By Paul Davidson, USA TODAY
Can’t make it to France this summer?
In the digital age, the next best thing to being there might be this: a French phone number.

Primus Telecommunications on Monday will become the first major broadband phone provider to add an international flavor to anything-goes, Internet-based calling.

Customers of Primus’ Lingo Voice over Internet Protocol (VoIP) phone service will be able to choose a local number in cities — including London, Paris and Tokyo — in more than a dozen countries.

The number, which costs $9.95 a month, can be used only for incoming calls as a second line to basic Lingo service. At $19.95 a month, Lingo users already get unlimited local and long-distance calls, including unlimited calls to Canada and Western Europe.

The foreign number will let overseas friends or relatives of Lingo customers call them for the price of a local call. U.S. businesses can give the number to international suppliers or partners.

«The Internet knows no geographic boundaries, and your phone service shouldn’t, either,» says Primus co-President John Melick.

Internet-based phone services are taking off by offering cut-rate prices and funky features. Subscribers, who must already have high-speed Internet service that typically costs $30 to $40 a month, plug a regular phone into a special adapter that connects to the broadband line.

Voice is turned into data packets that travel over Internet-based networks and are converted back at the other end. Since there’s no need to run wires to every home or business, providers can offer unlimited local and long-distance calling for less than $35 a month. Subscribers should jump from 500,000 to 18 million by 2008, says Frost & Sullivan analyst Jon Arnold.

The services also offer freewheeling features. Customers can get voice mail as e-mail and use their adapter, and number, anywhere there’s a phone and broadband line. They can choose from hundreds of North American area codes, because numbers are linked to an Internet address rather than a physical location.

Primus can add foreign numbers because it’s a global provider with overseas gear. A few smaller carriers offer a limited number of foreign numbers, Arnold says.

By Alex Salkever

Skype requires no configuration changes and easily passes through firewalls and other computer-security systems that trip up many voice applications. So far, Web surfers have downloaded 18.5 million copies of the software since it was released in August, 2003. Skype has also put out versions for computers running Linux and for PDAs running Microsoft’s PocketPC operating system.

Niklas Zennstrom, founder of peer-to-peer telecommunication company Skype Technologies, is no stranger to controversy. As the creator of file-swapping software outfit KaZaA, Zennstrom unleashed the code that enticed tens of millions of Web surfers to become music pirates.
The unrepentant Zennstrom and fellow founder Janus Friis distanced themselves from KaZaA two years ago through a series of byzantine legal maneuvers. Now Zennstrom and Friis are attacking another staid industry, global telecommunications. But their technology of choice remains P2P.

Skype’s only product is a small and easy-to-use piece of software that allows two people on the Internet to communicate via high-quality voice calls for free. The interface resembles those found in instant-messaging applications from Microsoft (Nasdaq: MSFT) and America Online. To make a call, users don a headset equipped with a microphone, select a name from their buddy list on their screens, and click the green telephone icon.

Viral Growth

Skype requires no configuration changes and easily passes through firewalls and other computer-security systems that trip up many voice applications. So far, Web surfers have downloaded 18.5 million copies of the software since it was released in August, 2003. Skype has also put out versions for computers running Linux and for PDAs running Microsoft’s PocketPC operating system.

Zennstrom claims to have nearly 8 million regular users, making Skype one of the fastest growing viral applications ever. On July 27, he responded to critics’ concerns about his revenue model by launching a pay service -- SkypeOut, a program that allows Skype users to make calls to regular telephone numbers anywhere in the world over the Skype network at dirt-cheap per-minute rates.

The real results will depend on Skype’s ability to sustain revenue-generating businesses. It won’t be easy, but it can be done -- as Yahoo! and MSN have shown with the huge number of repeat and captive visitors they’ve brought in by offering free e-mail.

Heavyweight Partners

«One day, we will look back and wonder why we ever paid for phone service, in the same way that we now look back and wonder why we ever paid for e-mail,» says Steve Jurvetson, a managing partner at venture-capital firm Draper Fisher Jurvetson. His firm was one of the early investors in both Hotmail and Skype. Jurvetson and other investors see Skype as a massive multibillion-dollar business ultimately and hope it will be the next big tech IPO after search-engine Google goes public this month.
Many telecom insiders scoff at such predictions. They say Skype will remain a niche player and never hit critical mass because competition for voice calls has heated up markedly in the past year. As of the first week of August, 2004, Skype had barely made a dent in the $1 trillion global telecom industry. Since inception, the Skype network has carried 300 million minutes of voice traffic, a fraction of 1 percent of international voice traffic without even counting local phone calls.

