January 2003 – The Promise of VOIP is here: Cheap Telephony

During the Internet boom, an industry pundit famously coined the term “disruptive technology”. As it was initially defined, a disruptive technology might fundamentally alter the way we do business (e.g. finding and qualifying a supplier online, versus through a site visit). But of course the innovation might bring with it added risk as well, canceling out the promised benefit. Potentially more disruptive to your business than anything else.

But some innovations don’t change or affect the way we do business or carry out our everyday lives at all. Some innovations are seamless―without creating risk. Unfortunately, these don’t come around often. But we recently discovered one that will take the U.S. market by storm over the next few years: Voice over IP (VOIP).

What is VOIP? Historically, it meant speaking into a microphone (or headset), and making or receiving a phone call from a computer connected with the Internet. But a new breed of VOIP solution does away with the computer interface entirely, enabling you to connect a regular phone directly through a high speed Internet connection, bypassing your local Bell entirely.

Getting rid of your phone company sounds great on paper, but how does it actually work? Once you’ve signed up for one of these new services, you receive a small device that links your Internet connection with your phone system (the device is about the size of an original Palm Pilot). This small device identifies your number with the IP address it’s connected to at the time (the device is portable, but more on this below), allowing callers to reach you through your current phone number as if your phone was connected to a standard telephone cable.

With the Motorola or Cisco device in hand (both vendors make the device that connects your phone to the Internet), it can take anywhere from a few minutes to a few hours to configure the system for the first time, depending on the complexity of your home or small business network (and the router you use). But once it’s set up, it is seamless to the user (the voice quality, in fact, is often better than over traditional phone lines).

The first mover in this space is a company called Vonage. For $35 a month, Vonage comes with all the features of high-end calling plans (caller ID, voicemail, etc.) and enables you to make an unlimited number of long distance and local calls within the U.S. and Canada. We figure that for most moderate to heavy residential users, Vonage will translate into roughly $30-$50 a month in savings. For small businesses, the savings could be significantly higher.

In addition to savings, a major benefit of VOIP is portability. You can take the device with you anywhere in the world and make and receive calls to/from the U.S.―for free. All you need is a standard phone and high-speed connection. Plug it in, and you’re in business. Just remember to disconnect the device at 1:00 am local time in Europe or Asia, so that you’re not receiving calls in the middle of the night.

Sounds great, but what’s the catch, you ask? Voice quality can deteriorate if you’re downloading or sending a large file at the same lime as a call, but we’ve found the quality of VOIP even under these cases to be acceptable. Also, in the event of a power or high-speed outage, it will not work. So at this point, it still makes sense to keep a back-up line or cell phone handy just in case something does go wrong.

But if you’ve got a high-speed connection, you’ve got nothing to lose. Go ahead and give your local Bell the boot.