The Manifold Path of Voice over IP

Zoom Technologies calls it a “free second phone line.” The Boston-based broadband company is doing the opposite of what you'd expect of a typical service provider. Instead of throwing in the modem with the purchase of telephone service, Zoom is offering a telephone service called Global Village with the purchase of one of its asymmetrical DSL modems. Just plug it in and call any other Zoom modem around the world.

It's a business model that's bound to leave some scratching their heads, considering that Zoom is modem manufacturer, not a carrier. Under normal circumstances it would have no business delving into the services arena. But that's the magic of voice over IP, said Terry Manning, Zoom vice president of sales and marketing: It doesn't take much to get a service up and running. All you need is a piece of an international IP backbone, a hosted network VoIP solution and, most important, a way to get to your customers. The last one Zoom has in spades, considering every one of its ADSL modems naturally sits at the end of broadband connection.

“When we decided to make VoIP a standard on all of our ADSL gateways, we realized we needed to do more if we wanted those capabilities used,” Manning said. “If you're going to deliver it in the hardware, you have to have a service to run over it. So we came up with Global Village.”

Zoom's approach to VoIP may be unique, but it is certainly not the only exception. In fact, in the last year, carriers have launched VoIP services with every flavor strategy imaginable. While many carriers are emulating the POTS customers are comfortable with, some are providing a plethora of advanced features or taking the opposite tack and providing a bare-boned service closer to PC multimedia than any notion of telephony. While some are offering the service for free, others are charging up to $35 a month or billing the entire service on a per-minute basis. Some carriers are providing local telephone numbers while others are not. Still others are optimizing their networks for Wi-Fi.

The only thing consistent about these networks is their inconsistency. Carriers are essentially in an exploratory stage right now, trying to determine the set of features that will appeal (or will eventually appeal) to the largest market. As the market matures, though, service offers will begin to clump around specific business models, said Philip Solis, an analyst with ABI Research. But for now, they get to enjoy a period of free-for-all.

“VoIP is still new,” Solis said. “Any of these companies can just go out and grab customers. As customers become more educated about the service, though, the number of business models will start shrinking.”

Perhaps the biggest enigma of the VoIP market is peer-to-peer VoIP provider Skype. Headed by KaZaA founder Niklas Zennström, Skype takes the same principle as KaZaA — allowing users to establish direct peer-to-peer connections over the Internet to trade media files — to the voice world. And like KaZaA, the service is entirely free — that is until this summer. Last month Skype launched its SkypeOut service, which allows Skype users to call outside of the Skype network to any public network phone line, cellular or wireline. It's next service launch, SkypeIn, which gives Skype customers a phone number and area code to allow calls from the public network, is set to go to trial in the next few months.

Both SkypeIn and SkypeOut will be paid services, but the basic premise of Skype's business model — that all in-network calls are free — hasn't changed. Considering that Skype's free software client has been downloaded almost 24 million times, the potential in-network calling base is quite vast.

“Obviously we want to be as competitive as possible,” Zennström said. “We felt to do that we needed to completely change the business model for telephony. So we provided a value proposition that no other carrier has provided so far: no marginal cost to voice service.” Zennström said carriers are too caught up in the traditional models of voice telephony and aren't thinking in terms of IP. ISPs don't charge per e-mail message sent; unlimited e-mail usage is standard on any ISP offering. The same should be the true for VoIP. The meters should start ticking when customers go off the network and make contact with the circuit-switched world, Zennström said.

Other carriers have begun to emulate Skype's model, providing either free or heavily discounted in-network calls, but except for Skype and Zoom, no one has made the base cost of service itself gratis. In doing so, those two carriers may actually be ahead of their time. Many carriers and analysts alike believe that voice is rapidly becoming commoditized down to the point where telephony will be a free service — the applications that accompany them will garner the revenues.

8×8 Chairman and CEO Bryan Martin said prices for basic IP telephony services have dropped to extraordinary levels since consumer VoIP's launch two years ago. Now typical pricing for a local phone number and unlimited local and domestic long-distance has fallen to $20. In fact, Martin is surprised that the price hasn't even dropped further.

