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Internet Phone Service Is Not Just For Geeks Anymore

Vonage In Print News

The Next Big Thing
January 12, 2004

By Kyle Stock

The Internet has turned virtually every industry on its head. Retail, banking and even stock-trading haven't been the same since the advent of the World Wide Web. Now, technology that enables phone calls to be made over the Internet promises to transform the telecommunications industry.

For consumers, these advances mean cheaper phone service and the end of having to watch their minutes or when they call long distance. For the industry, it means new levels of competition as new players, including the nation's largest cable companies as well as startups, enter the telephone market.

"It's a win-win. We reduce our cost of services and we can sell more different kinds of products," said Robert Russell, director of engineering at Knology Inc., a Georgia cable-Internet-phone company. "It's really going to revolutionize the phone industry, or maybe it's more accurate to say 'evolutionize' it."

The technology, known as Voice over Internet Protocol, or VoIP, has been around for a couple of years. Having tested it in limited markets, telecom giants are now rushing to roll out Voip services ahead of their competitors, despite the fact that only about 15 percent of U.S. citizens have the high-speed Internet access required to make Web phone calls.

"It had been rapidly moving from the novelty stage to the niche stage, and now it's moving from that niche phase to the mainstream," said Jeff Kagan, an independent industry analyst. "Where the circuit switch was the major technology for the last century, Voip will be the major technology for this century. It's too efficient to ignore."

In December, QWest Communications International Inc. rolled out Voip service to residential customers in Minneapolis, becoming the first of the four Baby Bells to take the technology to the general public.

Not wanting to miss out, AT&T Corp. just announced a plan to roll out Voip service to the mass market a bit later this year.

The technology may make the telecom playing field more level than it's ever been. Phone calls will no longer have to be routed by circuit switches that can cost millions of dollars.

Vonage Holdings Corp., a New Jersey-based private company, was one of the first businesses developed specifically to sell phone service to people with a high-speed Internet connection. The company offers an "unlimited" plan for $34.99. Launched in 2001, Vonage now services 85,000 lines in 100 of the country's biggest markets, including Charleston, Columbia, Greenville, Lyman and Spartanburg.WP Media, a Kingstree-based company that handles corporate cyber-security, is looking to get into the Voip business. Tony Spearman, the founder of the company, lacks the capital of a BellSouth. But Spearman is a tech whiz and has the know-how to set up phone service via the Internet.

"If somebody came to me tomorrow and said, 'Look I've got an office in Columbia and an office in Charleston, set up phone service so I can make secure calls back and forth for free,' I could do that," Spearman said.

Knology, which has a growing presence in the Lowcountry, has offered phone service through a traditional network for some time. In July, it started offering Voip to its business customers.

Furniture Rentals Inc., an outfit with offices in Charleston and Augusta, Ga., dropped its traditional BellSouth phone service and signed up for Knology's Voip package in December. Its two offices can now call back and forth for free, and calls from Charleston customers can be routed to its Augusta representatives at no extra charge.

"It's worked out pretty doggone good," said Wally Williams, Furniture Rentals local store manager. "Everything has really been flawless."

Automated Trading Desk LLC, the Mount Pleasant-based company responsible for 4 percent of Nasdaq stock trading, made sure its new building was set up for Voip before it moved in. The company's 60 or so employees log about 30,000 phone minutes a month, a lot of which go to ATD's Chicago office. Now those calls aren't billed separately and are more secure than they were with traditional phone service.

Voip will be a particular boon for cable companies, allowing them to offer a long-sought component in a complete "bundle" of services: phone service, along with their television programming and Internet access. That would give them an edge over phone companies, which have yet to enter the programming realm.

Time Warner Cable, which serves customers in Summerville, is moving ahead with VOIP, setting up trial Internet phone connections in Portland, Me., and Raleigh, N.C. In early December, the company inked a deal with MCI and Sprint as part of a plan for a "major expansion" into the phone business.

Time Warner said it will likely offer phone service to its customers nationwide by year-end.

