Startup to Debut Punk'd Phone Service

Cable may soon see an unusual competitor on the Internet-voice front: Ooma, a well-funded startup planning to sell a device that provides free long-distance phone calls anywhere in the U.S.

And get this: Ashton Kutcher, host of MTV's Punk'd series of sketches scorching celebrities, is working for the company. He's the guy who, in one early episode, had fake tax agents remove furniture from pop singer Justin Timberlake's house.

But Ooma is not supposed to be a practical joke. Here's how it works. The service uses peer-to-peer technology to transmit calls — for free — over the Internet via a device that plugs into a user's broadband connection and phone line. Users of Ooma's hardware can choose to either use the Internet-phone service in conjunction with their existing local-phone service or use the device solely over a broadband connection.

However, Ooma's model depends on a portion of the users retaining their local lines. The service uses those local lines to terminate calls sent over the Internet placed from other users.

“If everybody gave up their local phone line, then the model wouldn't work,” Ooma CEO Andrew Frame conceded. “But we don't see that happening anytime soon. Primary landlines in the U.S. is a very, very stable market.”

Cue his sound bite: “We're really facilitating the user-built telephone company.”

The company's backers, with bravado typical of Silicon Valley startups, claim Ooma will shake up phone service as we know it.

“Ooma is poised to change the telecommunications category, in much the same way that TiVo changed the landscape of broadcast television,” TiVo co-founder Mike Ramsay, who is an Ooma board member, said in announcing the company's launch.

Before that could happen, Ooma will need to seed the peer-to-peer network. In an invitation-only beta test to begin this month — code-named “white rabbit” — the startup expects to distribute about 2,000 free hubs to users across the country. In locations where it doesn't yet have any local users, according to the company, it will complete calls through third-party providers. This fall, Ooma plans to start selling its hardware commercially.

Initially, Ooma won't charge for any services. Users only need purchase the $400 hub, which provides voicemail and a second virtual phone line, along with optional $39 connectors to hook up additional phone jacks. They can then make unlimited free calls, regardless of whether they make their conventional phone line part of the Ooma network.

Down the road, Frame imagines Ooma will charge for some enhanced features, like ring tones. He also wouldn't rule out future partnerships with service providers.

“We are a technology company,” he said. “We're pretty friendly with carriers.”

Frame, 27, founded Ooma in 2005. He previously worked as a consulting engineer for Cisco Systems and core-router vendor Procket Networks (now part of Cisco). Other members of the management team come from Cisco, Yahoo and Apple — and, unexpectedly, its “creative director” is Kutcher, who allegedly helped design the company's flowery logo.

Based in Palo Alto, Calif., the startup has raised $27 million in venture funding from Draper Fisher Jurvetson, The Founder's Fund, Worldview Partners and other investors. The company has about 50 employees, Frame said.

And the name? Nothing to do with Uma Thurman, according to Frame. “We wanted something short, easy to pronounce, easy to brand,” he said. “And the domain name was available.”

Ooma arrives at an inauspicious time — right after another voice-over-IP startup bit the dust. SunRocket, which had raised $100 million and counted some 200,000 subscribers, ceased operations last week. The company couldn't maintain competitive rates against cable and traditional telcos, analysts said.

SunRocket, which billed itself as “the no-gotcha phone company,” was the second-largest pure-play Internet phone company after Vonage Holdings. Vonage, meanwhile, is itself in danger of a major disruption to its business, with an appeal pending of the patent-infringement lawsuit it lost to Verizon Communications earlier this year.

Sherwood Partners, the crisis-management consulting firm handling SunRocket's liquidation, said it lined up two Internet-phone companies, 8x8 and TeleBlend, to be “preferred providers” offering free activation for SunRocket customers.

Here's an idea: Kutcher could set up Timberlake with SunRocket service in a future Punk'd episode — d'oh! — before the happy denouement in which he reveals a shiny, new Ooma Hub.