AT&T, Vonage slash Net telephony rates

A price war is brewing in the world of Internet telephone services, as providers try to win over consumers who now have a host of options when it comes to making calls.

On Thursday, both AT&T and Vonage said they were slashing prices on voice over Internet Protocol (VoIP) plans beginning Friday. AT&T said its CallVantage service will cost $29.99 per month, down from $34.99 per month. The rate will apply to all existing customers and includes unlimited local and long-distance calling in the United States and Canada. AT&T also will offer a month of free service to new customers who are signing on until Jan. 31, 2005.

Vonage said it is lowering the price of its Premium Unlimited plan--which includes unlimited calls anywhere in the United States and Canada--by $5 to $24.99 per month. The company also said it is upgrading customers who were on its $24.99-per-month Unlimited Local plan to Premium Unlimited.

Daryl Schoolar, an analyst at research firm In-Stat/MDR, said the price cuts aren't surprising, given VoIP companies are fighting a range of foes besides each other. Cable companies and traditional regional phone companies are offering bundles of services, he said, and mobile phone service providers frequently include long distance in their packages.

"It's a very competitive market" for VoIP players, Schoolar said. "Cell phones are probably the biggest competition."

Internet telephone service provider 8x8, which sells a VoIP package that includes unlimited calling in the United States and Canada for $19.95, has no immediate plans to trim its pricing, said company CEO Bryan Martin. "We're still the low-price leader," he said. "Before we lower our price, someone's got to come in below us."

VoIP is technology that lets people talk over a broadband Internet connection, rather than a traditional telephone line. Net telephony packages also offer features found in traditional telephone services such as call waiting and forwarding. Because VoIP calls are placed over the Internet, they are generally less expensive than calls sent over the heavily taxed and regulated traditional phone network.

AT&T's price cut underscores its push to spark growth in its Net phone service, as VoIP becomes more central to its long-term plans. The phone giant in July said it would stop selling voice services to new customers due to changes in regulatory law, but added that it would aggressively market less-regulated VoIP services.

"Pricing the service for the holiday shopping season fits our expansion strategy and makes AT&T CallVantage Service even more affordable, which is great news for consumers as we give them more of what they want for less," Cathy Martine, AT&T senior vice president for Internet Telephony, said in a statement.

Recently, America Online confirmed that it is working on a Net telephony plan as well.

Are consumers ready for VoIP?

AT&T also on Thursday said it has begun shipping a "do it yourself" guide for multiple phone connections in homes, although technical help is available for a fee.