The price of VoIP's thriftiness

If you're thinking of dumping your standard phone service and placing calls over your broadband Internet connection, you might want to reconsider.

A growing number of companies, from start-ups to giants such as AT&T, are pitching VoIP (Voice over Internet Protocol) as a cheaper alternative to traditional service carried over a 100-year-old infrastructure by companies including SBC Communications and Verizon Communications.

Though it's true that consumers and businesses can often save money, with virtually no loss in voice quality, by going with Net-based phoning, there are many other hang-ups that make such a switch problematic for millions of potential customers. If you have a home alarm system, need to dial 911, use TiVo or simply want your phone number included in the phone book, you're likely to be out of luck.

"With VoIP, there are obviously some limitations," said Paul Alfieri, a spokesman for Motorola's broadband division.

TiVo, the digital video recording service, for example, requires a standard home phone line to complete the initial setup. Otherwise, you "can't get TiVo," a spokeswoman confirmed. She didn't know why a landline was required for just the initial setup.

VoIP certainly has it's selling points--unlimited local and long-distance dialing plans that are about 30 percent cheaper than standard services, dialing from any broadband connection and being able to choose a phone number regardless of your location--the TiVo situation if just the tip of the drawback iceberg.

For instance, a VoIP phone number won't likely be included in most phone directories, according to executives from various VoIP service providers, including VoicePulse, Voiceglo and Vonage. That could lead to trouble dealing with businesses such as banks and major fast food companies that often check local phone listings to verify addresses.

Protecting your home could get tougher, as well. Some home alarm systems have trouble with broadband connections, or their manufacturers don't yet trust the reliability of the Internet.

Also, there's still no way to guarantee VoIP phones will work when power is lost, and not all VoIP providers offer 911 service.

During a power outage, a VoIP phone is only as good as any battery backups on hand, because delivering power through the broadband connection isn't possible on a wide commercial basis.

911 calls over VoIP are usually routed through a third party, and there's been the occasional detour to an emergency call center in the wrong part of the country. Because of VoIP's mobility--subscribers can use any broadband connection anywhere--emergency operators won't automatically know where the person's calling from.

Representatives from major VoIP providers say many of the problems, such as loss of power or offering 911, are soon to be solved. Also, Time Warner Cable has begun advertising a cable-friendly home alarm system that works over a broadband connection.

But inextricably tying a home phone line to some services may be very hard to overcome. For instance, a TiVo spokeswoman said the company "hopes" that by next year, a home phone line won't be required for its service.

"There's a lot of hype to this industry but remember, it's still relatively new to the public, and with a lot of new things, there are problems to work out," VoIP provider Net2Phone Senior Vice President Sarah Hofstetter said during a recent interview.

The drawbacks may account for why some local telephone companies with decades-long reputations have not made VoIP universally available--in addition to wanting to preserve their current customer base.

The Bell operating companies, comprised of Verizon, Qwest Communications International, SBC and BellSouth, prefer to wait until they build high-speed fiber-optic connections to homes for their all-out VoIP launches. The so-called fiber-to-the-premises initiatives, however, could take a decade or more to complete.

Until then, the Bells are only dabbling in offering Net-based phone services.

"In the end, we have to put a high-quality service over our pipe, or it's not worth doing," said Verizon spokesman Mark Marchand.

AT&T has perhaps the biggest interest in VoIP of all the traditional phone companies. It plans to have a million VoIP subscribers by 2005, but it has yet to reveal how many subscribers it has gained since introducing CallVantage several months ago. A spokesman was unavailable to comment for this report.

For now, the leading VoIP provider is an upstart: New Jersey-based Vonage, with 200,000 customers, nearly a third of all VoIP subscribers worldwide. But cable providers, who sell telephone plans using a different technology, are beginning to make VoIP more of a focus. Both Cox and Comcast are promising faster VoIP rollouts.

Despite its drawbacks, VoIP is attracting a growing number of consumers, although significantly more people are dropping their traditional phone lines and relying solely on a cell phone, which faces many of the same drawbacks.

The Federal Communications Commission reports that there were 182.8 million traditional phone lines last June 2003--5 million fewer connections than six months earlier and 10 million less since December 2000.

Whether VoIP will contribute to a similar decline depends on how many of the technical drawbacks can be overcome.