Critics further note that Skype’s proprietary technology «will make it harder for them to connect with other networks, and that could work against them,» says Lou Holder, an executive vice-president of leading Internet telephony provider Vonage.
Still, some companies are taking Skype seriously. Zennstrom has already signed deals with four global telecom heavyweights, including Level3 and Teleglobe, for its SkypeOut service. Federal Communications Commission Chairman Michael Powell is a fan and has given kudos to Skype in public speeches.

Tiny Market Share
Leading PC and telephone headset-maker Plantronics, a grown-up company by anyone’s standards, signed a deal last year to promote its headsets to Skype users and to plug Skype on its in-store packaging materials. And an executive from one of the world’s largest telecommunications-equipment suppliers has taken a seat on Skype’s board.

«They have a very interesting business with very interesting technology,» says Sureel Choksi, an executive vice-president at Level3. And Skype seems to be in the right place at the right time. The voice-call biz is undergoing a sea change as more and more telecom operators turn to the same technology that powers the Web -- Internet Protocols (IP) -- to run their phone networks.
According to telecom researcher Telegeography, carriers using IP handled only 150 million minutes of international telephone calls in 1998. That’s less than 0.2 percent of total minutes. That number soared to 18 billion or 11 percent of the international total by 2002. Telegeography expects the tally to increase to 24.5 billion, or 12.8 percent of the total, by 2003.

Two of the largest Voice-over-IP (VoIP) carriers, IXTC and iBasis (which has a deal with Skype), handled 2.5 billion minutes in international traffic in 2002, placing them in the ranks of the largest international telecom carriers in the world in terms of call volume.

Telcos Jump In

Most of these calls were conducted using IP on private networks, but it’s still progress in the effort to make the Internet the preferred medium for voice communications. And the proliferation of broadband connectivity at work and at home has finally made Internet calling a potentially viable business.
As of May, 2004, 47.8 percent of home Internet users in the U.S. had broadband connections, according to Web traffic tracker Nielsen/NetRatings. And at work, 79 percent of U.S. workers have a high-speed connection. In Korea, Canada, and Japan the percentage of home users with zippy hook-ups is closer to 75 percent.

To tackle this market, a host of companies, including Vonage and Lingo, have garnered hundreds of millions of dollars in startup capital to build systems that use the public Internet to make phone calls. Some of the biggest names in the telecom and cable broadband businesses, including Comcast (Nasdaq: CMCSK) , Cox Communications, and AT&T (NYSE: T) , have joined the fray by bringing out their own IP-based phone services.

These offer local and long-distance service for a flat fee. Fearful that these offerings will accelerate the slow-motion implosion of the local telephone access market, the Baby Bells have decided to offer Voice-over-IP (VoIP) services as well -- which will be competing directly with their own more lucrative legacy services.

Overseas, Internet calls are offering even fiercer competition to legacy telcos. Japan’s Yahoo!BB, a Softbank subsidiary, throws in free domestic long-distance and local calling with a high-speed DSL connection. It costs less than $40, about half of what such a package might cost in the U.S. today. All of this market upheaval is presenting opportunities for newcomers, including Skype.

Men of Mystery

Skype is an unusual competitor with a shadowy past, staffed by the same Estonian programmers that produced KaZaA. Fearful of a lawsuit related to its piracy battles with the Recording Industry Association of America , Zennstrom and Friis refuse to travel to the U.S. and maintain a veil of secrecy over Skype and the location of its offices. Investors or partners seeking audience with Skype and its founders have to e-mail a generic information address via the company’s Web site .
This veil will have to lift soon, Zennstrom admits. Skype currently has about 70 employees at its two offices in London and Talinn, Estonia. That’s up from 30 in January, 2004, and Zennstrom is still hiring. «We plan to grow for now, but if the revenues don’t develop, then we can cut back and continue to operate indefinitely with the $18.8 million we have already raised,» says Zennstrom.

