Advances In Internet Telephony Slash Bills And Irk Bells

August 7, 2003

By Marcelo Rodriguez

When veterinarian Tom Tribolet moved to Buenos Aires to try his hand as a thoroughbred racehorse trainer six years ago, staying in touch with his sons in Arizona and California meant spending upward of $500 a month with the Spanish-owned company that controls half of Argentina's phone service.

Today, Tribolet can call anyone he wants in the United States and Canada any time he feels like it. And his monthly bill comes to $40.

He did something that was not even possible a little more than a year ago: He got himself telephone service, with a Phoenix area code, in his suburban Buenos Aires home.

``My phone calls back home are better than they were before, and they cost nothing,'' said Tribolet. ``It's like magic.''

The ``magic'' Tribolet refers to is ``voice over Internet Protocol'' (VoIP), a relatively old Internet technology that recently has become as easy as the everyday telephone. And Americans living overseas, as well as non-Americans with family in the United States, are discovering that they can call friends and family thousands of miles away for as little as $20 a month.

International communications carriers are feeling the heat as telephone calls they used to charge hundreds of dollars for can now be made for nothing. But they're not alone: Voip is also giving the Baby Bells fits as they get their first real taste of competition at home.

Voip has been around for about seven years, but the technology was cumbersome and complex. Users were limited to talking while tethered to their computers with wired headsets.

And, for the most part, early users were limited to talking only to others with the exact same software setups. There were no phone numbers and the parties had to make arrangements to be online at the same time.

That's all changed. Largely as a result of readily available broadband Internet connections and low-cost telephone appliances that attach to any home computer network, it is now possible to use Voip to make phone calls to any phone number in the world using the trusty traditional handset, even a cordless one. What's more, Voip service comes with features the traditional telephone companies are not even able to offer and at costs that are a fraction of the typical residential phone bill.

Those features include advanced voice-mail management, individual call-handling methods configured over the Internet, and sophisticated call-blocking schemes.

And, if you move, whether to another area code or another country, Voip allows you to take your phone number with you.

``There is no doubt that this is nothing short of a revolution in telecom,'' says Ravi Sakaria, president and chief executive of VoicePulse, a New Jersey company offering the new service. ``It's not just a viable technology; it's the direction all of telecom is going in.''

New competition

Competition from Voip presents such a threat to the established telephone companies that they are petitioning officials in a number of states to impose the same regulations on Voip providers they now face.

``Those regulations were put in place when the phone companies had a monopoly over local-phone service,'' says Jeff Pulver, one of VoIP's leading evangelists who is trying to organize providers to oppose such regulations. ``Now they want to regulate Voip out of the market.''

The new competition is also forcing local phone companies to do something that was unheard of before: drop prices.

For such a young technology, competition in the world of phone-to-phone Voip is already quite fierce. And each of the main three players -- Packet8, VoicePulse and Vonage -- has taken very different routes. (A fourth company, IConnectHere, owned by computer-to-computer Voip pioneer Delta3, started offering phone-to-phone service last month, though with a scarce set of features and no unlimited calling plans.)

Vonage, which claims to have signed up more than 35,000 customers nationally, is the granddaddy of telephone-based VoIP, having offered the service since April 2002. The New Jersey company rolled out its service offering area codes around the country and, unlike the other two companies, has marketed its products extensively in online, print and television advertising. Vonage's premier residential plan provides unlimited calling throughout the United States and Canada for $39.95 a month.

Packet8, of Santa Clara, which manufactures its own telephony hardware through parent company 8x8, is taking the low-price approach. In May, Packet8 lowered its price to $19.95 monthly for a plan with unlimited calling anywhere in the United States and Canada, half of what Vonage charges. Packet8 does offer more area codes throughout the country but has spent very little on marketing. The company claims it has signed on some 3,000 users since the service opened in November.

VoicePulse is hoping to carve out a niche as the technology leader, offering richer features than either of its Voip competitors and the local phone companies, at $34.99 a month for unlimited U.S.-wide calling. But unlike the competition, VoicePulse has chosen to roll out its services slowly and is currently only offering a handful of area codes on the East Coast. According to company officials, Bay Area phone numbers will be made available within the next two months.

Of course, because Voip squashes the very concept of a local area code, there is nothing to stop someone with a broadband connection living in Sunnyvale, or even Senegal, from ordering Voip service with a New York City 212 area code.

The drawback is that a call from down the street from a traditional phone line would be billed as a long-distance call.

If you've made any international calls over the past year, chances are that you used Voip without even knowing it. Major international phone carriers such as Sprint and AT&T have been quietly converting much of their international telephone traffic to the Internet, a much cheaper method of transport.

According to Heather Tinsley of the Telegeography, PriMetrica Research Group, which tracks international telephone minutes, more than 10 percent of all international calls used Voip somewhere along the line.

``That's pretty incredible in that it came from nothing five years ago,'' says Tinsley.

Phone lines lost

Voip service providers insist that many of their U.S. residential users have abandoned their traditional local telephone providers and are using Voip as their sole residential service. And many Voip users participating on a number of Internet forums focusing on Voip confirm having done so.

Baby Bells are already losing lines because of cheap wireless calling plans, a trend that Voip will probably accelerate.

``In the last couple of years, the phone companies have given up something in the magnitude of 10 or 12 million phone numbers because people have given up their secondary numbers,'' says Pulver. ``We'll be seeing a lot more of that.''

Pulver predicts that as broadband Internet access grows, so will VoIP. Today, it's estimated that some 20 million U.S. homes receive Internet access through cable or DSL, and that number is growing rapidly.

Pulver says that within the next five years, the number of Voip telephone lines in the United States could grow to about 40 million, a steep increase given that Packet8, Vonage and VoicePulse have fewer than 45,000 customers between them today.

But Pulver is counting on the major cable companies and other broadband Internet access providers (EarthLink already offers subscribers a Vonage package directly) to enter the Voip fold soon.

For the cable companies, Pulver says, Voip is ``a killer app'' that promises ``to keep subscribers loyal.'' He even envisions a future when Voip competes with cellular technology over wireless telephone usage. He believes that the growth of WiFi Internet ``hot spots'' will eventually allow anyone with a handheld, or a soon-to-be-introduced WiFi cellular phone, to make calls to and from anywhere in the world using VoIP.

``Back when e-mail started, every company had its own e-mail system, and you couldn't send messages from one system to another,'' says Pulver. ``As soon as companies started putting their e-mail on the Internet, we could all reach one another for free. Very soon, telephone service is going to be the same.''