband has made progress, and with that, Voip has begun making serious inroads, especially in Europe.

In Britain, the former monopoly BT has added VoIP-services, but calls are priced at standard fixed-line rates. Rather than lower prices, BT touts added convenience.

For example, a customer using BT Communicator, the company's VoIP-based PC calling service - provided via a voice-enabled version of Yahoo's messaging software - lets a customer make calls through the Yahoo software, without having to leave the computer to pick up the phone.

Analysts say BT is trying to use Voip to add features to its core fixed-line business - while keeping customers moored to standard BT phone services.

But many in the industry predict that the rise of Voip will push voice rates down so far that the service will be reduced to a commodity.

"I think the whole landscape will look completely different when we have completely IP infrastructure," said Julian Hewett, an analyst at the London-based consultancy Ovum. "Any service you'll buy will come with voice as standard part of it."

A smattering of providers follow the popular model popularized by the U.S. company Vonage - including Gossiptel in Britain, and Sipgate in Britain and Germany. Rather than providing Internet access themselves, these companies piggyback their voice services through customers' existing Internet connection. A Voip adapter box, plugged into a broadband cable or DSL modem, hooks up to a standard telephone for voice calls.

Sipgate enables free calls between users of its service or to users of similar Voip providers in countries that allow third-party Voip callers onto their networks, such as the U.S-based Free World Dialup - a larger so-called "independent VoIP" service similar to Sipgate's.

Meanwhile, to call a fixed line number in Britain, Sipgate customers are billed at 1.19 pence, or 2.2 cents per minute. For calls to mobile numbers in Britain the price is 14.9 pence a minute.

Voip services based on PCs and software, as opposed to offerings like Free's, are designed to operate through the speakers and microphones (or all-in-one headsets) of Mac and Windows computers.

The most popular of these services is Skype, which recently said it had recorded 1 million simultaneous users worldwide.

The 28 million downloads of its software - over 14 months of existence - represent more than 12.9 million users from all countries, Skype says. Similar to the pricing of services like Sipgate, calls between Skype users are free, while rates to make calls to regular phone numbers in countries around the world are typically offered at a significant discount to standard fixed-line rates, similar to the Sipgate pricing structure.

Nor are Skype users bound to their PCs: Skype makes a version of it software that runs on handheld devices that run Microsoft's Pocket PC program.

In this configuration, a PDA capable of making a wireless connection to the Internet via wi-fi makes for a more portable version of Skype for users on the go. And the German telecom equipment maker Siemens recently introduced a device that beams Skype calls to a cordless household telephone.

At a wholly different level of service, a handful of companies around Europe are circumventing traditional telephone networks altogether, and delivering voice and other services through their own high-bandwidth, fiber-optic connections in limited metropolitan areas.

For example, FastWeb, a subsidiary of e.Biscom of Italy, offers Internet, voice calls and video over one line for about €80 a month. The company's high-speed fiber provides enough bandwidth for the future addition of video-on-demand and similar high-bandwidth media delivery.

Pitching services to businesses may be the most profitable area for specialty Voip service providers. Consulting and networking companies such as Cable & Wireless in Britain provide Internet Protocol voice service for workplace communications. Voip is just one of a suite of services used for providing a digital conduit for all of a company's communications - from "virtual private networks," or VPNs to teleconferencing.

Beyond the realm of service providers, a few upstart companies have been cashing in on the move toward VoIP. Cirpack, a seven-year-old French equipment manufacturer, sells switches and routers that are the hubs of the new-generation networks. The closely held company said its revenue in 2003 doubled to €20 million, its third year of profitability. Fabien Maisl, Cirpack's director of marketing, said its customers include 35 service providers covering every European country, including the three dominant Voip services in France. He said France was ahead in the adoption of Voip services.

Analysts say France is in the lead in part to aggressive moves by the country's telecom regulator, ART, which designed rules that led the incumbent France Telecom to rapidly "unbundle" its network for use by third-party competitors.

In five years, Juniper Research predicts Voip services will account for €26.5 billion, or 12 percent of global telephony revenues.

In the meantime, even those whom Voip is supposed to challenge are making nice with the technology, at least for now - saying it's an essential ingredient they have no choice but to embrace.

"We have the vision - connect your world completely," said Andrew Burke director value added services for BT. "You can't take that vision forward without VoIP."

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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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