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Firm to Offer Flat-Rate Phone Service in Chicago Area Using VoIP Technology

Posted on: Thursday, 2 December 2004, 21:00 CST

Dec. 3--A start-up company will use Internet technology to offer flat-rate phone service for $199 a year.

The service, from a company called SunRocket and started by former MCI employees, includes unlimited local and long distance calls as well as two new cordless phones.

Serving about 50 markets -- including the Chicago area -- with fewer than 50 employees, SunRocket illustrates how easily entrepreneurs with little money can start a phone company using what's known as Voice over Internet Protocol.

"Someone could start a VoIP service out of his spare bedroom," Jeffrey Williams, chief information officer at Cleveland-based Broadvox LLC. He said it's possible to launch service for less than $50,000.

Broadvox, which transports about 300 million minutes a month in Internet phone communications, serves many carriers as well as some business and residential customers.

SunRocket's main appeal is that unlike the $40 or $50 flat-rate monthly calling plans offered by traditional phone companies, there are no fees or taxes to inflate its once-a-year charge. Because the technology is new, government officials haven't settled upon rules for regulation and taxes.

That gives SunRocket and other newcomers, such as Vonage, an attractive advantage over established carriers.

While Internet phone has only a few million residential customers, its credibility was boosted greatly this summer when venerable AT&T Corp. said it would withdraw from marketing traditional phone service to concentrate on VoIP.

Furthermore, SBC Communications Inc. said last month it will start offering Internet telephone service next year to its customers who use the phone giant's DSL service.

The technology's popularity is soaring, especially among corporations, according to a survey released this week by Changewave Research.

"Two years ago our survey found that most people weren't interested" in VoIP, said Tobin Smith, Changewave's founder. "We saw a big switch starting in late 2003. It's in full swing now with VoIP deployments doubling in 2004."

The upsurge in demand is attracting new entrants in much the same way competitive phone companies sprang up following the new federal telecom law passed in 1996 or the way long distance companies bloomed during the 1980s to exploit new opportunities.

Nearly all VoIP carriers offering service to consumers require customers to have their own broadband Internet connections, usually purchased from a cable TV carrier or a local phone company. VoIP phones are hooked into the modems used by computers.

Most VoIP services enable customers to place calls to wired or wireless telephones that aren't connected to computers.

Companies like Broadvox provide the technology necessary to bridge the gap between data networks and the traditional voice networks. Some of Broadvox's customers have switches and wires in one or two markets and then resell Broadvox service elsewhere. Others have no facilities at all, Williams said.

Needing little more than about $20,000 in equipment to connect to a service like Broadvox and some money for marketing, newcomers can get started quickly.

The marketing hook for SunRocket, besides it's low yearly price, is the name. It was named like a spaceship to make it stand out amid the forest of new firms selling the new technology.

Most new providers choose names referring to voice, broadband, telephony or other terms that evoke spoken communication.

"We wanted a brand name that's different," said Joyce Dorris, co-founder of SunRocket, which is based in Vienna, Va., not far from MCI.

While they can provide service at rock bottom rates that include Caller ID, Call Waiting and other goodies, newcomers like SunRocket do face drawbacks, said Joan Engebretson, Chicago-based executive editor of Broadband Edge.

She said few experts expect most upstarts will be around in two or three years, but one or two could turn out to be the next Sprint or MCI.

"A cable operator or phone company that offers VoIP will give you a service that hooks up to all the extension phones in your house," she said. "You can rely upon it as your primary service.

"But a lot of these others only work with phones hooked to your computer modem. When your computer service is down, so's the phone.

"Customers use them more for low-cost long distance. But as the price of regular phone service has fallen, they may not make economic sense for a lot of people."

The lack of taxes and regulation on VoIP will be addressed next year as the Federal Communications Commission considers what new rules should cover the service. State and local governments will surely seek to tax the service as well.

But VoIP technology, which makes voice communications indistinguishable from data transmissions, will be very difficult to regulate and tax, said Terry Barnich, a Chicago-based telecom consultant and former chairman of the Illinois Commerce Commission.

"Right now about 20 percent of your phone bill goes to taxes in one way or another, many of them hidden," Barnich said. "The new technology will make it far more difficult to hide the taxes. That makes life more difficult for legislators who hate to enact taxes that voters can easily see."

Rural phone companies that depend heavily upon subsidies will be the first to feel the economic pain from the emerging technology, said Shane Greenstein, a professor at Northwestern University's Kellogg School of Business.

"It'll happen in some state like South Dakota or Idaho that doesn't have any big metro area to subsidize rural service," said Greenstein. "There'll be a telecom crisis as customers that now pay subsidies and hidden taxes migrate to VoIP."

Any new taxes and regulations directed at VoIP phone service will likely encourage more consumers to communicate with each other directly through their computers, said Michael Levit, chief marketing officer at PalTalk.com.

PalTalk uses VoIP to enable customers to talk through their computers and supplies voice communications for free, gaining revenue by charging for video feeds to enhance communications.

The firm did at one time enable its customers to call regular phones from computers, but abandoned that service in 2002 because it required some charges to operate.

"There's been so much commoditization of voice that we see it as free," said Levit.

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Source: Chicago Tribune

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