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VoIP ready for the masses?

By Wolfgang Gruener, Senior Editor

June 22, 2004 - 15:06 EST

Chicago (IL) - With 27 million broadband connection in the US installed, Voice-over-IP (VoIP) has become an attractive alternative to the traditional phone line. Providers such as Vonage lure users with flat-fee pricing and a growing feature set. Is it ready to substitute your primary phone line?

It is unlikely that you read technology news and don't stumble at least once a day across a VoIP story. Making phone over Internet is not just a toy for geeks anymore, but rather has evolved into a mass market tool which takes advantage of the rapid deployment of broadband.

According to analysts, VoIP is just about at the stage where it is leaving the early-adopter-only phase and entering the mass market. Vonage, the prime example of a rapidly developing VoIP company, has grown to about 175,000 customers across the US, adding more than 21,000 new users every month. The incumbents try to catch up.

But the typical Internet user isn't quite ready to ditch the traditional in favor of a broadband phone. According to market research firm Ipsos-Insight, about 54 percent of Internet users in the US are still unaware of VoIP and 56 percent of those who have heard about it, are confused who such a service has to offer.

So, who are those people who are already subscribing to a VoIP service? According to Mike Triplet, Executive Vice President of Vonage, the firm heavily markets its service to the residential market and pulls most of its customers from there. "People are looking for more features and a more predictable bill," he sums up the Vonage's most compelling features.

Vonage offers an unlimited nationwide calling plan for $30 a month with international calling ranging typically in the two and three Cent range per minute. AT&T recently launched a similar service named "Call Vantage" for $35 am month and eight and 9 Cent per minute international calling. Vonage offers a broad feature set that includes line number portability, and control of call forwarding, voice mail, and billing through a web interface. For additional fees, the user can add unlimited phone numbers with a choice of area code, soft phone service to provide any PC with its own phone number and toll free numbers.

While VoIP service offers a compelling model to decrease the monthly phone bill especially when international calling is involved, analysts believe that the service is not quite ready to substitute a primary phone line. "Our concern is the quality of service, said Danny Klein, senior analyst with the Yankee Group. "It is already a pretty comprehensive service but uses the public Internet and can't guarantee 100 percent reliability," he said. So far, Klein wouldn't ditch his main phone, but use it as a second phone.

Reliability concerns especially circle around the availability of the broadband line: If DSL or cable service is down, the phone won't ring. Instead, phone calls are directed in such a case to the user's voicemail. Today, reliability of Vonage's service does not yet reach a business class service, but Tribolet believes that VoIP can become as reliable as the traditional phone line: "All the incumbents recently made announcement that they no longer would buy switched technologies and instead move towards IP. So we are definitely moving in this direction."

Installation of VoIP still requires hands-on involvement and might deter less experienced users to try this service. Klein does not view this fact as a major hurdle for companies such as Vonage:"If you can set up your broadband connection, you can make VoIP work. Or you can ask a friend to help." Tribulet also is not concerned about customers running into problems with the installation and even sees advantages of Vonage's model. "Traditionally, you had to set up an appointment and a technician had to come out. This could take several days."

In contrast, VoIP hardware could be picked up at a retail store and set up within five minutes. An even easier installation will be available with the arrival of Wi-Fi phones in the fourth quarter: "You don't even have to plug it into the voice terminal anymore," he said.

Still a start-up, Vonage has to deal with typical growing pains such as figuring out how to scale its organization. Outages so far have been rare which is a sign that the scaling its technology base works fairly smoothly. The growth of the company currently is most apparent with customer service, where users typically wait for representatives longer than they do with traditional phone firms such as AT&T.

The incumbents however have noticed Vonage as a threat to their core business. VoIP service is already available or will become available from virtually any traditional phone company in the future. Klein however believes that the only three-year-old Vonage will continue to lead the pack for some time: "They have done a fantastic job in marketing and creating awareness. People already refer to 'Vonage-like services' when they are inquiring about VoIP."