Those numbers may sound small, but the cost of adding a new user to the Skype network is effectively zero. In effect, Skype hitches a free ride on the broadband connections its users are already paying for while shouldering none of the upkeep costs inherent to maintaining a big data network. Unlike the traditional telephone systems or the IM networks, Skype requires no central servers to direct traffic.

«Certain Types of Users»

Is the service any good? Zennstrom claims it has greatly improved over the past 12 months and is now even better than the voice quality of the public telephone network, let alone the sometimes jumpy connections offered by other VoIP startups and the current versions of AOL (NYSE: AOL) and Yahoo’s (Nasdaq: YHOO) voice-IM software. It’s a bold assertion, and the big telcos dispute it. But the key word here, however, is free.
It isn’t that Zennstrom has no interest in making money. Skype plans to start charging for services such as voice mail soon. Meanwhile, its user base guarantees advertisers a captive audience. Still, Zennstrom is careful to say that Skype will not replace the public telephone networks any time soon -- if ever. «We will serve certain communities and certain types of users,» he says. And while he wants to grow Skype into a big business, he envisions an outfit employing 1,000 people or so. That’s a far cry from the telecom behemoths.

Still, grabbing even a small portion of such a massive sector could turn into a boffo business. And just as KaZaA altered the music landscape forever by making free tunes readily available, Skype has already played a key role in what will likely be a revolution in the telecom business. Prodded by Skype, instant-messaging providers are souping-up their voice capabilities and further blurring the line between phone networks and the Internet.

Fight for Riches

Furthermore, a raging price war has broken out in the global VoIP market, sparked in part by Skype’s free model. One new entrant, StanAPhone, is offering free Internet calls from the PC to the public telephone network. Another carrier, Primus, has started a program that offers unlimited calling within the U.S., Canada, and Western Europe for only $20 per month.
Is this all a race to the bottom? Perhaps. But Skype stands to make a decent amount of money on the ride down.

By KEN BELSON
New York Times

TWO years ago, Allen Tsong had just about had enough. Tired of paying $50 a month for a local phone line from Verizon that he rarely used, he canceled the service and ordered a voice-over-Internet phone from Vonage, a start-up that entered the market two years ago. He has never looked back.

To start his service, Mr. Tsong, who lives in Brooklyn, attached an ordinary phone to a paperback-sized adapter that can send his calls over high-speed Internet connections. The biggest draw was the price: Mr. Tsong spends $15 a month for 500 minutes of calls anywhere in the United States or Canada, and speaks to family and colleagues in China for pennies a minute.

"Why shell out 40 to 50 bucks a month for a regular phone line?’’ he asked, adding that he had installed another Internet phone in his Brooklyn office. «At first, my wife was skeptical, but as long as she can pick it up and get a dial tone, she’ll use it.»

Mr. Tsong enjoys many of its other features, too. He can check voice mail on the Web, keep his number when he travels and forward calls to a cellphone or other line.

In moving to the new phones, Mr. Tsong has joined a growing band of residential and business customers who want to free themselves from an old telecommunications order often marked by high taxes and lukewarm customer service — an old order that crumbled a bit more last week when AT&T announced that it was easing out of the traditional consumer phone business. And Verizon, the biggest of the Baby Bells, said that it would roll out Internet service nationally, a recognition that its traditional network is fast being eclipsed.

Once the province of techno-nerds, the new phones are going mainstream as a variety of companies, from start-ups like Vonage to more traditional companies, like the Bells and Cablevision, introduce services. These companies can charge less for Internet phone services because the calls, sent as data packets, typically avoid the switching fees that make up the bulk of the cost of an ordinary call.

The flood of new offerings, though, has made it harder for consumers to distinguish between core needs, like price and voice quality, and all of the bells and whistles. But with a bit of searching and skepticism, you can cut your bill in half without sacrificing much of the reliability and quality of traditional phones.

First things first: to use a voice-over-Internet phone, you need a broadband connection, which typically costs $25 to $50 a month. That sounds like a lot, until you consider that you also get a reliable Internet connection that is 25 times as fast as dial-up service. Most cable and phone companies now sell broadband connections, but phone companies often require you to keep a regular line to get a high-speed Internet line. That makes an Internet phone superfluous, unless you want two lines.

Some companies, like Qwest, offer stand-alone broadband connections for $49.99 a month; others charge less for broadband lines if you keep your phone line. Companies like Time Warner Cable and Cablevision also offer high-speed data lines and voice-over-Internet phones with their programming, allowing consumers to bundle the three services at a reduced price.

