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Vonage Internet Phones Going Mainstream

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Internet Phones Going Mainstream

April 3, 2005

By Staff

What once sounded like science fiction now has become the mainstream:

You can make a phone call using the Internet, and someday not all that long from now, that may be the way your neighbor does it, too.

More Business News

  • "VoIP is going to become the big thing," said Jeff Kagan, an independent telecommunications analyst based in Marietta, Ga. "It's challenging traditional phone service today."

    Voip (pronounced "voyp"), short for Voice-over-Internet Protocol, has gone in the space of 10 years from a quirky idea to a product offered by 360 independent companies nationwide — and that's not counting the plans offered by the big telecoms and cable television companies.

    Things began happening for Voip about two years ago, at about the time a company in Edison, N.J., called Vonage Holdings Corp. offered a national calling plan of just $25 a month. The company now has 500,000 subscribers.

    "Vonage really kind of kicked things off, and then beginning with last year, the cable companies got serious about it," said Phil Leigh, a senior analyst with Inside Digital Media Inc. in Tampa.

    Nationally, there were more than 1 million Voip users, both residential and business, by the end of 2004. The year before, there were only 131,000, according to the Boston-based research company Yankee Group Inc.

  • "It's nice to be on the leading edge of technology," said Robb Duke, spokesman for Ryla Teleservices, a fast-growing customer call center in Kennesaw, Ga.

    The growing acceptance of Voip is only the latest step in the coming transformation of the way people gain access to media. Industry experts say consumers will one day choose all sorts of media from a single high-speed line that will deliver radio, television, phone and Internet service.

    "I think the whole mindset is going to change," said Don Boerema, president and chief operating officer of Maitland-based FDN Communications, which offers Voip through its subsidiary, Broadline Communications Inc. "Your primary connection is really going to be that high-speed data, and voice is really going to be one of the features. It's going to be that killer application."

    But that's still years away. For now, Voip is a constantly evolving technology.

    Broadline's plans start at $19.95 a month. Others, such as AT&T's VoiceWing, which started up last year, begins at $29.99. One independent provider, Vienna, Va.-based SunRocket, sells its Voip kit and a year's worth of service for $199.

    "We have no hidden fees, no tacked-on charges, all of those things that drive consumers nuts," said Joyce Dorris, SunRocket's co-founder.

    Those monthly charges are on top of what you pay for your high-speed Internet, but telephone and cable companies often "bundle" the two features for a lower price than paying for them separately.

    And getting connected is easier than it used to be. Consumers now can head over to a Best Buy, CompUSA, BrandsMart, or similar store to get their hands on some Voip gear. Circuit City has a four-shelf display of Voip kits containing small boxes called routers, which plug into a high-speed connection and then into your phone.

    Broadline, which started offering service last year, has just 1,000 customers. But the company considers that a huge number because it has done relatively little to promote it. Clients have been finding Broadline by going to its Website and signing up.

    "It's shocked us on how well it's been going so far," Boerema said. "We've exceeded our expectations."

    While the number of Voip providers is high, consumer awareness is low. Dorris said customers often ask if the technology uses a regular phone and regular phone numbers (yes) and whether you need special software or a technician to install the equipment (no).

    "We see people who are more comfortable with the technology, and it will become more and more mainstream," she said.

    She likens VoIP's appeal to that of a cellphone's — it's the gadgets and features that draw consumers into the technology, which simply provides another way of making phone calls.

    Because of the way calls are transmitted — voice impulses are digitized, or transformed into data, and sent over a high-speed line — users can live anywhere and all of their calls are local. The service is cheap: often $29.99 a month for in-state calls and $10 more for long-distance calls. For now, that flat amount is what you pay; there are no regulatory taxes and fees.

    Market research company Harris Interactive says right now Voip is a more popular choice for businesses, though companies such as SunRocket and Broadline target residential consumers.

    Between 5 percent and 10 percent of BellSouth's business customers use VoIP, which the phone giant started offering in 2001. Companies that use Voip are often changing locations, adding an office or using new technology, said Todd Smith, a spokesman for BellSouth.

    "It's going to be great with their phone system, versus just buying it because it's the latest cool technology," he said.

    Ryla, which does everything from telephone surveys to technical support for large and small companies, began using AT&T's Voip service when the company started up four years ago. At any one time, 150 of Ryla's employees are working the phones, but with Internet telephony, the monthly phone bills are free of surprise charges.

    "We have a very predictable telecom expense," Duke said. "It doesn't move, and we don't pass that on to our customers."

    Internet telephony is ratcheting up the already fierce battle between the cable companies, which entered the fray last year, and the phone companies. Cablevision began offering Voip last year, followed by Atlanta-based Cox Communications Inc. — which is owned by Cox Enterprises Inc., which also owns The Palm Beach Post — and Comcast, which is in 20 major markets and expanding. Comcast is not yet offering Internet telephony in St. Lucie and Indian River counties.

    "They are going to have a big impact on the market," said Kate Griffin, a Yankee Group researcher.

    Adelphia, the dominant cable provider in Palm Beach, Martin and St. Lucie counties, recently announced plans to partner with Level 3 Communications to start Voip service, which should be offered in this area later this year or early 2006.

    The phone companies have begun to strike back with talk of video phone calls and television service. Most of the Baby Bells sell Voip at least to business customers. When the Bells start losing a significant amount of traditional phone subscribers, they will push Internet telephony harder, analysts say.

    "It's a warning sign that the Bells are getting into VoIP," Kagan said.

    Who will be the leader in Internet telephony in five or 10 years is unclear, analysts say. It's likely that the independent providers will fade as the battle between the cable and phone companies heats up. Consumers should expect mergers in the telecommunications industry over the next few years, leaving them with fewer providers but ones that sell everything from phone to cable to Internet service.

    "What evolutionary theory has taught us is that it's not the biggest and strongest species that survive, it's the species that is most adaptable to change," said Leigh of Inside Digital Media. "That's what the incumbent telephone companies have to do now, and that's what they are loath to do because they are so used to the monopolistic control over their markets."

    What's certain, industry experts say, is that the establishment of Voip is the start, not the end, of changes in the daily media universe.

    "Today it's about savings," Kagan said. "Tomorrow is where the fun begins."

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