Better, faster, cheaper drives the industry. OEMs and vendors
want interoperability regardless of application.
by Doug Mohney

Before moving back to the private sector, Federal Communications Commission (FCC) Chairman Michael K. Powell gleefully expressed his amazement and awe that anyone could simply walk into any retail consumer electronics outlet–his favorite seemed to be a Best Buy store in Springfield, Va.–and walk out with a VoIP service starter kit under their arm.

When Powell departed the FCC in 2005, two service providers had secured retail shelf space to attract consumers–Vonage and AT&T CallVantage. Today, the second wave of consumer retail VoIP is under way, as Earthlink TrueVoice boxes displace CallVantage, and United Online CDs are in plain view next to the checkout counter. SunRocket will start making its presence known in 2007 through a partnership with Thompson’s GE-branded phones that will put them in a different part of the store, away from the PC networking gadgets and into virgin territory–the cordless phone section.

Product offerings in this second wave range from a lean softphone-only solution to bundled hardware offerings, some complete with a wireless router. All of the new entrants view retail VoIP as one product in a larger mix, with other products targeted to customers above and beyond the shelves of the retail store.

Consumer VoIP is a market with plenty of room left for growth, say participants. “There’s 52 million [U.S.] broadband households,” says SunRocket spokesperson Brian Lustig. “Seven million have voice over IP…. That’s a pretty large marketplace, and that doesn’t even factor in households who do not have broadband yet.”

Getting mainstream consumer adoption is the biggest challenge the industry faces, but some think the time for consumer VoIP to move beyond the early adapters and the price conscious is now. “I think this is all about market timing,” says Steve Edwards, Chief Marketing Officer at Sonus Networks. “What we’re seeing now is the tipping point. I think people are comfortable with [VoIP] services. I think the challenge now with the service providers is the promotion of the new applications and services to affect customer acquisition. From a service provider, it’s distribution. It could be a service on top of a next-generation network. We’re all kind of clear on where the end game is going to be…. As voice heads to a commodity, service providers are looking to develop new applications and services, driving new revenue and margin streams. A key element in being able to leverage that is consumer electronics.”

Retail stores give service providers a range of opportunities to reach new customers. United Online ( www.untd.com) is taking a low-cost, low-overhead approach, using its existing distribution channel and a nationwide network built for the low-cost NetZero Internet service. “We can run all of this on the same infrastructure, both voice over IP and Internet service,” says United Online Senior Vice President of Voice and Broadband Justin Newton. “The cost of adding incremental services on the base infrastructure is much lower than it would have been in a traditional telephony world a couple of years ago.”

The NetZero Voice product is distributed through a free CD in Best Buy stores, as well as being available over the Internet for download at a dedicated Web site. Calls are made using a softphone on a PC with a microphone, and service plans range from free to a $14.95 per month calling plan that includes unlimited computer-to-phone and phone-to-computer calling within the continental United States and to Canada and Puerto Rico. Inbound calls are unlimited, while outbound international call rates start at two cents per minute and vary depending on the country called. Interestingly, Net Zero varies the number of voice CDs they ship per month, mixing them with ISP service CDs.

As of March 31, 2006, there were approximately 20,000 paying NetZero voice customers and 43,000 active accounts. Who signs up and pays for the service? “It’s a long distance and international cost-saving kind of model,” says Newton. “NetZero Voice is a product we believe has an attraction for people who need to save money on their phone bills. And there’s going to be a certain portion of the voice-over-IP base that’s interested in that. One thing that has been consistent [is that customers are] very concerned about their ability to control their costs.”