Once a broadband line is in place, you are ready to compare Internet phone plans. As Mr. Tsong knows, price is the big selling point. Most providers offer scaled plans: the more minutes, the higher the monthly fee. Some, like CallVantage from AT&T, offer one price — $34.99, but with introductory specials — for unlimited domestic minutes, with no extra taxes. Dialing internationally costs more because carriers have to pay their overseas counterparts to connect the calls. But rates are still lower than for ordinary long-distance service. In a Vonage plan, a call to London costs 3 cents a minute; Tokyo costs a penny more.

One way to start comparing prices is to visit sites that list links to various voice-over-Internet providers. The sites include www.easycall.net/broadband-phone.shtml and www.cryptosavvy.com/voice_over_internet_protocol.htm.

If cost were the only factor, more consumers would have ditched their old phones already. Instead, only 300,000 or so have signed up, because most consumers remain hesitant about the quality of Internet calls.

As little as a year ago, those fears were valid. Many consumers, including Mr. Tsong, complained about hiccups in their conversations; these can occur when calls, as they are broken into packets of data, are momentarily lost while traveling over the Internet. Sometimes, calls go dead.

Better software and Internet connections have reduced these problems, but the same axiom holds: Internet calls are only as good as the lines that connect them. If your broadband connection is reliable, the quality of your calls should be, too.

There is an ancillary concern: the quality of the network your provider uses to connect the call. Cable companies and long-distance companies like AT&T and Covad, a national broadband service provider, run their own networks, so voice calls are less likely to break up. By comparison, Vonage uses five different networks to connect its calls, raising the likelihood of interruptions.

Still, the gaps among various Internet providers are narrowing, to the point that fewer and fewer consumers can detect the difference between traditional and Internet phone service.

«Consumers shouldn’t believe the reports that the quality isn’t as good as plain old telephone service,» said Ford Cavallari, senior vice president of the broadband and media practice at Adventis, a telecommunications consultant in Boston.

Mr. Cavallari, who uses an Internet phone, is smitten with the features. Like most other users, he was able to keep his old number or choose a new area code from anywhere in the country.

The advantages are clear. When Mr. Cavallari visits San Francisco, he plugs his adapter into a broadband line and gets a dial tone from Boston. Friends calling him on ordinary lines in the Boston area are charged only for a local call, even though he is 3,000 miles away.

Like many business travelers, Mr. Cavallari uses a Web site to track every call he makes. He can also listen to his voice mail on the Web, because the calls are stored like any other computer audio file.

Like any emerging technology, though, voice-over-Internet has plenty of wrinkles. The biggest concern is losing service if there is a blackout. Some companies sell battery packs to keep modems going.

Consumers like Stephen Caccam, a Vonage subscriber in New Canaan, Conn., also complain about the time needed to transfer existing phone numbers to new Internet providers. The process should take a few hours, but Mr. Caccam spent weeks trying to sort it out. In the interim, Vonage gave him a temporary number, but not all his friends and relatives knew about it.

AND some services do not allow you to send faxes with a voice-over-Internet line. That can be particularly inconvenient for small businesses.

Perhaps the most hazardous variable is the inability of emergency services to automatically track callers who dial 911. When callers sign up for a phone plan, they can register their location with emergency services. Lawmakers are trying to hammer out regulations for these and other issues, and could eventually start taxing Internet lines like traditional phones.

Do not expect higher prices anytime soon, though. Lawmakers are unlikely to act before next year. And that means voice-over-Internet phones, while still not a perfect substitute for plain old phone lines, remain a good deal for many consumers.

By Mark McClusky

Fans of Internet telephony will soon have a significantly larger selection of providers, as some of the biggest fishes in the telecommunications industry rush to roll out services.

On Thursday, AT&T, the largest U.S. long-distance provider, put its weight behind the popular technology, announcing that it will begin selling telephone service using voice over Internet protocol.

AT&T’s move was the latest in a flurry that promises to bring VoIP into the mainstream. Earlier in the week, Time Warner Cable announced plans to enter the national VoIP market. Time Warner, the second-largest cable company in America, has been testing VoIP technology in Portland, Maine, since last May and now intends to roll out service to its customers across the country.

