NYT on VoIP(Vonage): A Voice in the Calling Wilderness

DAVID LEONHARDT, The New York Times, writes:

MAYBE you have had the fantasy while sitting at home for an entire afternoon and waiting for a 10-minute visit from the phone company to install a new telephone line. Or maybe the dream has come to you while were you on hold, once again, hoping to resolve the latest billing mix-up caused by Verizon, SBC or whichever local phone company dominates your market.

For me, it began when my family moved into a new apartment this year and Verizon informed us that we would need to wait two weeks for a working phone line. Once that service began, we would have to pay about $50 a month even though we wanted to make only local phone calls on the line. Thinking we were without any better options given the dodgy quality of mobile phones, we grudgingly said yes.

But I could not shake a fantasy that millions of other Americans have had. I imagined that I could respond to the monopolistic customer service of local phone companies the same way I would react to such treatment by a restaurant or a shoe store and take my business elsewhere. I dreamed of an economy in which I was not all but required to tithe the descendants of Ma Bell every month.

Little did I know, that economy already existed. Thanks to the proliferation of high-speed Internet connections in homes, a jumble of companies, including start-ups and cable television operators, have begun to sell telephone service that does not rely on a traditional phone line. Instead, the service typically enters homes through a cable modem and connects to a simple phone, which emits a reassuring dial tone when picked up.

Stewing over my latest experience with Verizon, I soon decided to do something that I rarely do: become an early adopter of a new technology. For the last month, my wife and I have relied on the Internet for our main phone line. The service, from Vonage, a New Jersey company that is the largest of the start-ups, costs less than $30 a month (including taxes) for unlimited local calls, 500 minutes of long distance, voice mail, caller ID and the like. For unlimited long distance as well, the price is about $38 a month, about $30 less than what Verizon, MCI or AT&T charge for similar packages.

None of this would matter, of course, if Internet phone service suffered from dropped calls and scratchy reception as often as mobile phones do. But the most encouraging result of our experiment has been the nearly imperceptible difference between a land line and a Vonage connection, save one disappointing call. The friends and relatives we spoke with never asked what kind of phone we were using or, the ultimate insult, whether we were on a cellphone.

Before spending an hour as a guest on a radio talk show, I asked the producer how our connection was, and he rated it "great."

There are still drawbacks. Unless you have a backup battery, a blackout like last summer's can knock out Internet phone service even when traditional phones continue to work. A breakdown in cable TV service, hardly an unknown phenomenon, would do the same. Vonage phone numbers will not be listed in the phone book. And a call to 911 will not display the caller's address to the operator.

But telephone and cable TV companies have made clear in recent weeks how serious a competitive threat Internet telephones pose. Time Warner, with help from Sprint and MCI, will soon offer Internet phone service to many of its cable customers, and AT&T is following suit by using high-speed telephone data lines, known as D.S.L., instead of cable modems.

"It's a very scary situation for the incumbent telephone carriers," said Charles Golvin, a senior analyst at Forrester Research, speaking on a Vonage phone line himself, "because they're going to have real competition."

Vonage now has almost 80,000 customers, up from 7,000 a year ago. (Over all, according to the research firm InStat/MDR, about 135,000 American consumers now have Internet phone service.) Part of the service's early success stems from its relative freedom from federal rules that bind phone companies. It barely needs to charge its customers any taxes, at least for now, and it does not have a mandate to ensure universal telephone access across the country, as the Baby Bells do.

Federal regulators will probably need to level the playing field at some point, but Internet phone service will still increase competition. Even with a 1996 law intended to foster competition in local markets, the Baby Bells have so far retained much of their power. While long-distance carriers now have the right to sell local service, they must lease the lines from local carriers, creating abundant opportunity for trouble. A married couple I know in the Bronx went more than a month without service while AT&T and Verizon blamed each other about which company was responsible for the problem.

