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Telephone Alternative

May 7, 2003

By Brett Lieberman

WASHINGTON - In this era of nonstop offers and deals on telephone service, it's not unusual for phone users to change long-distance providers and even local providers.

But Vijay Patwardhan doesn't just intend to switch to another provider. He plans to drop the local phone service that Verizon provides to his Hampden Twp. home.

He's among a growing number of people with broadband Internet connections who use their high-speed Web service to make phone calls in addition to surfing and sending e-mail.

Patwardhan signed up with Vonage, an Internet phone service that works over cable or DSL lines and bypasses the traditional networks used by Verizon and the other Baby Bells.

Vonage began offering local phone numbers with the 717 area code in late February.

Voice over Internet Protocol, or VoIP, has been around for several years. It's mostly been the realm of geeks and technophiles using microphones attached to their computers to make calls that are free but suffer from inferior sound quality.

Technology improvements over the last two years, however, have greatly improved the sound quality. For example, Vonage users can connect a regular phone to the service and call anywhere, whereas older technology required users to be connected online.

The sound quality also has improved, and calls using Vonage are usually indistinguishable from a regular phone call.

"The key is it works as good as your analog line," Patwardhan said.

He tested Voip technology two years ago as a cheap alternative to long-distance service, but found the quality was dismal.

"Vonage is a great idea," he said. "You're not dependent on any local carrier or long-distance carrier."

An estimated 100,000 Americans use Voip services such as Vonage or Net2phone, which also allows users to call any phone as long as the call originates through their computer. Vonage has signed up 15,000 customers, 5 percent of whom are in Pennsylvania.

Edison, N.J.-based Vonage serves about 40 of the top 50 markets and hopes to sign up 100,000 customers by the end of the year, according to Louis Holder, executive vice president of product development.

About 60 percent of Vonage customers are home users who pay $39.99 a month for unlimited local and long-distance service or $25.99 for unlimited local service and 500 minutes of long-distance calling.

The service has proven popular because of the simple and often lower pricing as well as a bundle of included free features such as caller ID, call forwarding, voice mail and the ability to monitor usage online.

"We felt that this would be an affordable way to add a line for household and business use," said Todd E. Snyder, who tested the service and liked it so much that he began selling it through his Harrisburg consulting business.

"There's no doubt in my mind that the voice IP solution that they provide is a solution that people can comfortably transition from an existing land-line provider service if they already have a broadband service," he said.

Snyder said "virtual numbers," available for $4.99 a month, also enable business users to be located anywhere, but give the impression that they are located somewhere else. A Harrisburg user, for instance, could have a 212 area code to connote a midtown Manhattan office.

Voip accounts for about 10 percent of international phone calls because it's free or costs as little as 5 cents a minute to call overseas, according to TeleGeography Inc. in Washington, D.C.

Many calling cards, particularly those marketed to immigrants or foreign workers, employ Voip technology to lower costs.

"Basically, you're able to avoid the tolls that carriers charge to make or receive calls," said TeleGeography analyst Patrick Christian. "On their end it looks like a local call so they don't charge the long-distance rates."

Vonage competitors include Net2phone, which allows users to call from a computer to telephones anywhere for low per-minute charges. It also offers inexpensive calling cards.

Free World Dialup is another service that allows users to make free calls anywhere as long as both users have special phones and sign up for the service.

Internet calling remains a small part of the market in the United States, but traditional phone companies and cable television providers are fast taking note.

EarthLink, the nation's third-largest Internet service provider, recently announced an Internet telephony offering that provides customers with unlimited high-speed Internet access and unlimited local and domestic long-distance calls for about $90 a month.

"We look at this as both an opportunity and competition," said Link Hoewing, vice president of internet and technology policy for Verizon. "It was geek stuff in the past, but increasingly it's becoming more mainstream."

The greatest perceived threat comes from cable companies, which have more than 11 million broadband customers and plan to roll out their own Voip offerings next year or early in 205.

Cable companies are expected to offer bundled services to entice more people to sign up for broadband service as well as video on demand and phone service -- all through a single connection and provider.

The Baby Bells are fighting back, pressing the Federal Communications Commission to take a look at these new services and subject them to the same regulations and taxes as telephone companies.

Verizon and other phone companies also are looking at ways to tap into the market and bundle Voip services along with local and long-distance service to the 6.7 million customers with digital subscriber line, or DSL, service.

Vonage and similar services still have to address issues such as emergency 911 phone service. Vonage subscribers cannot use 911 now, but the company hopes to change that soon.

While Internet telephony has proven popular with computer-savvy consumers, the biggest market is likely to be business users. Some companies, such as Cisco Systems, already have all of their employees on a VoIP-based network. A major benefit is they only need to maintain one network instead of separate computer and phone systems.

Verizon recently announced that it plans to spend about $1 billion to construct an Internet backbone for the companies it serves.

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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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