Phone calls via the Net were once for computer buffs but portable numbers and cheap calls are widening their appeal, writes Jim Colgan.
Imagine your home phone number was like an email address. People could call you wherever you were in the world and whenever you plugged in, be it San Francisco or Sydney, the phone would ring.
Voice over Internet Protocol (VoIP) is a technology fast making this a reality for residential users in the US. And apart from making location irrelevant - as it is for email - it offers a cheaper, more efficient service than conventional phones.
In the past year, VoIP services have been emerging here. By marketing advanced phone features and significantly cheaper calls, its popularity has persuaded the established telephone behemoths to get on board themselves.
VoIP (pronounced "voyp") is not new. It has existed in a computer-to-computer form since the early 1990s, but was largely the domain of internet enthusiasts, happy to put up with its long delays and staggered quality. What has brought VoIP into the consumer age is the ability to replace the conventional phone without the customer knowing the difference. And this is the change that is giving telephone executives nightmares.
Improvement in sound quality has attracted a handful of new firms offering the service to home users. Thanks to recent advances in the network system, the VoIP user can access any other phone customer. And in the US, they get the standard 10-digit number. As a result, new companies can market an exact substitute to the traditional service.
"Like a lot of people in the industry, around seven years ago or so, when VoIP first became available, I played around with it a bit," says Ravi Sakaria, founder and chief executive of VoicePulse, a New Jersey-based provider. "We came to the conclusion that this was a really cool technology, but it was not quite ready for prime time." But firms like his can offer advanced features, cheaper flat rate calls within US (around $30 a month) and international calls at rates lower than a third of the regular phone companies.
But the internet connection requirement puts many people off. Customers must have broadband net access before they can use most VoIP services.
"And I don't think people would get broadband just for cheaper phone service," says Jay Pulz, an analyst with Gartner. But Pulz expects high-speed connections to exceed dial-up within the next three years. In fact, some analysts think VoIP could drive broadband demand, so that instead of using the phone to get on the internet, people will use their internet to get on the phone.
Though it is quickly growing in public awareness, VoIP is a far cry from the customer base its conventional counterparts boast. Fewer than 200,000 subscribers use the service at home in the US compared to about 165 million on the old lines. And this pales beside the five million households already using it in Japan. But the surge here in such a short time span has been dramatic. Vonage, the biggest standalone VoIP firm here, expanded users from 7,500 to 85,000 in the past year. And analysts say the biggest indication the industry is ripe for growth is the reaction of the established companies.
In December, phone giants AT&T and Qwest communications joined Time Warner Cable in announcing separate VoIP plans. Now that older firms are entering the fray, VoIP firms expect to benefit from their vast marketing muscle. "People are wondering now, is it a cell phone, is it a calling card, what do I need?" says Louis Holder, an executive with Vonage, "These guys will educate the consumers."
Explaining the service has not been easy. Holder says his firm dropped the unknown "Voice over IP", moniker in favour of the simpler "home phone service" promotion. Once customers knew they simply had to plug an extra box into their cable or DSL modem, sales rocketed.
The concept of this plug and play adapter makes VoIP unique in another way. Wherever you take the adapter the phone number goes with it. This allows use in a different part of the country, or the other side of the world without callers knowing the difference.
"One of the nicest things about the advent of this technology is that geography becomes less meaningful," says Marcelo Rodriguez, editor of Voxilla.com, a website that covers telecoms issues. He says, in theory, residents and small businesses in Europe who make a lot of calls to the US could sign up to one of these firms and get a New York number, not to mention smaller phone bills.
Though global usage is possible, the regulations of different countries might hamper official sales overseas. In fact the technology's fate with US regulators is still uncertain. Currently, such providers are considered an internet service as opposed to a phone company and so they are not regulated at all. As a result, they enjoy considerable savings avoiding the mandated fees charged to conventional phone companies.
Regulators have signalled they do not want to stamp out the growth at such an early stage, but some minimal rules, like a mandated 911 or emergency service, are expected.
With the established companies' plans for this year and the sudden increase in public awareness, analysts are billing 2004 "the year for VoIP ".
Analysts differ on whether it will completely replace the existing phone network any time soon, but regardless of this, Pulz says it will lower the price of calls across the board.
