Wave of the future

Businesses invest in telephone service via the Internet

Source: Fort Collins Coloradoan      3/20/2005
Author: Margaret Jackson

Bob Klick estimates the new phone service Allard Klick & Co. bought from Front Range Internet Inc. saves his accounting firm up to $300 a month.

The Fort Collins company invested about $3,500 in new hardware, including 14 phones, for the Voice over Internet Protocol (VoIP) system - less than it would have spent on a traditional PBX system. But because the system uses an Internet connection to carry phone service, there are no long-distance charges.

The quality is as good or better than traditional providers, and small businesses have found they are able to get many features found in high-end phone systems with considerably less up-front capital expenses.

Features available include voice mail optionally sent to e-mail; call forwarding; Web-based call management; and Caller ID that lists all incoming and outgoing numbers.

"I had a sales guy who kept bugging me and I remembered his number and just didn't answer the phone any more," Klick said. "It's a great feature."

While VoIP has been around since the early 1990s, the technology has been slow to spread. The market, however, is changing.

Sales for traditional circuit-switched telephone systems are expected to drop by 30 percent in 2005 to $999 million, down from $1.4 billion in 2004, according to Gartner Inc., a Stamford, Conn.-based research firm.

There were over 1 million VoIP subscribers in the United States at the end of 2004, according to a report by Halpern Capital, a research, trading and corporate finance firm based in Aventura, Fla. Halpern estimates the number of subscribers will increase by about 32 percent to 1.43 million in the first quarter of this year. By 2008, Halpern projects there will be more than 16 million VoIP subscribers.

That's in keeping with the increase in customers Edison, N.J.-based Vonage is seeing. The company, founded in January 2001, brought its VoIP service to market in April 2002 and finished that year with 7,500 customers, said Mitchell Slepian, a spokesman for the company, which offers service in Fort Collins. By the end of 2003, the number of customers had grown to 75,000. In January this year, Vonage, the leading VoIP provider, had 400,000 customers and on March 7, it announced it had topped 500,000 customers.

Front Range Internet President Bill Ward predicts similar growth for his company's VoIP service. Front Range Internet has about 20 business customers using its VoIP technology, accounting for about 3 percent of its revenue. Over the next year, Ward estimates VoIP will make up 20 percent to 30 percent of its business over the next year. Front Range Internet posted revenue of $4.6 million last year.

"They're shooting for me to hit 500 percent growth for VoIP this year," said Shawna Killen, director of sales and marketing for Front Range. "It just doesn't make sense any more for people to buy traditional phone services."

The technology allows the user to make and receive phone calls anywhere there is Internet access by plugging a headset into a laptop, Killen said.

"You can call someone at his office and he can be sitting at Starbucks with a laptop and the calls will come into him," she said.

One of the big questions surrounding VoIP has been whether it would be regulated, Ward said. Front Range Internet anticipated regulatory issues, so it became a Competitive Local Exchange Carrier (CLEC) before it launched the VoIP service.

"I see it as the wave of the future," Ward said. "This is where telecommunications is going - from more of a traditional telephone service to more of a data service."

In November, the Federal Communications Commission ruled that providers of Internet-based phone services fall under the jurisdiction of the federal government and cannot be regulated by states. The decision does not, however, preclude states from imposing some taxes and fees. It also does not address access charges, which are fees paid to local phone companies for completing calls sent via the Internet to conventional phones.

"We became a CLEC in anticipation that the VoIP kinds of services will be regulated in some manner similar to the way telephone services are today," Ward said. "We thought it was going to happen, but it didn't."

As companies such as Front Range, Vonage and various cable companies enter the business of providing telephone service, the traditional telephone companies are being put on the defense. In 2005, there will be at least three high-profile launches or residential VoIP services, according to Halpern. SBC Communications and Qwest Communications both will launch VoIP services and Comcast will start a staged rollout of the service.