What's Next: Internet Phone Service is Here

Bad news for your phone company: Good, cheap Internet phone service is finally here.

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The only thing I have in common with Howard Stern (other than the fact that we are both mammals) is that we both use Internet telephone service from a company called Vonage. The Vonage service allows Howard and me to make, for $39.99 per month, unlimited phone calls anywhere in the U.S. and Canada and darned cheap phone calls to anywhere else in the world. It uses real phones and real phone numbers and is just like the service you're used to, except that calls are routed over the Internet rather than over a telephone company's network. Vonage is aimed at people with broadband Internet connections (primarily DSL or a cable modem) and uses a technology called voice over Internet protocol (VoIP). And it could kill your phone company.

Here is what I get for my $39.99. I get a little box from Cisco Systems that plugs into the Ethernet switch on my home network, and into that I plug a telephone. I use Vonage as line three on my four-line Panasonic wireless phone system, so line three (the free one) is available on all six extension phones. If that sounds like a typical small-business setup, then you must have visited my house. The Vonage line replaces my old office phone line, saving me more on my SBC bill than I pay Vonage and making the service effectively free. (Lines one and two are for regular phone lines--a hedge.)

I have a local phone number in my 707 area code, but I could have chosen a local phone number in a number of other area codes, including the oh-so-desirable 212 (just in case I wanted to pretend to have a New York office). And for editors calling that 212 number from their Midtown cubicles, it would be a local call.

If I decide I want to change my area code I can get a new number in a new city for a small one-time fee. If I want a local phone number for the same phone in another area code in addition to my own, that's an extra $4.99 per month per number. I can live without those things, but I do have, for $4.99 a month, a toll-free number. I also pay $9.99 per month to activate the second Ethernet port on the Cisco box for a fax line. That line goes not only to my fax machine but also to the Panasonic phone system, so lines three and four are VoIP.

For about $55 per month, then, I have a phone line with unlimited local and long-distance calls, a fax line with 250 free minutes per month, which is a lot of faxing, and a toll-free number on which my stingy relatives can call me. And all this, of course, includes voice mail, caller ID, call waiting, call forwarding, etc. I can even get my voice-mail messages as audio files attached to e-mails sent to me anywhere in the world.

But wait, there's more! I can unplug my Cisco box in California and take it to the little house we have in Charleston, S.C., where every year I try to perfect my heat rash. I plug it into the Charleston DSL line and my business line and fax line ring there instead of in California. I could do the same thing on a trip to Japan, too, and soon even that won't be necessary, because I'll be able to replace the Cisco box with software on my notebook computer--so my office line will ring at my hotel in Tokyo. I can use a computer headset to take the call or, even better, by next year I'll be able to plug a special phone into the USB port on my notebook. I completely bypass the hotel phone system. Not only am I saving on hotel charges, but my virtual phone doesn't know it's in Japan at all, so all my calls back to the U.S. are free.

Vonage founder Jeffrey Citron also started the computerized stock-trading system Island ECN--and sold it for half a billion dollars.

If your business is bigger than mine is, an affiliate of Vonage called Vontek can route the Internet phone right into your phone switch. It can even set up a virtual PBX so people working at home can all have extensions on the office phone systems no matter where they are in the world as long as they have broadband Internet service. I might never get out of bed.

VoIP phone service has been around for years, but until recently the voice quality just wasn't very good. Now, because computing power is cheaper and Internet connections are faster, it is hard to tell a VoIP phone from a regular phone--until you get the bill.

One technical feature that is driving VoIP phone service is use of the session initiation protocol, or SIP. SIP comes from the world of instant messaging, where it is used to connect your teenage daughter to all of her online friends when she is supposed to be doing homework. What SIP does for VoIP is create peer-to-peer telephone connections anywhere in the world. In other words, the phones talk to each other without the need for any kind of phone switch in the middle. It is a phone system without a phone company, and the implications of that change are profound (as we'll see).

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