Cablevision Systems Corp., the country's sixth-largest cable company, claimed the first "widescale" Voip rollout Nov. 11. The company is now connecting millions of customers in the Northeast.

Comcast Corp., one of the country's largest cable outfits and the dominant local provider, is being more cautious with its Voip plans. The Philadelphia-based company is testing Internet phone service in Detroit and a suburb of Philadelphia, but it hasn't said when its entire network might be able to sign up for Internet calling.

Tim Horn, vice president and general manager of Comcast's local office, said it isn't in the company's budget for 2004. He reiterated the company's strategy to focus on television services for the time being.

QWest and AT&T notwithstanding, phone companies haven't rushed into Voip in unison.

At BellSouth, Voip has been available to corporate customers for about two years. Like Comcast, however, the Atlanta-based phone giant has no immediate plans to offer Internet phone service to residential customers. Spokeswoman Alicia Thompson said the company is "definitely looking into it."

BellSouth offered Voip on a trial basis to a few hundred Atlanta residents early in 2003, but pulled the plug on the program a few months later.

"I fully expect that as Voip becomes louder in the marketplace that BellSouth and all the other players are going to throw their hats in the ring," Kagan said. "This is a question of cannibalizing their own business, so they want to wait as long as they can."

VoIP, once it gains critical mass, will mean much more than cheaper phone service.

Experts say Voip will incite a sea change in the way people, especially business people, think of a phone call. The technology will allow real-time video calling and data transfers using the phone instead of e-mail. People will be able to set up their home or office phones anywhere they can plug into an Internet line, and Voip users will also be able to read voice-mail messages online, view call logs and forward calls to other phones.

Wall Street has taken a shine to Voip companies in recent weeks, a sign that investors think Internet phoning might be the next big thing in the tech world.

For example, 8x8 Inc, a Silicon Valley company that makes semiconductors and other Internet phone gear, has seen its stock price increase almost five-fold since October, despite the fact that the company posted a net loss and a drop in revenue for the six months ended Sept. 30.

Shares in Broadcom Corp., another California-based company that deals in VoIP, were trading between $17 and $19 apiece a year ago. Now, a share of Broadcom is valued around $35.

But the days of unchecked Voip growth may be short-lived. Internet calls are able to avoid many of the fees and rules that apply to traditional phone calls, but many are still transmitted on old-fashioned Baby Bell telecom networks, networks that companies still have to pay to use when they're sending phone signals. If Voip becomes the norm, government agencies might have to set up some sort of fee system to pay for the upkeep of lines.

A lot of companies are waiting on major Voip investments to see whether the new technology will be hamstrung by government mandates.

After years of refereeing the leasing terms of phone lines, the Federal Communications Commission is frantically changing gears, trying to figure out how to handle VoIP. FCC Chairman Michael Powell has advocated a hands-off approach in an effort to cultivate innovation.

"The worst thing we could do is, again, regulate it like a telephone," Powell has said.

However, some members of Congress warn that some regulation will be needed to keep 911 services running smoothly and to keep money flowing to the federally mandated funds that pay for phone access in rural and low-income areas.

The 911 worry gets even shorter shrift. Consumers will demand phones with 911 service, the VOIPers say; we don't need the government to tell us that. Vonage has already added 911 to its service; Free World Dialup is working on it and Verizon vows to have it.

Verizon's Young firmly opposed any requirement that Voip phones be as reliable as standard phones. Instead, he said, competition would weed out unreliable service providers. "People will go with brand names they know and companies they trust."

Back when each phone company was a local monopoly, you had to force them to deliver good service. When every Voip phone provider faces five or 10 or 20 rivals, quality will just come naturally.

Curiously, Pulver and his fellow VOIPers aren't dogmatically opposed to regulations. They grant that Voip services may have to pay taxes, and concede that some kind of 911 regulation would make sense. They just don't see the point of doing it all next week.

Voip is where the Internet was in 1994 -- young, innocent, and rather feeble. A decade of benign government neglect gave us Google and Amazon, Yahoo and eBay. Voip may turn out just as well, if the regulators can find something else to think about for, say, five or 10 years.

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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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