VOIP Providers

Internet telephony companies or VoIP Providers already offer major cost savings over traditional telephone services, but now they’re challenging one another for the title of cheapest of the cheap in an increasingly brutal battle for customers. After nearly seven years on the fringes, so-called VoIP (voice over Internet Protocol) technology is ready to move into the mainstream. But as the market has matured, it’s drawn a crowd of competitors, tempting some into a dangerous game of chicken.

Some VoIP Providers offer their services for free, normally only for calls to other subscribers to the service. Your VoIP Providers may permit you to select an area code different from the area in which you live. This means you may not incur long distance charges if you call a number in your area code regardless of geography. It also means that people who call you may incur long distance charges depending on their area code and service.

Some VoIP Providers charge for a long distance call to a number outside your calling area, similar to existing, traditional wireline telephone service. Other VoIP Providers permit you to call anywhere at a flat rate for a fixed number of minutes. Voice-over-IP technology’s impacts on future U.S. jobs and state budgets were key topics of discussion during today’s Senate Commerce Committee hearing regarding VoIP.

Most committee members expressed support for minimal regulation of VoIP Providers in an attempt to encourage broadband investment while leveling the playing field between telecom carriers and intermodal competitors such as cable operators and wireless carriers.

Some VoIP services are free, but they generally work only for calls between computers that have the same software installed. The current price war is erupting among VoIP Providers with services that let callers seamlessly connect from an ordinary telephone handset to any phone number around the world.

Two years ago, such plans offering unlimited local and long-distance dialing within the United States to residential customers typically cost a flat rate of $45 a month or more. Now some providers are selling these services for less than half that price, although the industry average remains significantly higher.

Few plans include flat rates for international calls, which can typically be purchased by the minute at a discount to traditional phone carrier rates.

Vonage and Cablevision’s Optimum Voice have settled on the industry average of about $35 a month for their standard residential plans, which include unlimited dialing in the United States. But broadband providers hoping to lure new customers by bundling voice dialing into their high-speed Internet offers are quickly pushing prices down.

Two weeks ago, Newton, Mass.-based broadband provider Galaxy Internet Services set a new standard for dialing plans offering unlimited long-distance and local calls by dropping its monthly fee to $20. The package includes unlimited dialing in the United States, plus voice mail, call waiting and call forwarding, among other features.

The monthly prices get even lower when VoIP Providers strip away features, limit calls to one geographic area, or include buckets of minutes.

Along with other VoIP Providers, VoIP provider called VoicePulse has a $15-a-month plan for unlimited local calling, while 8×8 offers unlimited dialing to any phone in the United States and Canada for $20 a month.

At $10 a month, DSLi’s plan offers nothing but a phone number. Subscribers can’t answer incoming calls, which are instead shuttled off to voice mail. Dialing out costs from two cents to 24 cents a minute, depending on where the call ends up.

These VoIP-like calling plans will be replicated by offerings from other lower-tier broadband providers, said a representative for Broadsoft, which is supplying the VoIP service DSLi is selling.

The dropping prices are also affecting the higher-quality services that VoIP Providers now sell to smaller businesses, a crucial market for any provider hoping to wedge its way into the world of corporate spending. Smaller companies are nimbler in terms of technology and are usually the first to try cutting-edge gear. Six weeks ago, Vonage dropped the price for its business plan from $60 to $45 a month. That matches a similar offering from VoicePulse and other providers.

Whether these price cuts have the desired effect of converting old-fashioned dialers remains to be seen. There are only about 100,000 residential VoIP subscribers in the United States, and few services give details of subscriber numbers. Vonage, which recently reported 54,000 customers, is widely believed to be the biggest provider at the moment.