“We're in a situation where we're all offering commodity packages,” Martin said. “Whatever that price point is we all have to match it. It's like trying to charge extra for caller ID these days — you just can't do it. Voice may become a commodity, but the features and capabilities we add on to and build on top of that voice platform won't. That's where we'll be competing.”

For all the success Vonage has had in building up a brand name and Skype has had in creating a media and Internet buzz, there is something to be said for being an established brand. AT&T entered the VoIP business with one of the most recognizable consumer brands the world. It hasn't released any subscriber numbers on its CallVantage service, so there is no way to compare it with the 250,000 subscribers market leader Vonage now boasts, but it has definitely been aggressive in its efforts to expand and market the service.

CallVantage is now in 170 U.S. markets and is backed by a multimillion-dollar nationwide advertising campaign. At $35 per month (after a $20 introductory rate), CallVantage is one of the more expensive VoIP services on the market, and while AT&T believes its reputation and quality of service helps justify that price, the carrier isn't daft — its brand name can take it only so far.

“What gets people's attention these days is who is cheaper,” said Katherine Bagin, vice president of product marketing and distribution for AT&T Consumer. “Price is the key headline grabber. But if you only played the price game, then you haven't put any stakes down.”

Right now AT&T's feature set is in its embryonic stages, but Bagin believes the carrier already is beginning to put distance between itself and other carriers with a few innovative applications. Instead of mere call forwarding, CallVantage's find-me-follow-me services ring up to five separate numbers simultaneously. Calls initiated on a cell phone can be transferred without interruption to a CallVantage line, and its do-not-disturb function has far more flexibility than an on/off switch — it can be set to receive certain calls or set to a timer. The feature set may be minor when compared to the advanced video and messaging functionality in VoIP's future, but Bagin said that even minor enhancements go a long way in distinguishing CallVantage as a next-generation service instead of just an emulation of a typical public network line. According to Bagin, AT&T is putting down stakes.

Other providers are laying stakes of their own. 8×8 recently launched its own video service, and long-distance backbone provider Primus has put out its own VoIP service, Lingo, which leverages Primus's international backbone into global calling plans other carriers can't match. Skype and Vonage have been optimizing their networks for softphones, which allow their customers to roam over public hot spots and enterprise networks. Despite these efforts, however, no one knows what key feature set or pricing point will capture consumers' imagination and ultimately their dollars, but Bagin expects carriers to keep trying to differentiate themselves until a clear model emerges.

“It's like the wild, wild West,” Bagin said. “You can't tell who will be there when the dust settles, but right now everyone's kicking up a lot of dust.”

THE MANY FACES OF VoIP

AT&T — CALLVANTAGE

PRICE: $35/month unlimited local, domestic long-distance

AT&T has one of the richer feature sets on the market along with the most well-known brand names.

VONAGE

PRICE: $30/month unlimited local, domestic/Canada long-distance

Vonage is making a portability push and expects to launch its first Wi-Fi softphones by early next year.

VERIZON — VOICEWING

PRICE: $40/month unlimited local, domestic long-distance

Verizon appears to be targeting out-of-region customers and cable modem users with its VoIP service because it requires public network service for any customer purchasing its DSL.

SKYPE — SKYPEOUT

PRICE: Free calling to other Skype users, per-minute charges to the public network

Skype is by far the cheapest VoIP service. While it currently doesn't provide local telephone numbers, Skype soon plans to launch a more traditional VoIP service called SkypeIn.

PRIMUS TELECOMMUNICATIONS — LINGO

PRICE: $20/month unlimited local/Canada/Western Europe long-distance

Primus is leveraging its global IP backbone and termination agreements to offer different international calling packages.

8×8 — PACKET8

PRICE: $20/month unlimited local, domestic/Canada long-distance

8×8 just launched the industry's first consumer videophone service.

ZOOM — GLOBAL VILLAGE

PRICE: Free for all in-network calls, per-minute for calls to the public network

Zoom has created its own peer-to-peer voice network of customers that purchase Zoom's ADSL gateways, with the hope of it becoming a full-fledged service provider business.