AOL HELPS USHER IN VoIP'S GROWTH SPURT

Last week's Voice on the Net conference in San Jose, Calif., will likely always be remembered as the moment when voice over IP moved toward mass-market maturity.

AOL's announcement at VON that it will offer an easy-to-use VoIP offering aimed at the masses was just the exclamation point on the obvious statement that VoIP has gone mainstream. In leaving behind its techno-geek roots, however, VoIP is also beginning to lose its identity, as voice becomes just another application within an IP service bundle.

The cable TV industry, which is adding 18,000 VoIP subscribers each week, according to Kinetic Strategies, calls its service “digital telephone” and deliberately doesn't distinguish between its VoIP offering and its traditional voice service, according to representatives of Cox Communications, Comcast and Time Warner, all of which spoke at VON.

“Most of our customers aren't even aware of VoIP,” said Mike Pacifico, director of marketing for Digital Telephone at Cox Communications. “But to the extent that people do know about VoIP and have chosen not to buy it, there could be some danger there for us in using [VoIP as a product name].”

“Our cable customers are offering voice service as a primary line replacement,” said David Span, senior vice president of product management and marketing for Net2Phone Global Services, which wholesales VoIP capabilities to cable companies. “They see themselves competing with the phone companies, not with Vonage or other VoIP providers.”

Part of making VoIP mainstream is putting the technology out of sight, said Teresa Mastrangelo, principal analyst with Broadbandtrends.com.

“It's the service that counts, and VoIP is another way of delivering a voice service,” she said. “Why are we even worrying about the technology? I don't expect many of the mainstream service providers to talk about VoIP. Most consumers don't care, but where they do, there is still a consumer perception of quality problems. Or they associate the Internet with a computer. If it's voice over Internet, I'm going to talk over my computer.”

AOL plans to create new perceptions of VoIP by leveraging its existing membership and the popularity of Instant Messaging to bring VoIP to the masses for one simple reason, AOL Chairman and CEO Jonathan Miller told the VON audience.

“It's all about the money,” he said. “There is a $100 billion residential telephony market. VoIP is still very much in the early adopter phase right now.”

Mass market users are more concerned about which company is providing the service than getting the cheapest service possible, Miller said. Citing research conducted by Level 3 Communications, which is providing AOL's VoIP infrastructure, he said mass-market users expect performance and reliability and are looking for a package of services. If the discount is too steep, they actually get suspicious.

“The mass market wants a brand they can trust, a good price and a good value,” he said. “It will take time, and the features and value sets need to be there.”

AOL Internet Phone Service will launch within the next month and will integrate the company's existing phone offerings, including AOL Call by Phone, AOL VoiceMail and AOL Call Alert. Those services today allow customers to have e-mail read to them over the phone, voice mail from multiple lines delivered via e-mail and incoming calls announced when the customer is online.

Further details about the service are being withheld until it is formally launched, but Miller said AOL will incorporate the “presence” capability built into AOL Instant Messaging to allow customers to know when a called party is available, just as they can track AIM buddies' availability today.

“This is a different opportunity to integrate presence with VoIP, see the person is there and manage all messaging and all communications via the same dashboard,” he said. “The Buddy List will be the centerpiece of the dashboard. Everything we do will spring off of that.”

Presence is rapidly becoming one of the new features of VoIP, showing up in multiple VON presentations, along with integrated messaging and wireless/wireline consolidation.

Miller told the VON audience that by helping the mass-market adoption of VoIP, AOL will create “a rising tide that will help everyone” in the VoIP marketplace. And while anticipating that AOL “will hit bumps in the road” on the way to creating its service, he promised that “we're going to stick it out.”

But AOL is likely to be only the first of the major Web players to take VoIP to the masses, said Hank Carabelli, president and CEO of Pac-West Telecomm, whose VoiceSource offering provides wholesale VoIP capabilities in California and four other western states.

“AOL is just one,” he said. “It's pretty evident that you are going to have Yahoo, MSN, Google, all within the next six months, their entry into this marketplace. These guys own the desktop, and the desktop is the highway out of your house. Anybody who's got real stickiness with their target audience can drop [a VoIP] application right into their code.”

That's good news for Pac-West, Level 3, Global Crossing, Net2Phone and other wholesale VoIP providers, but it may not bode as well for smaller service providers, which are already competing heavily on price.

Not surprising, those pioneer carriers are taking their message to a new level. Consumers increasingly will be bombarded with VoIP messages at the electronics stores. FCC Chairman Michael Powell almost seemed to get teary-eyed when talking about his recent visit to a retail outlet, where VoIP products were being sold out of the box.

The retailers' intent, however, is to have VoIP phones sold in the regular telephone section, said Brett Morrison, national sales manager of business communications for Uniden, which was displaying new cordless phone systems packaged with Packet 8 VoIP service.

“We believe this [VoIP] product will be side-by-side with other cordless phones,” he said. “And you'll buy it the way you buy a normal landline phone.”

The current VoIP-over-broadband services limit customers to a single phone, attached to an analog telephone adapter (ATA). The newer phones incorporate the ATA into the base station of a cordless phone system, said Morrison, so VoIP can be used throughout the house. The current Uniden/Packet 8 bundle can be used with existing Uniden handsets.

“We provide the instructions so that customers can easily set up their handsets to work with the [VoIP] base station,” Morrison said.

A cordless base station with the VoIP ATA built in costs $199, but Packet8 offers a $60 rebate. The systems should be in stores by June, he added.

Vonage, which is the poster child for early VoIP adoption, has greatly expanded its choices of ATA devices and is moving aggressively to expand its footprint as well, adding service in Europe and Asia within the coming year, CEO Jeffrey Citron told VON. His company is adding 15,000 new VoIP customers a week and intends to continue that growth.

But even Powell, noted for his staunch support of VoIP, warned that as the “cool” wears off, service providers must step up to market realities.

“You won't be a rock star forever,” he said. “When something is new, exciting and interesting, you have friends aplenty. But as you mature, the public will demand more.”