Internet- and cable-based calling is coming into its own even as traditional phone companies merge -- with price hikes likely to follow. It may be time to rethink the way you ring.
By Liz Pulliam Weston
Two pending mergers -- SBC's takeover of AT&T and the combination of MCI with either Verizon or Qwest -- will leave fewer traditional phone competitors. Fewer competitors usually mean higher prices for customers.
But you don't have to be held hostage to the new "Step-Ma Bells." Internet phone calling, according to those who have adopted it and analysts following the industry, is an option that's ready for prime time.
A few weeks ago I used the word "evangelical" to describe people who have TiVos and other digital video recorders on their television sets. The same word applies to many of the 1 million customers who have switched to Vonage or one of the other so-called Voice-over-Internet-Protocol, or VoIP, phone systems.
Both sets of fans tend to be: a.. Greatly impressed with the quality and features of their systems. b.. Amazed at the low prices they're paying. c.. Eager to convince everybody around them that they should switch.
"I recommend it to everyone that will listen," said Travis Mack, a fire sprinkler engineering technician in O'Fallon, Mo., and a Vonage customer since last summer. "I truly believe that VoIP is the telecommunications wave of the future."
Forget phone lines
Internet calling services are designed to replace both your traditional land line and your long-distance provider. Instead of accessing phone lines or wireless networks to place your calls, the systems use your broadband connection. Your phone is connected to an adapter box, which in turn is connected to your cable or DSL modem.
VoIP packages typically include, among other features:
a.. Unlimited local and domestic long-distance calling. b.. Voice mail, call waiting, call forwarding, caller ID. c.. The ability to keep your current phone number or choose a new number with any area code you want from the provider's list.
Vonage is the biggest player so far, with nearly 40% of the market. Other independent providers include 8x8, Net2Phone and VoicePulse. AT&T has a service as well, called CallVantage. The monthly cost is $20 to $30, although most services have a bare-bones option with limited minutes for $9 to $15.
Now cable companies including Comcast and Time Warner are making big pushes into the market.
Comcast launched VoIP in three markets last year -- Philadelphia, Indianapolis and Springfield, Mass. -- and plans to offer it to half of its 21 million customers by year-end, said company spokesman Bob Smith. The cable provider calls its offering Comcast Digital Voice, to distinguish it from its older phone service, Comcast Digital Phone. (Like some other cable companies, Comcast has long offered phone service using old-style "circuit switched" technology, using Internet protocol to send calls is a newer -- and less expensive -- innovation.)
The cable companies tend to charge more: $35 to $55 a month, depending on whether or not you get television and broadband from them. And though they use the same technology to break voice calls into digital information as the other VoIP companies, cable providers use their own networks rather than the public Internet to transport calls, Smith said.
Finally, one other player has announced plans to get into the market. AOL recently said it would offer the service to its 22 million subscribers, but it hasn't revealed its pricing.
Unlimited calling, free services
The unlimited free local, toll and long-distance calling that Mack gets with Vonage allowed him to drop his land line and opt for a cheaper cellular plan. He's also started to use -- and like -- the free services, like caller ID and call forwarding, that he didn't use with his previous phone company because of the expense.
Mack also likes the fact he can get his voice mail by e-mail, a service his former provider didn't offer, and that he can take his Vonage service anywhere he travels that has a broadband connection.
"I have taken my (Vonage adapter) box to another state and had my telephone number ring wherever I am," Mack said. "You are not tied down to a permanent location with a telephone number like you are with a land line."
All this for $8 a month less than Mack was spending just for his land line. Mack figures he saves at least $23 a month, and far more when he considers the many months in the past he went over his cell-phone minutes limit, racking up as much as $100 a month in overage charges.
"Another nice feature is that for $5 a month, we have a virtual number in another state that allows some of our out-of-town friends and family in Arizona to call us as a local call ... saving them long-distance charges as well," Mack said. "As for the clarity of the phone, I promise that I could give anyone a land line and the VoIP line and you could not tell the difference."
Such was not always the case. Allen Tsong of Brooklyn tried an earlier version of VoIP and wasn't impressed. Outages and poor phone quality were common. But Tsong said problems have been few since he switched to Vonage in 2002. Now he uses the service both at home and at his Brooklyn wholesale handbag business, Yans NY.
Tsong said he makes lots of calls to Hong Kong and China, so Vonage's low international rates save him money.
The rates "are comparable to prepaid calling cards," Tsong said, but he doesn't have to worry about running out of minutes or buying new cards.
A few challenges.
So why isn't everyone rushing to sign up for Internet calling? There are still some barriers and drawbacks, including:
The need for broadband. You need high-speed Internet access to have these services. If you're still on dial-up, the cost for DSL or a cable modem can add $20 to more than $50 a month to your telecommunications bill. If you're a very heavy phone user, you may still save enough to offset the cost, plus you'll get speedy Internet access. If you're an infrequent caller on a tight budget, though, the math may not work.
The possibility of outages. Your service may be only as good as your high-speed connection. If your cable modem or DSL goes on the fritz, you won't be able to make VoIP calls. Also, the services themselves can have problems; Vonage recently experienced a 45-minute outage thanks to a software upgrade that went awry.
Dead jacks. The services typically only work on one or two phone jacks. If you have extensions in other rooms, you may need to buy an adapter or get a new phone -- the kind that has a base station that broadcasts to extra handsets. Also, if you have other things plugged into that line -- like your TiVo, for example, or a home alarm system -- you may need a wireless adapter, or you may need to keep a land line active.
Emergency calls. The independent Internet calling services typically aren't hooked in with city 911 locator systems, so the operator wouldn't be able to see your home address if you make an emergency call and can't talk or get cut off. (This typically isn't a problem with the cable companies' networks, which are tied in with cities' enhanced 911 services.) Some users of independent Internet services keep a land line or use a cell phone with enhanced 911 locator services to deal with the issue.
Louis Holder, Vonage executive vice president, said the company is working on solutions. Right now, Vonage routes 911 calls from registered users to the nearest available emergency facility, and it recently introduced enhanced 911 with address locator capabilities in Rhode Island.
"We're where the phone companies were in the mid-1990s," when 911 locators were far from universal, Holder said.
Liz Pulliam Weston's column appears every Monday and Thursday, exclusively on MSN Money. She also answers reader questions in the Your Money message board.
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