Web Phone Providers Dial Broadband


The ringing noise heard by some cable operators these days eminates from the broadband Internet, where a new crop of players offer voice services by using customers' high-speed Internet connection.

These outfits might provide some cable operators with a way to add telephone service without the costly control equipment required for traditional cable telephony. But it remains to be seen if they will pose a competitive threat to other MSOs — or if they will ring true with customers or federal regulators.

One company that has grabbed its share of headlines recently is Vonage Inc., which launched in April 2002. It now claims some 16,000 customers, who produce about 1 million calls per week.

Appropriately based in Edison, N.J., the company has steadily added markets in the past year — most recently in Harrisburg, Pa. — and it plans to be in the top 100 media markets by the end of the year, according to chief financial officer John Rego.

"Being in the top 100 media markets puts us in every state, and putting us in every state offering local and long-distance telephony services, we create something that hasn't been done since the breakup of AT&T. We will be the first to do it," he said.

Shared link

The difference between Internet telephony services, such as Vonage's, and traditional cable voice offerings has to do with the link used to carry voice traffic. While cable operators dedicate a separate channel to voice traffic, Vonage service relies on a customer's broadband cable modem or digital subscriber line connection, so voice traffic flows across the same link as the Internet data.

An analog telephone adapter provides the link between customers' telephones and their broadband data connections. From there, call traffic is routed to one of 13 Vonage regional data centers, where voice gateways direct the signals either over the Internet or onto the public switched telephone network (PSTN).

The residential plan offers unlimited calling in the United States and Canada for a flat $39.99 per month, while a $25.99 local calling plan offers unlimited local calling plus 500 minutes of long distance calling in the U.S. and Canada.

As of April, Vonage also will be the first Internet telephony provider to offer 911 emergency service, Rego noted.

Critics point out that Vonage depends on the basic broadband connection, so if the DSL or cable modem service goes down, so will the phone.

To combat that problem, Vonage offers what it calls a Network Availability Number, which allows customers to forward calls to an alternate telephone number or a voice mail box if the Internet connection is lost.

Vonage has raised $28 million of capital so far, which has bankrolled the technology development, marketing and buildout of its largely software-driven system, with some change left over, Rego said. The company may be looking at a second funding round later this year, he added.

Vonage also scored a major victory earlier this month when it signed a service deal with EarthLink Inc., which has about 779,000 broadband users and puts a major focus on high-speed subscribers. The ISP will essentially resell the Vonage service, branded as EarthLink Unlimited Voice.

"Getting into voice is another example of how we think we can expand the Internet experience into some more nontraditional applications," said Mark Griffith, EarthLink's director of value added services. "We are very excited about the opportunities that voice gives us."

Wants cable allies

While Vonage could be viewed as a competitor to MSOs that have rolled out cable telephony service, Rego said the company is looking to cable as a partner.

"What we are looking at doing is that killer app everyone was waiting for throughout the '90s: 'What do I do with this broadband connection for $45 that I couldn't do with a $15 dial-up connection?' " he said. "We are providing the reason for that connection."

The response so far?

"I would say very interested," Rego said. "I wouldn't be surprised if we didn't close on a few of those transactions this year."

Also in the hunt for broadband Internet telephony customers is Net2Phone Inc. Like Vonage, Net2Phone uses the cable data channel to funnel voice traffic, but it is positioning itself exclusively as cable partner.

"The main [difference is] we don't bypass the MSO. We partner with the MSO," said Mike Pastor, vice president of cable technology. "The biggest advantage to that is as the service grows and bandwidth on your network becomes constrained, we can work with the MSO to manage that bandwidth so they can effectively support all of their services."

While the cable operator brands the service, Net2Phone provides the underpinnings, including the call-management server, soft switch, provisioning and billing interfaces, network monitoring and connections to the PSTN.

Customers make the voice link via cable modems with embedded multimedia terminal adapters.

Net2Phone's first announced service trial is underway, with Liberty Cable in Puerto Rico. Owned by Net2Phone investor Liberty Media, the MSO now involves about 200 customers, and in January its trial moved from free to a paid service.

Net2Phone offers two service levels: a basic tier that sells for a flat $19.95 per month for local calling and voice features, and an upper-tier "Celebrity" plan that goes for $39.95.

Since January, Net2Phone has had no measurable network outages, "and that was part of why we thought we were ready to go to the paying cycle," Pastor said. And while Net2Phone can support 911 through its link to the local-exchange carrier's network, it still advises customers that its connection does not guarantee 911 service.

Big guys, too

When the company first started, it was targeting midsized and smaller MSOs, but Pastor said that Net2Phone has also recently been talking to the bigger players.

"I think the first couple of deals you will see from us will be with more of the mid-market players," Pastor said. "Who knows? One of the big guys may have the right incentive to do this in the short-term as well."

Indeed, the an Internet telephony service may not be a bad option for cable operators — even one that has already started rolling out a circuit-switched telephony service. Jay Rolls, Cox Communications Inc.'s vice president of data engineering, said the MSO is evaluating the field.

"Definitely we are looking at that and considering if that is an option," Rolls said. "It's certainly something we would look at and something that gets a lot of discussion at Cox. I can honestly say no decision is made. I think we would look at our own trial very closely before we decide."