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Vonage slashes price of Net telephony kit

The Internet phone service provider drops the cost of its starter kit by $70 at retail stores, as competition heats up.

Feeling pressure as competition stiffens, Net phone service provider Vonage has lowered the price by $70 of a starter kit available at retail stores.

The kit, which includes a Motorola phone adapter, is now $30 at Circuit City, Fry's and RadioShack after a $50 mail-in rebate, Vonage said Wednesday.

Previously, the kit cost $100 at the same stores and did not come with a rebate. It did, however, come with two months of free Vonage service.

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As Vonage's subscriber numbers grow, it has a greater ability to pass on savings to its customers, according to company Vice President Matthew Deatrick. Vonage made a similar argument in mid-May, when it signed up its 150,000th subscriber, saying it had reached an "inflection point" that allowed it to lower the cost of monthly unlimited North American dialing from $35 to $30 a month.

In-Stat/MDR senior analyst Daryl Schoolar believes that Vonage, the nation's largest provider of voice over Internet Protocol (VoIP), is feeling pressure as major telephone companies including AT&T begin offering their own VoIP services.

VoIP is a decade-old technique for digitizing phone calls and dispatching them over the public Internet or a corporation's own Internet Protocol network. VoIP calls are generally less expensive because they avoid traditional telephone networks, which are heavily regulated and taxed. But quality of service, in most cases, isn't as good.

Schoolar said that just as important to Vonage is "competition from below," or smaller VoIP providers that offer the same kind of service for $5 to $10 less a month.

"They are certainly aware of the competition both above and below," he said.