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Internet Phone Service May Save Businesses, Consumers Big Bucks

Posted on: Tuesday, 13 July 2004, 06:00 CDT

Jul. 11--As someone who tracks down overpayments for others, Alan Bell is always looking for ways to cut his own expenses.

So the Plant City resident didn't hesitate to drop the traditional land-line telephone service at his home-based business to start making and receiving calls over the Internet -- at a savings of about $250 each month.

"We've saved a considerable amount of money for a small business," Bell said. "I have no problem with it."

Bell's is among about 131,000 U.S. homes and businesses last year to eschew telephone service via the aging copper-wire, circuit-switched networks of Bell companies such as Verizon Communications. Instead, their calls are sent and received through an emerging technology known as Voice over Internet Protocol.

Compared with the more than 112 million land lines in the United States in 2003, the number of VoIP users was minuscule. But Verizon and others are expected to continue to lose traditional phone customers, and VoIP users are projected to grow nearly 7 1/2 times during 2004, to more than 980,000 subscribers, according to The Yankee Group, a telecommunications research firm.

"We're in the true building stage," said Kate Griffin, senior analyst of consumer technologies and services for The Yankee Group.

Experts say consumers will be attracted by cheap calls routed across the Internet, with no long-distance or access fees or taxes. Because the service is based on Internet technology, it will provide extra features -- voice mail, call waiting, caller identification, call forwarding, group calling, and access to manage calls and accounts through the Web -- at no additional cost.

Offerings for residential consumers range from $14.95 a month for 500 minutes of local and long-distance calling to $49.95 for unlimited local and long-distance calls.

Bell pays $55 a month for his business line with unlimited local and long-distance calling and a dedicated facsimile line. He can make calls and access voice-mail messages through his computer.

"The biggest savings here are the taxes and the designated phone line," Bell said.

VoIP has been offered in the Tampa Bay area for at least two years. However, it hardly is a household name with the average consumer, said Internet-based telephone providers in the Bay area.

Vonage, an Edison, N.J.- based company considered a leader in the technology, is a national firm serving this market. Tampa-based Communications Xchange delivers Internet-based phone service to mainly small businesses and residential customers in Hillsborough, Pinellas and Pasco counties, and part of Hernando County. US LEC Corp. began a trial here and in Jacksonville for midsize to large businesses.

This year, Verizon announced it is building a national network to handle Internet-based calls, and it already offers VoIP to some residential and business customers. An alternative carrier, Tampa-based Z-Tel Communications, has announced plans to build a VoIP network.

On July 1, Bright House Networks, the dominant cable operator in the Bay area, began a limited offering of VoIP in Pinellas County with plans to expand it throughout the Bay area within a year. AT&T Corp. provides an Internet-based service in the Bay area. And Knology Inc., a small cable provider in Pinellas, has talked about delivering phone service to its customers this year.

Louis Holder, Vonage executive vice president for product development, said the upstart Internet phone company welcomes big cable operators and telephone companies jumping into VoIP.

"They will spend a lot of money marketing the products," Holder said. "That will educate the consumer, and that will benefit us."

To use VoIP, you need a high-speed, or broadband, connection to the Internet, such as cable or digital subscriber line service. A regular telephone and your broadband connection then plug into an adapter that looks similar to a modem.

The technology converts a voice signal to a digital signal arranged in distinct packets of data. Those packets travel along the Internet, taking the easiest route to their destinations. When they arrive, the packets are assembled in the correct order and converted back to a voice signal.

The calls can be routed over the public Internet or across a private network.

"There's a good chance some portion of everyone's conversation is already sent over Internet protocol," said Albert Lin, an analyst with American Technology Research. "The market is whether you can take the entire voice and send it over Internet protocol."

In 2002, the industry had revenue of $10,000, said Griffin, of The Yankee Group. That grew to $130,000 last year, she said.

The size of the industry in the future may well depend on regulators.

In February, the Federal Communications Commission began writing rules for telephone service over the Internet. And last week, a U.S. House subcommittee opened debate on VoIP, specifically whether Congress should limit state regulation of the technology.

Most providers agree there needs to be regulation for safety. Calls to 911 over the Internet do not always connect directly to dispatchers or indicate where someone is located.

But providers argue that keeping VoIP free of regulations, access fees and taxes will continue to encourage competition, capital investment and lower prices for consumers.

Bob McKeon and Paul Kratz of Communications Xchange, or CommX for short, said their firm is providing a high-quality service at low prices, without regulation.

Lin, the analyst with American Technology Research, agreed that quality of calls and service still can be maintained by letting the market operate.

Alan Preston is chief executive officer of the home-based computer consulting firm GMX Technologies Inc. in Carrollwood. He said he spends about $200 a month for a dozen telephone lines, which is a fraction of what he paid a Baby Bell company for service.

Although he enjoys the savings over traditional business line costs, what he appreciates most about VoIP is the ability of his 12 employees -- spread from Florida to Texas to Colorado to Oregon -- to appear to be in one office.

VoIP providers can offer just about any area code the consumer wants. So people can call a local number that might ring thousands of miles away, or employees scattered across the United States can be reached through one toll-free number.

"We have to look like one company," Preston said.

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