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VoIP: End Of The Line For Phone Bills?

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End Of The Line For Phone Bills?

March 20, 2005

By Paul Durman

Dietra Breedon, an American living in London, likes to phone her mother in Newport, Virginia, a couple of times a day.

They can speak across the Atlantic as often or as long as they want, but since Breedon starting using a firm called Vonage, the cost will never be more than a monthly fee of £2.99.

“It helps the bank account,” she said. “My father’s happy and my husband’s happy.”

When The Sunday Times called Breedon on her London number last week, she was in South Africa, accompanying her husband on a business trip. But the call to her Mayfair home found her instantly, rerouted to a mobile phone thousands of miles away.

“You just called me on a British number and I’m in South Africa,” said Breedon. “How cool is that?”

Welcome to the wonders of internet telephony, or voice over internet protocol (VoIP) in industry jargon. Proponents claim it offers a tantalising mix of greatly reduced bills and sophisticated new services.

It could also mean the end of the traditional phone bill. If Voip takes off, paying per-minute charges for individual calls will soon become a thing of the past. At most, customers will pay a monthly service charge — and with some providers even that will disappear.

Niklas Zennström, chief executive of the London- based Skype, is at the most “disruptive” edge of this new technology. He said that telecoms companies used to have their own networks, and routed calls over fixed circuits.

But with the convergence of telecoms and computers, call traffic is moving on to one simple network — the internet. “What happens is that the marginal cost for a voice call is zero,” said Zennström. “You can no longer charge for phone calls. Phone calls are free.”

In only two years Skype has attracted 30m users worldwide who have spent 6.3 billion minutes using the service. For free.

Breedon is one of the first British-based customers of Vonage, the company that has blazed a trail for internet telephony in America.

Whereas Skype appeals to more technically savvy users, happy to make a call on a headset from their computer, Vonage is chasing more traditional business. Although the Vonage service requires a broadband internet connection, customers can plug their conventional phones into an adapter.

“I’m not techy,” said Breedon. “I’m actually quite clueless. I use my regular phone.”

Vonage uses conventional phone numbers that are accessible by traditional phones.

“My mother does not have to have broadband but it still works,” said Breedon. “It’s not like it requires both parties to have the technology.”

Vonage is charging £9.99 for its basic service, which includes unlimited local and national calls for no extra cost, along with services such as voicemail, call diversion, caller display and three-way calling. Voicemail can be set up to send on messages as an e-mail attachment, allowing the user to play back their calls from anywhere in the world.

Breedon has also taken a “virtual number” in Virginia, allowing her mother to call her in London as if making a local call, i.e. for nothing.

Vonage, backed by 3i, has 650,000 customers in America and Canada.

The company made its UK debut in January with a “soft” launch to test its systems. Despite minimal promotion, it has already attracted three times as many customers as it expected, according to Kerry Ritz, UK managing director.

Now the bigger brands are wading in. Wanadoo, the internet-service provider, has just launched its Voip service, Wanadoo Wireless and Talk. For £4 a month, customers can make free evening and weekend calls to any UK landline.

Customers plug their phone into Wanadoo’s Livebox, a broadband router that also provides wireless internet access throughout the home.

Eric Abensur, chief executive of Wanadoo UK, said the company has set “extremely ambitious” (targets) over the next few months. “Look at what’s happening in the US or in France. You have almost half a million people across France using voice over broadband, and the local regulatory body is talking of that rising to almost 1m by the end of 2005,” he said.

BT has launched two variants of Voip — BT Communicator, to be used from a computer screen, and BT Broadband Voice, meant as a second line.

Voip threatens to take a big chunk out of the traditional revenues earned by BT and other national telecoms companies.

But BT is embracing the technology, albeit cautiously.

Gavin Patterson, managing director of BT’s consumer division, said: “VoIP is happening. We can either do it to ourselves or let somebody else do it to us. Cannibalising the business is financially the right thing to do for us. The market is in its very early stages but I expect it to pick up significantly this year.”

Britain’s embrace of broadband is central to the potential of internet telephony. Voip is possible over a slow dial-up connection, but call quality is poor.

Britain now has about 6.5m broadband users, with another 50,000 signing up every week. Ritz said: “We are starting to get to a level of broadband penetration in the UK which starts to make Voip an attractive proposition for customers.”

Traditional telephony works by establishing a continuous electrical circuit, via switches, between the caller and the person they are ringing.

Voip is quite different. The voice signal is broken down into packets of data, given an address and sent out over the network to be reassembled at the other end. It is a potentially much more efficient form of communication which eliminates some of the costs of existing telecom networks.

But it has its problems. Packets can get lost or arrive in the wrong order, leading to a deterioration in call quality.

This is one issue that is slowing the adoption of Voip in the corporate market. At a recent internet-telephony conference in America, almost two-thirds of telecoms professionals surveyed said they would be worried to put a Voip phone on their chief executive’s desk. Voice quality and clarity was the biggest concern.

In the UK, Tiscali, the internet company, has sought to address this problem with its launch of a broadband service promising guaranteed commercial quality. It allows users to prioritise services such as voice calls and video above others like e-mail and web-browsing.

Call quality over Tiscali QoS is noticeably clearer. Tiscali’s Lance Spencer said: “Skype and BT Communicator work well most of the time, but to use it for business you want guaranteed quality.

“If you’re running a call centre, you need guaranteed quality of service.”

Skype’s different approach to the technology means that its performance is more variable. On an echoey Skype conference call, Zennström insisted: “A lot of people are using Skype for business. It’s really convenient. People are on line and available. Operations in London, in California and Asia can have a conference call.”

Vonage’s “virtual numbers” offer intriguing possibilities for business. Small companies can give the impression they have an office in London or New York for just £2.99 a week.

A bigger problem is access to 999 calls. A number of internet- telephony firms do not support calls to the emergency services (Vonage does).

A more enduring drawback may be that internet telephony requires electricity to supply the broadband router and computer, making the service vulnerable to power cuts. This is one reason why Wanadoo’s Wireless and Talk and BT’s Broadband Voice are pitched as second phone lines.

BT’s Patterson said: “The market won’t move totally to Voip for a long time, and certainly not until Voip is able to deliver everything that the current fixed-line network can. There’s a whole slug of our business — perhaps the older population, middle England — who won’t be particularly attracted to it.”

Eli Katz, chief executive of XConnect and a founder last year of the Internet Telephony Services Providers’ Association, recognised the challenges. “We need to encourage greater consumer awareness,” he said.

Judging by the experience in Norway, a big boost will come if Ofcom, the industry regulator, forces BT to supply “naked DSL” — in other words, a broadband connection that is not also a BT phone line.

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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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