Internet phone service avoids this free-market bottleneck by circumventing the so-called last mile of telephone wiring, which is owned by the Baby Bells. Companies like Vonage instead break down voice traffic into packets of data that are sent through cyberspace and reconstituted as voice on the other end. If the person receiving the call has a land line, Vonage pays a fee to the local phone company to complete the call.

After reading about Vonage in a handful of places, I did a Google search for it and quickly found a coupon that made the second month of service free. (The company says it can transfer most land-line or mobile-phone numbers to a Vonage account, although we did not try to do so; we were given a number in the 646 area code.) Including a $30 activation fee, my start-up costs amounted to about $85, about half of which was for a device called a router that permits simultaneous calling and Web surfing. Vonage has since switched to a different device, which acts as both router and phone adapter and which it sends to new customers free.

Setting up the system was not as easy as Vonage had advertised, but a phone conversation with a customer service agent from the router manufacturer cleared up the confusing directions from the manual. Minutes later I was listening to a dial tone (a fake one, piped in by Vonage to make the system feel familiar). In my own version of "Mr. Watson, come here!" I then dialed my parents and announced: "Hi, Mom. I'm talking to you from the Internet." She did not know what I was talking about, which was precisely the point.

Over the next month, few other people suspected anything was different, either. My wife, Laura, and I alternated between thinking the sound quality was just as good as it was on a land line and judging it to be slightly worse. At times, voices seemed tinnier than they did on a land line, almost as if we were using the phone in a big, empty room.

We never lost a call, but it does happen. Mr. Golvin, the analyst at Forrester, said he occasionally had trouble with incoming calls on his Vonage line. And when a Vonage employee called me on an Internet line to set up an interview with Mr. Citron, the message left on my voice mail was indecipherable.

"We're not that happy with the level of service today," said Jeffrey Citron, Vonage's chief executive, adding that the company was working to improve it. "You shouldn't ever be able to tell the difference" between an Internet line and a land line, he said.

For us, the service became a problem only once, when Laura was uploading photographs onto our computer and I was talking on the telephone. The call became fuzzy, presumably because too much data was flowing over our cables at once. Mr. Citron said the device Vonage now sends to customers gives priority to voices, allowing calls to sound normal and delaying simultaneous downloads by a few seconds.

The smaller start-ups that offer Web phone service seem more problematic. As part of my experiment, I persuaded some other family members to sign up with two Vonage rivals, and none of my relatives was satisfied. My sister and her husband signed up for VoicePulse, and they found that their phone line often slipped out of the device it was plugged into. During the one conversation I had with them over the line, we were cut off three times for no apparent reason.

My parents used Packet8, and I had high hopes for it, since it costs a little more than $20 a month for unlimited calling to anyone in the United States and Canada. But their line simply went dead one night, and the customer service department was never easy to reach.

With Vonage, I suspect most people will find that the biggest drawback is needing to bind their phone to their modem. This makes a cordless phone essentially mandatory. If you are using the Internet for your primary phone line, you will probably want to buy a splitter at an electronics store, allowing you to have more than one phone for the line.

We still have some reservations about Vonage, but the big difference in cost and the tiny difference in quality have persuaded us to make it our main phone line. We are now trying to decide whether to keep a bare-bones land line at a monthly cost of about $18 in case of emergency, or whether we feel comfortable relying on a combination of a cellphone and a backup battery for the cable modem.

In other words, this service is far from perfect, and all of the individual companies seem to have the potential to provide the same kind of what-me-worry customer service as local phone companies. And can anybody really get excited about relying even more on Time Warner or other cable companies, which tend to act like the monopolies they long have been

But the wonderful thing about a competitive market is that the foibles of any one company will not matter for long. If Time Warner tries to overcharge you, you can switch to Vonage. If Vonage regularly makes you wait on hold for 15 minutes to get the answer to a simple question, as it did to me this week, you can sign up with AT&T. Maybe Verizon and other Baby Bells, once they are forced into real competition for customers, will emerge as the best choice. They just won't be the only one.