Customers find a cheaper way to make their connections

By Matt Branaugh

SCRIPPS HOWARD NEWS SERVICE
BOULDER, Colo. -- In some ways, Alyson Canepa just might be a pioneering example of how people communicate with each other in this decade -- maybe even in the 21st century and beyond.

The Realtor from Longmont, Colo., already has used high-speed Internet access at home since 2002 to help her download pictures of houses for clients. This summer, she switched from traditional phone service to something that allows her to make and receive calls over her Internet connection for a much cheaper price.

The main benefit: all of the perks she enjoyed before. That includes voice-mail and caller identification and no long-distance tolls when she calls her daughter, who is living in Japan, or her rental properties in Northern Colorado.

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In the past, she says her monthly bill with Qwest Communications International, including taxes and fees, ran about $50 before she trimmed some features to take it down to $34. Then she came across Voice over Internet Protocol, or VoIP, and VoipNuke.com, a local reseller of 8x8 Inc.’s Packet8 product, which runs across Level 3 Communications Inc.’s ultra-fast global network.

Now she pays about $20 a month.

«It’s just so much easier. I cut my phone bill down to half,» says Canepa. «The quality of the calls is really good.»

VoIP takes the voice waves created on calls by people, breaks them up into tiny packets of digital data, shoots them across a network to their final destination and quickly reassembles them back into their original form.

Users are assigned a phone number from their local area, but because the calls travel over networks instead of traditional copper-wire phone lines, those users bypass any long-distance costs. They also can set up their computer or laptop from almost anywhere in the world, establish a network connection and conduct calls as though they were still inside their local area.

Right now, customers typically choose between installing a conversion box so calls still come and go through existing phone handsets on site, or they may pay for a new IP-based phone system.

VoIP users such as Canepa are growing in number. High-tech research firm Gartner Inc. estimates there will be 6 million of them in the United States by the end of next year.

Will Stofega, a senior analyst on VoIP services for IDC, another research firm, says the companies that provide hosting VoIP services, such as Qwest, SBC or those that resell Level 3’s network, will log $222 million in sales next year and $880 million in 2006. By 2008, IDC sees that market exploding to $7 billion.

One thing that’s prompting some businesses to make the shift, says Elizabeth Herrell, an analyst with Forrester Research, is that they’re already looking to replace an aging phone system. Companies that aren’t in that position, though, likely won’t entertain the thought of VoIP until a major upgrade or repair unfolds.

Demand from residential consumers will lag in the early going, too, analysts say. High-speed access must continue to penetrate neighborhoods nation While residential demand warms up, increasing demand from businesses is something Rockynet Inc. has witnessed. In 2000, the company began offering VoIP services to businesses, says President Paul Mako. Now, 80 percent of the 13-employee company’s sales come from the technology.

Industry observers say AT&T, Level 3 and Qwest are among those well-positioned to benefit from VoIP. The main reason: they own their networks.

«The Internet gods have finally smiled on (Level 3),» says Om Malik, a senior writer for Business 2.0 magazine who says he’s been a skeptic of the company in the past.

«This has even surpassed my expectations, how quickly they have become such a dominant force in the Voice over Internet business.»

Early attempts with Internet phone calls by various companies enjoyed limited success. Few people possessed the high-speed access needed to make VoIP work. And the networks used were considered the «public Internet,» built from lines provided by multiple carriers that gave access to everyone.

The problem was that the public Internet didn’t place a priority on voice transmissions over data ones, so the digital packets from a call could easily get jumbled.

Today, high-speed access continues to grow. And since Level 3, AT&T and Qwest own their networks, they can place a priority status on voice transmissions and guarantee their quality. That separates them from current competitive options on the market that still use the public Internet, such as the well-known Vonage, says Andy Abramson, who hosts a daily technology show sponsored by Microsoft.

The promise of VoIP certainly looms large. Still, some questions linger.

How will the federal government, as well as state governments, regulate VoIP? Will the feds treat it as a traditional phone service, which will subject it to universal access fees, electronic 911 requirements, state taxes and other rules placed on existing phone companies? Or, because of its unique use of data networks, will it be classified as an information service, leaving it insulated from much regulation?

For Canepa, the real estate agent, she says she sees it taking a while before people warm up to the idea. But once they do, she says she thinks they’ll sign on the way she did.

«People are very hesitant to disconnect from Ma Bell because they’re so used to using the same thing,» she says. «When people see the value there and the quality, I think it will catch on. It’s just a matter of getting people to know about it.»