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Can Jack make VoIP Magic?

With a snazzy name like Magic Jack and a price as low as $19.95 a year for unlimited service, a new voice-over-IP device is aimed at redefining what has been a troubled market.

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The device itself was invented by Dan Borislow, the man who brought Talk.com to AOL, and the service is being marketed by Don Burns, the guy who created the 10-10 dial-around service. So there is some reason to expect success. The Magic Jack is a USB device that plugs directly into a PC and a phone and auto-configures itself to provide VoIP over a broadband connection.

After Sept. 27, consumers will be able to purchase the device online (www.magicjack.com) or later in retail stores, for $40, which includes the first year of service. After that, renewing will cost $19.95 a year, Burns said. He insists that’s a winning business model for Magic Jack because the company owns its own next-generation voice network, including media gateways and session border controllers.

“We think this is the first pairing of a consumer telephone device that operates over the broadband network with its own fully integrated and quality-controlled network,” Burns said. “The device is completely mobile – it’s like having a landline in your pocket. When you look at peer-to-peer models like Skype, you are looking at a best-effort model with regard to quality control over a network. Even Vonage is a company that basically resells other TDM and IP providers – it doesn’t control the quality of the call to the edge of the network. We do control our own network, and we are able to deliver a landline-quality service that is mobile.”

By operating its own network, Magic Jack has a much more favorable business model, Burns said. “We were in the SunRocket process – the unwinding – as a potential suitor, and we saw what they were paying,” he said. “We found that for every telephone number they purchased, which was $4 a month, to terminate their calls, they paid $3.80 a month and $1.25 per customer for 911 service. With our own captive CLEC network in 31 cities, you actually make money on originating calls through the assessment and collection of access charges – balanced out by what we pay to terminate calls. For what [SunRocket] was paying $7, our costs are nothing.”

Borislow originally built the 31-city network and acquired CLEC certifications, which now span 49 states, intending to deliver a fixed/mobile convergence service using dual-mode Wi-Fi phones. According to Burns, however, he ran into multiple problems with the phones themselves, including battery life problems and issues with unsecure Wi-Fi networks. A chance sighting of a headphone at a Taiwan trade show got him to thinking about creating a portable VoIP device that would incorporate echo cancellation and other technology to assure voice quality, Burns said.

“The idea was to make the PC a home media center, telecom center and contact center,” he said. “That is how the Magic Jack became what it is today.”

The device and its service are in beta trials right now with thousands of users who have signed up since April, and Burns said things are going well. Customers register their own 911 address, then sign up and have the ability to easily change that as they travel. An icon on the service console leads to a choice of previously used addresses, making it easy for those who move between work and home or other regular sites.

Magic Jack can’t do number porting right now but will add that capability by year’s end. Its initial advertising push will be by informercial, Burns said, because Borislow believes the market will need some education on what the service and device are all about.

Magic Jack is almost entirely self-funded – both Borislow and Burns have invested their own money – with some private investment as well. The company isn’t positioning itself at the outset to go public or be acquired, although Burns doesn’t rule that out.

“We think if you run a good balance sheet company and have a good business plan and execute well, you will have all of those options available – go public, sell, merge – and we can make the best decision when the time comes,” he said.

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© 2014 Penton Media Inc.

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