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With Improved Image, Internet Phone Service Is Catching On

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Call Attention

December 20, 2003

By Jason Gertzen

Internet-based telephone service is overcoming its early reputation for being shaky and unreliable, and it might be on the verge of a high-tech communications breakthrough.

The technology - known as VoIP, for voice over Internet protocol - is pushing aside traditional telephone systems in some offices and is starting to win over home users.

"It is inexpensive. It has some nice features," said Joseph Klein, who earlier this year switched the telephone in his Milwaukee home to an Internet-based service provided by an upstart telecommunications company called Vonage.

"They seem to have worked out all the major kinks," Klein said.

The technology has been talked about for years, but new users such as Klein and companies such as Harley-Davidson, Metavante and Master Lock show it is gaining acceptance. Some think Voip is ready to shake up and eventually dominate the telecommunications industry.

The ranks of companies able to hook up homes and businesses with IP telephone service are swelling. The technology once was largely only available from firms such as New Jersey-based Vonage and information technology companies like Madison's Berbee Information Networks Corp.

In recent weeks, however, traditional telephone companies have been scrambling to roll out or expand their Voip packages. SBC Communications Inc., Wisconsin's dominant local phone company, has an IP telephone service aimed at businesses. Qwest Communications International Inc. is pushing a residential and business service. The cable unit of Time Warner Inc. is planning an aggressive expansion of its Voip product over the next year that could bring the service to Milwaukee.

"This is the year it is bursting onto the mainstream," said Jeff Kagan, a telecommunications industry analyst based in Atlanta. "It is not going to take over overnight, but it will take over."

Conventional phone systems connect callers over a circuit that is closed to other callers for the duration of the conversation. An IP telephone system breaks a voice into digitized packets, sends the packets over a network and then reassembles them on the other end so the other party hears a normal voice.

Some systems send the voice packets over the public Internet. Others, such as those used by SBC and AT&T, rely on more secure private data networks.

The growth of Voip technology will trigger a new round of fierce competition that will produce new groups of winners and losers within the telecommunications industry. Consumers will see plenty of benefits even before that plays out completely, Kagan said.

"You get lots of innovation and lots of attractive pricing," Kagan said. "It's a very exciting atmosphere. The customer wins. It's a buyer's market."

Regulation Questions

The technology industry certainly has made promises before about the next big thing that turned out not to be so big after all. So is this really a big deal?

Internet telephone service still remains in its early days, Kagan said.

Federal and state officials have yet to work out myriad regulation and taxation issues that could hinder the development of the technology.

A key reason that the technology has not taken hold before now is that early versions of IP telephone calls often had a tinny, jittery sound. Today's IP telephone service sounds much better. Some who use it say that its reliability and quality equal other telephone systems.

They still must address concerns that phone service would be lost when power goes out, although Voip advocates said this can be overcome by battery units and other back-up systems.

Many early converts to the Voip technology have been attracted by lower prices.

Klein pays around $35 a month for unlimited local and long-distance service through Vonage. This price beats flat-rate bundles available from SBC and other traditional phone companies in the Wisconsin market.

Businesses installing voice over IP systems also can cut the costs of their calls.

HellermannTyton, a Milwaukee manufacturer that is using AT&T's IP telephone service, no longer pays per-minute long-distance charges when making calls over the system among its offices in Milwaukee, Illinois and Florida, said Chris Cantwell, e-business manager.

Even greater savings tend to come from advantages that make these systems much easier to administer.

"Voice over IP is being marketed as cheaper phone service, but that is the least of it," Kagan said. "It is so much more than that."

By blending voice, video and data onto a single network, the technology can do a lot more than place a phone call.

"It is going to allow us to have the science fiction future," Kagan said.

Crystal clear video conference calls, home automation, interactive gaming and other functions all are possible with this technology, Kagan said.

"Sitting with a laptop in a hotel room, you can have a video call with your family at home," Kagan said.

AT&T also sees Voip as bringing a telephone industry transformation.

The new way of providing telephone service represents the "most significant, fundamental new technology shift in telecommunications in decades," David Dorman, AT&T's chairman and chief executive officer, said recently.

"We're on the verge of a Voip revolution," Dorman said.

Berbee is seeing rising customer interest in the technology.

"The single biggest driver is still cost savings," said Pat Scheckel, who works with Berbee's IP telephone customers out of the firm's Chicago office.

The costs for the central switchboard and other equipment can be cheaper than a conventional system, especially when a company is connecting multiple remote sites, Scheckel said.

The ongoing maintenance cost is less, as well. A company's IT staff can make the telephone extension changes when an employee moves within an office building or a new worker joins the firm. This saves the cost of moves, adds and changes on a conventional system, which could involve bringing in a telephone technician.

IP telephone systems can bring operational savings of around 20% to 30%, he said.

Companies are finding that the telephone systems also can bring other benefits.

"There is an acknowledgment that the productivity gains are there," Scheckel said.

When he travels, Scheckel calls his office's voice mail system and has e-mails automatically read to him over the phone. If one is urgent, he can send a reply or forward a message to a colleague who can take care of it.

Another sign of how the IP phone trend is taking hold is that Berbee had been debating last year whether to shut down a team of a half-dozen programmers designing new systems that tap the productivity-enhancing potential of IP telephone systems. The team is increasingly busy now, though, as more customers install the technology.

Doing more with less

SBC's IP telephone customers also are finding advantages in switching from old phone systems to this new technology.

An IP phone system can be set up so certain calls go automatically to voice mail and other, high-priority calls come right through, said Marianne Gedeon, director of voice-data convergence for SBC.

Employees who travel can use a find-me, follow-me function. They set up the system so calls coming into an office phone automatically are forwarded to a cell phone or other number where the person is working.

"Most businesses are faced with how to do more with less," Gedeon said. "Companies that have dug into this truly have seen some savings."

Within the next five years, IP phone technology could account for as much as half of the market, Gedeon said.

AT&T said it has hundreds of business customers using its Voip service, a fourfold increase from last year.

Vonage has signed up 75,000 customers since launching its service in the spring of 2002 and is aiming for 250,000 by the end of next year, said Louis Holder, executive vice president of product development.

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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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