Talk Is Cheaper

Welcome to the world of broadband telephony, which over the next decade could revolutionize calling as we know it. Already, it offers some of the cheapest rates ever for long-distance calls — and some cool new services, to boot.

Broadband telephony allows customers to make calls over the Internet using a standard landline phone. Users can call from anywhere in the world, provided they have a broadband Internet connection (sorry, no dial-up). The cost? Depending on the provider, rates for unlimited calls in the U.S. and Canada range from $20 to $35 a month — while dirt-cheap per-minute plans come with fixed monthly service fees as low as $10. The international rates are also better than those offered by any major long-distance provider: 5 cents a minute to most Western European countries, 6 cents to most of Asia.

Intrigued? We're not surprised. While only 150,000 people are using broadband telephony right now (compared with 150 million people using traditional wire line telephones in the U.S.), the voice over Internet protocol, or VoIP, industry is growing fast — and analysts have big expectations for the years ahead. "VoIP is the future," says Jon Arnold, a VoIP analyst for Frost & Sullivan, a telecom market research consultancy. "This is what telephony is going to look like in 10 years."

The best news? You don't need to be a computer genius to get started. We know, because we tested three of the biggest services ourselves. Here's what we discovered.

The Players
So far, the most popular VoIP providers are companies that offer the service exclusively, such as Vonage, 8x8 and DeltaThree's (DDDC) consumer division iConnectHere.com. Over the next few years, however, this could change. Cable networks are also getting into the act — fast. Time Warner Cable (TWX) began testing the service this year in Portland, Maine, Cablevision (CVC) launched a test service in New York, and Comcast (CMCSA) is expected to launch one soon, according to the Yankee Group.

But there's no need to wait for your local cable company to offer the service. We tested three of the most popular products already on the market: Vonage's Premium Unlimited plan (unlimited calls to anywhere in the U.S. and Canada for $34.99 a month), 8x8's (EGHT) Freedom Unlimited plan (unlimited calls to the U.S. and Canada for $19.99 a month) and iConnectHere.com's SuperSavings plan ($10.90 a month, then 2 cents a minute for calls in the U.S. and 3 cents to Canada). For more international rates and some of the companies' other plans, see the table on the following page.

To get started, a customer must order the service online via a credit card. iConnectHere.com requires users to load their account with a certain dollar amount, which they then use to pay for their calls, like a prepaid phone card. The other two companies allow customers to pay their bills online in an ongoing fashion.

The Set-Up
Good news for technophobes: You won't need any funky software or headsets. Just three simple pieces of equipment are required. First, a telephone, which can be the same one you use with your regular phone service. You'll plug this into a special adapter (a small box with a number of jacks where you plug in all the cables) that you'll get from your VoIP service provider. And you need a router — a device that allows you to connect two or more computers in a network that shares one Internet connection. This will enable you to talk on the phone while your computer is connected to the Internet. These days, you can buy a router for about $50. (And if you're using Vonage's Motorola VT 1000 adapter, you don't need a router because it comes with one.)

Once you have all the equipment, connect the telephone to the adapter and the adapter to your Internet modem or your router (those who live in Internet-ready homes can plug the adapter into any Internet jack in the house). Then pick up the phone, and voila: You have a dial tone.

Our experience with installation wasn't quite that simple, since we had a preexisting home network that has required some finessing. Plus, we tested all three services using the same router, so we had to reconfigure it differently with each setup. But even with our set-up, getting started wasn't that complicated, although it was somewhat intimidating at first.

Thankfully, all three companies offer tech support online or over the telephone. Vonage's Web site has detailed installation tutorials, plus their customer service is available 24/7. (But be patient: We had to wait about 20 minutes to get someone on the phone. The company employs only around 200 people, of which 75 are customer support reps. Those folks are there to help more than 75,000 subscribers — a number that grows by 3,000 each week, according to Vonage CFO John Rego.)

Customer support for 8x8 is available from 6 a.m. to 6 p.m. Pacific time Monday to Friday, but the company is also aggressively hiring and round-the-clock service may be available soon, says Huw Rees, vice president for sales and marketing at 8x8.

iConnectHere.com made things easy by sending us a special broadband phone that we just plugged into our router to get a dial tone. (The company also offers an adapter so you can use the service with a regular telephone.) The catch is that customer support is available only via email or chat, though company spokesman Jeremy Teres says tech support staff will call customers if they can't resolve problems online.

The Sound
Anyone who tried the free Internet PC-to-PC calling available a few years ago was surely turned off by the poor sound quality. In the early days, VoIP analyst Arnold explains, the technology wasn't ready to handle VoIP calling. Dial-up Internet connections were slow, and most computers weren't powerful enough. "But over the past five years, voice technology and equipment have really advanced and it's ready now," he says. "I could be talking to you now on VoIP and you wouldn't be able to tell the difference."

In fact, many of your wire line calls may already be traveling over the Internet. "One of the reasons why long distance rates have come down so much over the past couple of years is because a lot of the major carriers, like AT&T (T) and Sprint (FON), have already adopted VoIP inside their networks," says Arnold.

Indeed, the sound quality for all three products we tested was excellent — whether we were calling Brooklyn, Washington, D.C., or London.

The Perks
All those extras that typically add upward of $20 to your wire line phone bill — voicemail, call waiting, caller ID, three-way calling and so on — come free with all three VoIP services we tried. The companies also offer customers some cool new features, like online voicemail (you download a voice file to your computer and then listen to it with your media player) and area code mobility. For example, we tested VoIP in New Jersey, yet we had a 718 number (typically for New York City residents outside of Manhattan) with Vonage.

The best of all the perks, though, is the ability to take your adapter with you when you travel so you can use your phone from anywhere in the world where you have a broadband Internet connection — and still get local rates when calling within your local calling area. "Last night, I plugged my [adapter] in my hotel and I used my San Jose, Calif., number in New York," says Rees. "You can do that anywhere in the world."

This means that wherever in the world you are, your friends and family will be able to call you at your U.S. number — for the price of a local call. With iConnectHere.com, you can even get a London number (it costs an extra $2 per month) or a Tel Aviv one (an extra $10 a month), so if you have relatives in London or Tel Aviv, they can call you locally while you're in the U.S. Vonage and 8x8 plan to roll out Canadian and U.K. numbers next year.

And since the VoIP industry isn't subject to federal regulations yet (this is a hot topic now, and the FCC has appointed a special committee to research the issue), you won't be paying all those annoying regulatory fees and taxes that end up adding another 20% or so to your wire line bills.

The Drawbacks
Unfortunately, there are still some disadvantages to VoIP. The biggest: Telephone service is entirely dependent on an Internet connection — if the network goes down, so does the dial tone.

Another important disadvantage: 911 service isn't available with 8x8 and iConnectHere.com. But the FCC is getting increasingly involved in this industry, and companies are taking notice. Just last week, 11 VoIP companies reached an agreement with the National Emergency Number Association to provide 911 service to VoIP users with conventional phones within six months. Vonage already offers 911 and 411.

IConnectHere.com has no plans to offer 911, because the company doesn't want to market its product as a replacement of a home's primary wire line service, but rather as an add-on, says company spokesman Teres.

Finally, users with many phones located throughout the house must take some extra steps. The simplest solution, says 8x8's Rees, is to buy a cordless phone system with one base unit and multiple handsets. For more calling plans and a summary of the features discussed, please see the table below