Last November Andy Abramson of San Diego took his new Internet phone along on a two-week business trip to Europe. He spent 18 hours calling friends and clients in Canada, Italy, France and the United States, an international dialing spree that would normally have set him back hundreds of dollars.
But all that talking cost him just $13.
For William H. Ashton, who supervises the municipal phone system for the Town of Herndon, the town's new Internet phone network has made work a lot easier.
Ashton used to dread requests to move a phone or add a line. The process took several days to complete, including a visit by an outside contractor who spent hours rearranging telephone wires in a closet. Each visit cost the town $400 or more. "I was in the business of saying no," Ashton said.
Since last year when the new system was installed, Ashton has managed the entire phone network from his desktop computer. He can add lines with the click of a mouse. When town employees move to a new office, they just unplug their phones and carry them to their new desks. Their phone calls follow automatically.
Daniel Sternoff of New York canceled his Verizon basic home phone service earlier this year after signing up with a broadband phone company in January. There was a frustrating two-month period at the beginning involving the transfer of his former phone number to his new account. But Sternoff made the jump because he had backup.
"I got rid of my [Verizon] line because I have cell phones. Dealing with some quirks is worth it," he said.
Sternoff's wife often calls her family in Israel, and he estimates that he has cut his monthly phone bill from $150 or $200 to $50 or $75.
Abramson and Sternoff and the Town of Herndon are not just saving money, they are also at the cutting edge of the biggest change in telephone technology since government-sanctioned monopolies knitted the nation together decades ago with copper wire.
Jeff Pulver is an Internet phone pioneer who has watched Internet telephone services grow from a niche for computer geeks into a technology that is being embraced by some of the biggest names in the industry. "Today people look at it almost as a fashion statement, but the reality is that the fundamental shift to [Internet]-based telecommunications will change the face of telecommunications forever," he said.
The Internet calling experience is still clunky. Sound quality can be spotty, and it doesn't work at all if the high-speed Internet connection is down. But early adopters of the technology are willing to put up with a few glitches in exchange for big savings and the satisfaction of thumbing their noses at the nation's dominant regional telephone companies.
In an era in which consumers are used to picking television providers, cell phone providers, long-distance providers and Internet service providers, it seems anachronistic that there is still so little choice when it comes to basic local telephone service -- your dial tone. But consumers have had few options since 1876, when Alexander Graham Bell placed his epochal first call. Bell's father-in-law founded the company that eventually became AT&T Corp. It dominated telecommunications until 1984 when a federal judge broke the monopoly up into seven regional Bell companies and AT&T, the long-distance giant. Since that breakup, AT&T has been slowly reconstituting itself like some science fiction creature. The seven regional Bell companies have now consolidated into four, and analysts and industry executives anticipate mergers between local-service companies such as Verizon Communications Inc. and long-distance behemoths such as AT&T.
And now Internet phone service is emerging as a powerful alternative just as the consolidation appears to be building steam.
Most of the new firms don't own wires or telecommunications networks, just software that translates the sound of a voice into bits of data that zip over the Internet much like e-mails or instant messages. The companies offer savings but require users to install software and hardware on their own.
It was relatively easy for tech-savvy Abramson to bypass the traditional phone network and save money while he was in Europe. All he needed was his subscription to an Internet phone service, a special phone that plugged into his laptop, and access to his hotel's high-speed Internet connection. Once it was all hooked up (that took him less than five minutes), he could call anyone in the world.
He uses a similar setup in his home office in San Diego.
"I'm saving $200 a month," he said.
Do-it-yourself telephone service may still be too much trouble for most consumers, but the Internet-based technology is being adopted by bigger phone companies, including AT&T Corp., which is rolling out a similar service -- CallVantage -- across the nation.
A more significant threat to the dominant local phone companies such as Verizon and BellSouth Corp. could come from cable television companies that plan to use the same technology to offer phone service to their 70 million subscribers.
Time Warner Cable and Cablevision Systems Inc. have already begun to roll phone service out in some markets, creating a powerful triple threat for consumers who want to buy their cable television, high-speed Internet and telephone from a single company. Unlike the Internet start-ups and AT&T, the cable companies are offering phone service that looks and feels a lot more like traditional phone service, with installation and maintenance performed by trained technicians.
