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Price Drop For Internet Phone Calls Showing Up


Vonage In Print News

Vogue For Voip Is Vocal
Price Drop For Internet Phone Calls Showing Up


November 27, 2004

By John C. Roper

About eight months ago, Lance Barlow finally became fed up with his home telephone service.

"We used to have a lot of static on our land line," said Barlow, a software consultant in Houston. "I'd call my mother, and we could barely hear each other."

The last straw for Barlow was a problem with his bill.

"I had a second line where I forgot to sign up for a long-distance carrier and (the phone company) ended up just throwing some long-distance company on there that charged me about $3 per minute," said Barlow. "When I called to complain about it, they told me, 'Well, you should have known about it.' And I told them, 'Well, you should know about VoIP.' "

Barlow has since been a customer of Vonage, an Edison, N.J-based provider of VoIP, or Voice over Internet Protocol, which allows users to place telephone calls cheaply over the Internet.

Dozens of companies are rushing into the business of Internet telephony, with about 400,000 U.S. households expected to be using the service by the end of the year. That number will soar to an estimated 12 million households by 2009, says Joe Lazlo, a senior analyst for Jupiter Research.

The company also forecasts that 17 percent of all U.S. households with broadband connections will use Internet telephone service in 2009, up from only 1 percent by the end of this year.

Barlow, whose monthly bills have been lowered twice by Vonage since he became a Voip user, said price was the big factor in his switch.

But he also likes the features.

"We have a condo in Galveston," Barlow said. "I can get online and forward my Houston number so people can call without calling long-distance."

He's also signed up his elderly mother and his daughter, who lives in Austin.

'They get it'

Users of Voip typically pay a standard monthly charge that allows them to make unlimited long-distance calls. The service also gives them the type of features until recently only found in phone systems of large companies.

"I think people buy it because it's less expensive, but once they have it, they get it," said analyst Bryan Van Dussen, director of telecommunications strategies for the Yankee Group. "They can see where having a computer to manipulate different features becomes a lifestyle choice and changes the way we communicate."

Fewer than three years ago, making a phone call via the Internet meant poor sound quality and no dial tone. Many considered it nothing more than a backyard science experiment and a nuisance. And it took the technical prowess of Bill Gates to even attempt it.

More providers

This year, sound quality is improved, and with established telecom companies like AT&T, SBC, Time Warner and Cablevision aggressively entering the market, the technology has hit the mainstream. Plug-and-play devices are now widely available at electronics stores.

Vonage began service in April 2002 and was an early pioneer of VoIP. Today, with nearly 300,000 U.S. customers, 5,000 of whom are in Houston and 20,000 in all of Texas, it is for now the reigning market leader in a field that is getting more crowded by the minute.

Texas was the first state in the country where AT&T made the service available statewide. The company will not release subscription figures.

And with the influx of competition in the area, comes the natural drop in price.

In late September, AT&T lowered its monthly charge from $34.99 to $29.99 for its CallVantage plan, which includes unlimited long-distance calling within the United States and Canada. Vonage countered and dropped its price for its comparable plan to $24.99, signaling to analysts the beginnings of a price war.

The average residential American telephone bill for local and long-distance service is $47 per month, according to the Federal Communications Commission.

Vonage and other Voip providers won an important victory earlier this month when the FCC ruled that companies providing Internet-based phone services should fall under the control of the federal government.

That means Voip providers are exempt from key rules that have been imposed by various states

AT&T, which has set its primary corporate focus on business clients, is setting its sights on emerging technologies such as Voip for its residential customers.

It's also banking on AT&Ts brand recognition and package of features to sway customers to its service.

"We think we offer the best package of features," said AT&T spokesman Kery Hibbs.

Hibbs also anticipates that features, rather than price cuts, will more likely be the carrot dangled in front of consumers.

Louis Holder, executive vice president of product development for Vonage, pointed to features such as the standard one that directs calls to other lines based on who is calling.

Other features include ways to closely track incoming and outgoing calls, sending phone calls directly to voice mail at certain times or even by a specific person who calls, and choosing area codes from anywhere in the country to enable friends or relatives to call without incurring any long-distance charges.

'Access is king'

For now, the biggest push for carriers like AT&T and Time Warner is to get to as many homes with a broadband link as quickly as possible.

"Access is king," said Jim Dondero, vice president of wireline and optical marketing for Nortel Networks, the biggest supplier of telecom equipment in North America.

Dondero, who makes his living by advising carriers how to market Internet applications such as VoIP, said consumers should expect providers to bundle services.

The cable companies are the ones "we are watching with interest," said analyst Van Dussen.

"They are the ones that could blow the lid off of the place," he said. "They have the incentive in that they hate the telephone companies and they have the network."

And for cable companies like Time Warner, it's an opportunity for what telecom insiders call the triple play: The capability for one company to deliver video, data and telephone service.

Time Warner, which early this year entered the Voip arena, sees voice as a complement to its video and high-speed data. And AT&T, according to Hibbs, is looking into offering video services over its Voip lines as well.

But the cable companies, analysts say, are already masters of content and will likely be the big winners when the dust is cleared.

Cablevision, a relatively small cable company based in Bethpage, N.Y., has been the most aggressive in pursuing VoIP. Its success is trumpeted as evidence that cable companies will dominate the field.



 
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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 www.vonage.com/911 for details.

** Certain call types excluded.

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