AT&T and Time Warner join an increasingly crowded field, as Comcast, Cablevision and Cox Communications all are offering VoIP service on a limited basis, and all are planning to roll it out more widely soon.

These companies join stand-alone providers of VoIP service such as Vonage and VoicePulse that provide users with adapters to hook up their phones to their existing broadband connections, as well as local telephone companies such as Qwest, which began selling VoIP to some customers in Minnesota on Monday.

But what does all of this activity mean for consumers? If all one wants to do is make phone calls as cheaply as possible with the best sound quality available, analysts say the increased availability of VoIP is great news.

«I think that 2004 is going to be the most interesting year in telecom in quite a while,» said Boyd Peterson, who tracks consumer technologies at the Yankee Group. «We’re going to see companies going out and advertising the fact that your phone service doesn’t have to come from the phone company any more.»

One way that Peterson expects VoIP providers will try to lure customers is through lower and more predictable costs.

«The pricing structure for voice communications is going to take a turn to the logical,» said Peterson. «All of the variants in the past -- with local, regional and long-distance calls -- are going to go away. It’s going to be more simple, with a flat fee for all calls.»

This sort of competition, analysts say, will end up driving costs down, especially in areas where multiple vendors are trying to get a piece of the pie. In the short term, Peterson said, the competitive climate should provide some compelling deals.

Currently, local telephone companies charge between $50 and $70 for unlimited local and long-distance calls, using traditional switched analog circuits. In the VoIP arena, AT&T hasn’t announced its pricing, but Time Warner has been charging between $40 and $50 for the same package, and the independent VoIP operators charge about $35.

These services build on technology that has been available since the mid-’90s. But previously, VoIP, often offered as a free service, required both callers to be at a computer using a headset and to connect using the same software. Now, VoIP calls can connect to the standard phone network, allowing a VoIP user to call anyone in the world.

Ravi Sakaria, CEO of VoicePulse, thinks that for the near term, competition in the VoIP market will be price-driven.

«In the early stage, the focus will be on cost savings,» he said. «But in the long run, that won’t be the case. Eighteen months from now, we’ll start to see the focus shift to the features that different companies offer.»

Marcelo Rodriguez, editor and publisher of the VoIP information site Voxilla, thinks VoIP is poised to explode, but that some problems still need to be worked out.

«Right now, the biggest barrier is that it’s a technology that hasn’t made itself totally understandable to the consumer,» said Rodriguez. Some of those barriers will likely fall in the coming months, as companies improve and expand their services.

But Rodriguez also feels that some of the unique capabilities of VoIP will be a big selling point for consumers.

«One of the things that IP telephony can do is eliminate geography in telephony,» he said. «I could take my 415 (area code) number and go anywhere in the world, and have the calls routed to follow me. I could be sitting in a house in the south of France, and my friends in San Francisco could reach me with a local call.»

However, that geographic freedom also leads to one of the most prominent obstacles to widespread adoption of the technology -- the inability of the current 911 emergency system to correctly handle VoIP calls. When callers dial 911 from a standard phone, their location is automatically included to speed dispatching of emergency personnel. Since VoIP calls can be routed anywhere, that geographic information isn’t available.

Other drawbacks of switching to VoIP include the need for a working Internet connection. If callers are having technical problems with their Net connection, then VoIP phone service won’t work either.

A reliable Internet connection also requires power, another disadvantage of VoIP. Traditional phones are powered by the phone circuit, and work when the power’s out.

However, once those barriers are overcome, analysts say VoIP has the potential to offer a lot of options to consumers that circuit-switched phone services do not.

«It’s data,» said Peterson. «Once you have the phone call as IP packets, you can do almost anything. You can have five different phone numbers come over the same connection. When your in-laws visit, they can move their number to ring at your house for the week. Once the market share for VoIP is there, we’re going to see a lot of innovation.»

Rodriguez agrees that VoIP is the future. «Two years ago, an infinitesimal percentage of phone calls happened using IP,» he said. «Now, more than 11 percent of calls use IP networks for some portion of the conversation. In 15 years, the standard phone network will no longer exist, because of the efficiency of IP telephony and its low cost. The IP network will be the phone system.»

Until that happens, consumers can look for lower prices and more features from whoever provides their phone service, as the battle for their dial tone intensifies.