Cable companies also promise superior quality because calls never go out on the public Internet. Instead, they travel over the cable companies' private data networks until they are handed off to other telecommunications companies.
But cable also has some kinks that still need to be worked out. Cablevision customers, for instance, have to go to another provider for international calling. Comcast Corp., the nation's largest cable company, is still experimenting with the technology and has not made a firm commitment to rolling it out to its customers.
Telecommunications companies are lobbying the federal government to allow Internet voice services to remain unregulated, but there is still a tangle of issues that complicate a move from traditional telephone technology to Internet-based service. The Justice Department is worried that it won't be able to monitor Internet telephone calls in the same way that it can tap traditional voice calls. There are also ongoing concerns about linking Internet-based phones with the emergency 911 system. And regulators worry that a move to Internet phones will upset a complex system of subsidies that ensures that rural and low-income citizens have telephone service.
But as those details are hammered out, dominant phone companies are growing increasingly concerned about the upstart technology. Well aware that long-distance companies such as MCI and AT&T were devastated by a sudden influx of competition, Verizon and the other major local phone companies are watching warily as Internet phone services slash prices and vie for market share.
Vonage is the phone service that Sternoff in Brooklyn uses. It's a start-up firm that offers unlimited local and long-distance calling over the Internet for $29.99 a month. It's one of several that have popped up during the past several years (see Fast Forward, Page F7).
After AT&T launched its $34.99-a-month CallVantage service three months ago ($19.99 for each of the first six months), Vonage cut its monthly price from $34.99. Last month, McLean-based Lingo.com launched a similar service that offers three months of free calling for users who sign up for its $19.95 Lingo Unlimited package (there's also a 500-minute package for $14.95). Lingo requires a $29.95 initiation fee but the Unlimited plan includes calls to Western Europe.
Cablevision is marketing its package of local, long-distance and high-speed Internet access for $90 a month.
The sudden interest in Internet-based phone technology is spurred in part by the growth of high-speed Internet connections. According to a recent study by the Federal Communications Commission, approximately 25 percent of all U.S. homes now have a high-speed Internet connection, a development that gives companies the critical mass they need to market their services to millions of homes.
The technology is also catching on with some of the nation's largest corporations, including Boeing Co., which is the process of moving its 157,000 employees to Internet-based phones.
For corporate America, the cost of leasing Internet lines has fallen dramatically. Five years ago, a dedicated data line that stretched from New York to Los Angeles cost an average of $150,000 a month. But that was before a host of telecom companies rushed in to build parallel networks, creating a glut of capacity and driving down rates. Today, that same line costs less than $15,000 a month to lease.
In Herndon, William Ashton estimates the Internet phone service has cut the town's average monthly phone bill from $15,000 to $10,500, a 30 percent saving.
Ashton sees other benefits of Herndon's new phone system as well. It is helping employees manage the deluge of e-mail and voice mail. Voice messages are encoded and sent to desktop computers as e-mails. When Herndon town employees want to listen to a message, they open the e-mail and the voice of the caller can be heard over the computer's speakers. They can forward the voice mail to a colleague with a mouse click. Away from the office, employees who dial in to their voice mail have the option of listening to a computer-generated voice read their regular e-mail.
While Internet phone services with all the bells and whistles are cheaper than traditional phones, it is also possible to make calls over the Internet for free. Companies such as Free World Dialup allow users to download their Internet phone software for free. However, users are limited to calling other Internet phone users.
But the technology still has a long way to go before it becomes more than a blip on the radar screen of the nation's telephone system. Vonage, the largest of all the Internet service providers, has just over 200,000 customers. Cable companies have only begun to offer the service and have not released any subscriber data.
Kevin Calabrese, a telecommunications analyst with Argus Research, said that as the technology improves, customers eventually will feel comfortable cutting their ties to the traditional phone networks.
"It's the largest trend going forward over the next decade," Calabrese said. With competitors already cutting prices, regional giants will be forced to do likewise to compete. "Yes, there will be smaller margins, but they don't lose a customer," he said.
But they had better hurry, because people like Abramson are eager to cut their ties to those old-fashioned copper wires.