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Web Grabs That Phone

June 10, 2005

By Reinhardt Krause

Kerry Garrison says setting up your own phone system in an office or home is no big deal. All it takes is a broadband connection, voice over Internet protocol software and technical savvy.

Garrison's Irvine, Calif., consulting firm helps businesses set up computer networks that use Voip to route calls.

His move is part of a revolution in the communications business.

Consumers want cheap and quick ways to connect with each other, and they're finding it with Voip and the wireless wave of Wi-Fi.

And then? WiMax, which could help people reach way out and touch someone without tangling up in wires.

Right now the vroom belongs to VoIP. Its software converts voice calls into tiny bits of digital data and sends them over computer networks, like e-mail.

The Right Direction

Big thinkers like Garrison say Voip is the way to go.

With a PC-based server and Voip software, firms can route calls in-house as well as to remote workers. The setup reflects private branch exchanges that big companies use.

Garrison uses his own garage as a demo site for customers. His home is equipped with a PC-based Voip phone system that provides room extensions and voice mail.

And Garrison is getting ready for the next evolution in VoIP. It's going wireless.

Hybrid mobile phones are coming that combine Internet phone service at home or the workplace with cellular coverage outside.

Voip software lets these phones connect to wireless Internet networks, called Wi-Fi.

Clearly, Garrison is a do-it-yourself type. He contributes to a Web site called the Geek Gazette. He has more technical know-how than most Americans.

Garrison is convinced that traditional landline service is on the way out. Voip will catch on with mainstream consumers, he says.

"Right now, it's mostly the computer literate, the nerds, the technophiles," he said.

"But the home market is changing rapidly. Homes have multiple computers, so home networking is much more common. The next thing is what you can add to Internet access and home networking. That's VoIP. What starts in the domain of technophiles is starting to go mass consumer."

Many market researchers agree that Voip will grow rapidly. However, the day when Voip users actually outnumber regular phone users could be a decade away.

The number of households in North America with Voip service will climb to 20.8 million in 2008, up from 1.1 million in 2004, says Infonetics Research.

International Data Corp. is even more upbeat. It says U.S. households with Voip service will jump to 27 million by the end of 2009, up from 3 million this year.

Broad Appeal

Park Associates says 40 million U.S. households will have speedy Internet access at the end of 2005. That's key, because Voip service requires broadband hookups.

And 24 million U.S. households will have home networks, mostly wireless, by the end of this year, Parks Associates says.

VoIP's emergence poses a threat to big local phone companies.In the mid-1990s, some PC owners used Voip software to make cheap international calls. New startups, led by Skype, have taken PC-based Voip to a higher level. They've improved the voice quality and reliability of Internet phone calls.

Even so, Skype's PC-based Voip service isn't free, as media hype often suggests. Skype users pay per-minute charges to connect to regular phones.

Then there's privately held Vonage. It roiled the phone industry in 2003 by selling a consumer-friendly kit. Vonage's subscribers plug a regular phone into an adapter that connects to a high-speed Internet hookup. Vonage realizes that most people want to connect Voip serve to multiple phones around the house.

So Vonage has partnered with cordless phone makers, such as Uniden, and makers of Wi-Fi networking gear. Vonage sells gear at big retailers, including Circuit City (CC) and Best Buy. (BBY)

Vonage leads the industry with 650,000 Voip subscribers. Still, it has yet to turn a profit. Its marketing costs have soared.

That doesn't worry Vonage founder Jeffrey Citron. In May, Vonage raised $200 million in new private investments. It has raised more than $400 million overall. Vonage is aiming to be profitable in 2006.

"We've crossed the chasm from early stage adopters to late-stage adopters. We're in mass-market mode now," Citron said.

Vonage plans to go nationwide with installation service later this year. "You won't have to worry about how to wire up the equipment," Citron said.

Best Buy, Citron adds, already offers a "geek squad" service that installs Voip gear in homes.

Vonage's success has prodded cable TV firms into VoIP, analysts say. Cablevision (CVC) and Time Warner Cable (TWX) began selling Voip in 2004. The biggest cable firm, Comcast, (CMCSA) could start in 2006.

Cable firms send installers for VoIP, just as they do for video and Internet services.

That made a difference to Philip Schneider, a retired New York City planning consultant. He signed up for Time Warner Cable's Voip service in mid-2004.

"I'm a second-generation adopter," he said. "I waited for the second round of digital cameras and a few months ago got a flat-panel TV. The Voip installation was easy. All they had to do was put in another box."

The big question: Who wants to buy VoIP? The short answer is anyone who wants to save money on phone bills.

Prices for conventional phone service are falling. SBC Communications (SBC) lowered its monthly fees for unlimited local and long-distance calling to $40 early this year.

Vonage, though, charges $25 for unlimited Voip calling, and some startups charge less. Voip providers throw in features like caller ID, call waiting and voice mail.

In addition, Voip suppliers let customers pick their own area code. So if you live in California but all your family and friends are in New York, picking a 212 area code makes sense. That lets family and friends call you at local rates.

Phone companies expect that VoIP's use will spread over any broadband connection — wireless as well as wired.

"It's a reality that's coming," said Ed Cholerton, SBC's vice president of consumer marketing. "We have to be on our toes."

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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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