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The call of the Net

Companies are trying to make it easier to use a broadband Internet connection to make telephone calls.

By DAVE GUSSOW
© St. Petersburg Times
published February 24, 2003


Dallas Pesola lives in area code 727, but his home phone number carries a 408 area code. That means relatives and neighbors have to dial long-distance to talk to him.

"It's hard to tell Grandma you have to call California," said Pesola, who uses the Internet for his local and long-distance service. But "if you're living in a world of technology and cell phones, area codes have no meaning after a while."

A self-described early adopter of technology, Pesola, 35, was one of the first customers to sign up last year for phone service from Vonage (www.vonage.com). Its service is available only to people who have high-speed Internet access over cable or digital subscriber lines.

Pesola pays $39.99 a month for unlimited local and domestic long-distance calls, voice mail, call forwarding, call waiting and other services. That compares with $49.95 a month for a similar bundle being offered by Verizon starting this week.

In coming weeks, Vonage will add the 727 and 813 area codes to its offerings, so Pesola could get a local number if he wants.

Using the Internet for phone service has been around since the mid-1990s. The quality in the early going was spotty at best, with echos and breakups common.

Yet from the start, there was the novelty appeal of using a computer and the Internet to make calls. It was cheap, and at least some people were willing to make the trade-off of low quality for low prices. In particular, international calls could be made for a fraction of what they cost from traditional phone companies.

The technology has improved substantially in the past few years. Call quality can be almost indistinguishable from traditional land-line service. People can use regular phones instead of headsets and microphones and may not even need to turn on the computer to make calls.

In a traditional system, calls made from one phone to another have their own circuit. With Internet calls, also known as voice over Internet protocol, or VoIP, the calls are converted to data packets.

Those packets -- the same method used to send all types of information over the Internet -- can take various routes, but are reassembled before they reach the destination and sound like a regular call.

It's still the Internet, though, and quality can vary.

"There's no user quality control on the public Internet," said Elizabeth Ussher, an analyst with the Meta Group. "You get what you pay for."

Vonage, of Edison, N.J., is one of many Internet phone providers. Others include:

Deltathree (www.iconnecthere.com), which provides service to both dial-up and high-speed Internet users.

Net2Phone (www.net2phone.com) and Dialpad (www.dialpad.com), both of which offer service from a subscriber's PC to the call recipient's regular phone.

"In the next year, you'll see more and more providers," said Louis Holder, executive vice president of product development for Vonage. "There's a high demand for lower-cost phone service with more features."

Here's how Vonage works: Customers get a special adapter (free from Vonage, though there's a $29.99 activation fee). Plug a regular phone into one end, connect it to your home network, get a phone number and dial away.

It is not a complete service, however. You can't dial 911 -- Vonage says it's working on that -- or 411. A power outage could cut off your phone service unless you set up a call forwarding feature on Vonage's Web site.

Phone companies such as Verizon consider such Internet service as potentially serious competition once high-speed Interet access gains more users and offers more services, ranging from phone to video and music. But Internet telephony also could be an added service at some point for Verizon's high-speed digital subscriber line offerings.

"Clearly it's an alternative that's going to be increasingly important as broadband becomes increasingly important," said Link Hoewing, Verizon's vice president for Internet and technology policy. "We see this as part of the service nexis that people will want when they get broadband service."

Hoewing praised the quality of Internet telephony after one of his assistants called him from China, where the hotel used such a service. "I didn't know he was on a computer when he called," he said.

Phoning over the Internet is just one more issue for Verizon and other established local phone companies to confront as they see their core business shrink.

For example, between the first quarter of 2000 and second quarter of 2002, Verizon had 125,000 fewer access lines. That was the first drop since the Great Depression, according to Verizon spokesman Bob Elek.

Competition from cell phones and people giving up second lines at home -- many to switch to high-speed Internet access -- were the main culprits, Elek says.

TeleGeography Inc., a research company, estimates that 10 percent of international phone traffic last year was carried over the Internet, up from 6 percent in 2001.

For Verizon, it also means continuing frustration over what it sees as an unlevel playing field, where it is strapped with regulations and others, including Internet telephony, are not, Hoewing says.

"I don't want to minimize the fact that there are these competitive alternatives," Hoewing says. "I think we're doing as good a job as we can in this kind of environment. There's a lot of competition out there."

And looming on the horizon are cable companies that have said they will roll out phone services over their systems. That would allow them to offer TV, Internet and phone over one line.

The Internet, though, is only a small fraction of the telephony market. Vonage claims about 11,000 subscribers, and it's estimated that only about 100,000 Americans use the Internet to make calls.

"It's impractical to say Vonage will make any serious dent," said Vijay Bhagarath, an analyst with Forrester Research. "It will make Verizon wake up and provide comparable services. Phone companies have always been reactive."

Consumers and businesses may not rush to Internet telephony simply because they already have low-cost alternatives that they know work. In a recent report, Bhagarath said only 11 percent of businesses use Internet telephony.

In fact, Pesola, the early adopter who lives on Isla del Sol, says he relies mostly on his cell phone. He could use his Internet connection when he travels, but only if he had access to a broadband connection. And "then I'd leave my wife without a number."

-- Times news researcher Kitty Bennett contributed to this report, which includes information from Times wires. Dave Gussow can be reached at gussow@sptimes.com or (727) 445-4228.

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