Voice over Net going
subscribers more than tripled in '05 Users
like low prices, versatility of Web phones
Seven months ago, Ron
Hirson cut his phone bill by more than half and is putting his savings
into a diaper fund for his baby on the way.
The 32-year-old San
Francisco Internet advertising executive didn't discover a hidden loophole
or create an illegal long-distance scheme. He did what millions of others
have done recently, turning to Internet telephoning to dramatically reduce
his phone bills.
"I always felt I was
getting ripped off by the phone company,'' said Hirson, who signed up with
Vonage last year. "This is definitely a step in the right
otherwise known as Voice over Internet Protocol (VoIP), broke out last
year in a big way with first-time subscribers like Hirson. Internet phone
subscribers more than tripled from 1.3 million customers in the United
States at the start of 2005 to 4.5 million at the end of last year,
according to TeleGeography, a research firm.
The growth was intensified
in particular by an aggressive advertising campaign by Internet phone
company Vonage, of
, which spent $220 million (
) on Web ads, more than any other firm last
Cable companies like Time
Warner and Cablevision also contributed to the rise of Internet telephony
as they started marketing their Internet-based telephone services in
earnest. Local cable company Comcast will begin service in the Bay Area in
the next 60 days.
With hundreds of small
Internet phone service providers and cable companies involved, analysts
see Internet telephony going mainstream in the next two years with more
consumers turning their back on traditional landline service. By 2009,
there is expected to be 32 million Internet phone lines while traditional
residential landlines will fall from about 114 million last year to about
88 million in 2009, according to Gartner Research.
"There's no reason to
think this acceleration we're seeing will slow down anytime soon,"
said Paul Brodsky, an analyst with TeleGeography. "If you look at the
take-up rate of VoIP, it's astonishing.''
The premise of Internet
telephony is simple. Instead of using dedicated copper phone lines to
carry voice calls, Internet telephony converts phone calls into packets of
data that travel along the Internet before they are reassembled on the
receiving end. The service takes advantage of broadband connections and
built-up Internet networks, which speed the data online along a variety of
The technology came of age
in 1995, with the development of software that allowed users to talk
between two personal computers. Entrepreneurs like Jeff Pulver, founder of
the company that eventually became Vonage, quickly broadened the
technology to allow people to converse using landline phones connected to
Internet telephone service
continued as a hidden playground for techno-geeks until 2002, when Vonage
became the first independent company to begin offering it over broadband
lines. Vonage, which has about 1.5 million customers, was followed by a
gaggle of rivals, all anxious to try their hand at the telecommunications
"In the past, if you
wanted to start a new phone company, you had to have the infrastructure
and equipment," said Pulver. "But now voice has become truly an
application that can run on anything, instead of needing an entire
infrastructure behind it.''
Because of its simplicity,
Internet phone service offers significant savings over traditional phone
service, which requires calls to travel over a single dedicated circuit.
It's how companies like market leader Vonage and Santa Clara's 8x8, the
second-leading independent Internet phone service provider, can offer
unlimited national long-distance service for about $20 to $25 a month.
Similar unlimited calling plans from traditional providers cost at least
twice that much.
companies also offer Internet telephone services and are slowly moving
their voice networks over to Internet Protocol. To go completely with
Internet protocol, phone companies will need to upgrade their switches,
the large equipment that directs phone traffic, and also upgrade their
customers to broadband so they can receive high-quality phone service.
Since all of the traditional companies have already paid for their
existing networks, many aren't in a hurry to incur the cost of making the
complete switch to VoIP.
For now, Internet phone
service is largely the domain of non-traditional telecommunications
rivals, which are building up a sizable customer base with their lower
But while price is the
lure for many consumers, Internet phone service also offers some nifty
features that differentiate it from landline phone service. Many companies
offer the ability to choose a phone number, which can be used from any
broadband connection. You can also often use the Web to check voice mails,
monitor call logs online and get Caller ID for free.
Consumers will soon get
the opportunity to make Internet calls on the road, with new phones and
cellphones that allow people to make calls via Wi-Fi networks.
Businesses are also
migrating to Internet phone service, partly for the savings, but in many
cases for the flexibility and features. Companies can stay better
connected with workers in remote areas through phone calls and instant
messaging, and transmit data to them via their computer simultaneously
with a phone call.
With Internet phone
service, some traditional customer service call centers now have their
employees work from home while still giving them instant access to
customer information. And it makes it easier for companies to hold video
"It's about improving
business processes," said Jeff Snyder, an analyst with Gartner
Research. "That's where most businesses will see value."