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Vonage Review

Milwaukee Journal Sentinel

from www.jsonline.com

Internet Calling Gaining Ground

August 1, 2004

By Jason Gertzen

Jon Byman was considered a technology pioneer a couple years ago when he hung up his local telephone service and began making calls over the Internet.

Although Internet-based telephone systems still don't have many residential subscribers, their popularity is increasing. Such calling will become more common as communications giants AT&T Corp. and Time Warner Cable begin selling the service in Wisconsin and across the country.

AT&T is moving ahead with Internet plans even as it pulls back from selling traditional phone service. Time Warner has been quietly testing Internet service with employees in the Milwaukee area and will gradually offer it to customers.

"The brand names are getting into the business," said Jeff Kagan, a telecommunications industry analyst based in the Atlanta area.

Dramatic growth

Not long ago, Internet phone service was the exclusive domain of a handful of technology geeks who were customers of obscure companies such as Vonage, a New Jersey firm that has served Wisconsin for more than a year.

By the end of 2003, the number of residential Internet phone subscribers nationally totaled only about 150,000, according to Gartner Inc., a technology consulting and research firm in Connecticut. Those ranks are expected to swell to 1 million by the end of this year and to six million by the end of 2005.

Although that is fairly dramatic growth, Internet-based service remains a fraction of the more than 180 million telephone lines in the country.

Encouraged by a high-tech-savvy college buddy, Byman in 2002 signed up for Internet phone service. Back then, the technology was nowhere near being mainstream. Customers certainly could not choose a provider with a household name such as AT&T.

Byman went with service from Vonage, which recently reported that it had 215,000 customers and continues to grow steadily. The company expects to reach 400,000 customers by the end of the year, boosted by sales agreements through Best Buy, Circuit City and RadioShack.

"Some people are daunted by the technology, but it really is simple," Byman said last week as he demonstrated how he uses the Internet phone at his condominium near Milwaukee's Walker's Point neighborhood. "You plug it in and you go."

Not for everyone

Still, the service is not for everyone.

For starters, only households that have high-speed, or broadband, Internet connections can hook up the phones. In Wisconsin, this now accounts for about 20% of all homes, though this is a sharp increase from even a couple of years ago and the trend is moving steadily higher.

Internet phones will not work during a power outage. The call quality typically is as good or better than a wireless call, although Internet phones can be troubled occasionally by echoes or other disruptions.

After Byman contacted Vonage, the company shipped him a small electronic box. He plugged it into his Internet line and then plugged a standard telephone into the device.

Internet phones do not require a computer to operate. Customers can check their accounts and set up different calling features using their home computer.

Curiosity about new gadgets and new technology was part of the initial draw for Byman, a 26-year-old news anchor and reporter for radio station WTMJ-AM (620). Journal Communications Inc., which owns WTMJ-AM, also publishes the Journal Sentinel.

For Byman, the novelty factor of the Internet phone has worn off a bit. He now thinks of it as a normal telephone - one that is cheaper and offers some cool services that he could not get with a standard land line.

Byman pays about $17 a month for his Vonage service, which allows him to make 500 minutes of local and long-distance calls. This is on top of his $25 monthly fee for high-speed Internet service, though he figures he would have this expense whether or not he hooked it up to a telephone.

Local rates

AT&T is offering a six-month promotional price of $19.99 a month for those who sign up by the end of August. The full retail price for the service sold under the CallVantage brand will be $34.99 per month.

Time Warner customers who also subscribe to high-speed Internet and cable television can pay $39.95 a month for the company's DigitalPhone Internet telephone service, said Bev Greenberg, a Time Warner spokeswoman. The price is $44.95 with one other service and $49.95 a month when purchased alone.

Most of these prices undercut $46 to $50 flat-rate, all-you-can-call plans of traditional phone companies. Internet phone services also woo consumers with innovative calling features.

Byman programs his service so that calls ring both at his house and on his cell phone. AT&T's service lets a subscriber set do-not-disturb periods when incoming calls are sent directly to voice-mail unless they came from certain callers.

Internet phone service, known formally as Voice over Internet Protocol, has been available since at least the late 1990s. Early versions were little more than amusements for computer enthusiasts.

When quality improved as the technology developed, corporations began installing Internet phone systems. Many firms find that the service can help reduce costs, and the new systems make it easier for administrators to switch extensions or make other changes.

Lower prices are intriguing, but quality issues will hinder the mass-market appeal of Internet telephones, said John Horrigan, a senior research specialist with the Pew Internet and American Life Project in Washington, D.C.

"It is as good as cell phone quality and it works most of the time, which is pretty good for a nascent technology," Horrigan said. "But we are used to having our telephone work nearly 100 percent of the time and having very clear conversations."

Although gadget-lovers were the typical Vonage customers early on, that is no longer the case, said John Rego, Vonage's chief financial officer.

"A lot of families and college kids are taking the service now," Rego said.

Time Warner Cable plans to sell Internet service to all its division by the end of the year and so far has rolled it out in 20 of 31 divisions, said spokeswoman Greenberg.

The service is available in some portions of Time Warner's southeastern Wisconsin region and should be ready for the entire area by the year's end, Greenberg said.

Consumers will enjoy the convenience of paying a single bill for cable TV, Internet and telephone service, she said.

Not every communications company sees the same opportunities for Internet phone service.

SBC Communications Inc., the dominant local telephone company in Wisconsin, sells Internet phone service to businesses, but does not yet see strong enough demand among individual consumers to develop a product for that market, said Howard Riefs, an SBC spokesman.

Traditional land-line phones offer superior quality and reliability, Riefs said. Land-line phones, for example, continue to work during power outages.