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Circuit City picks up Vonage VoIP phones

The broadband phone provider moves beyond its early "geek" adopters, reaching its first deal with a national retailer to sell its services.

Vonage, which provides inexpensive phone service as an add-on for customers with high-speed Internet lines, on Thursday said that it has reached its first deal with a national retailer to sell its services.

Edison, N.J.-based Vonage said that Circuit City Stores will begin selling its voice over Internet Protocol (VoIP) services in 600 retail outlets as well as online.

Vonage, which has sold more than 100,000 of its innovative Internet phones since it began offering service two years ago, now expects upward of 300,000 customers by the end of this year, higher than its previous goal of 250,000 for 2004. Retail exposure should attract additional subscribers, founder and Chief Executive Jeffrey Citron said.

"The benefit of retail is that you don't have to wait," he said in an interview.

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Vonage allows customers to hook up a regular telephone handset into their high-speed Internet connection. For a small monthly fee, calls over the Internet are free or incur minimal charges. The concept is expected to attract competition.

Analyst Charles Golvin of Forrester Research called Vonage's move into retail "something of a land grab as they begin to see some competitors." AT&T has begun testing its own VoIP service, he noted. AT&T could offer such services nationwide later in 2004 or 2005, he said.

It also marks a move to embrace a new audience beyond the early adopters--"geeks and friends of geeks" who have formed its loyal initial audience. Retail sales clerks can provide the kind of handholding that less technical customers require.

Circuit City already sells a lot of home networking gear, Golvin noted. "As home networking goes a little bit more mainstream, Vonage is a natural" extension, he said.

"The move into retail stores is anticipating that next step," Golvin said. In effect, Vonage can reach a self-selected audience of pre-existing high-speed Internet users.

Golvin estimates there are 8 million households in the United States with broadband connections and multiple personal computers--the two basic requirements for both wireless home networks and Vonage phones. Some 21 million U.S. households in all have high-speed connections, the Forrester analyst said.

Offering calling at prices that undercut traditional phone companies, Vonage faces challenges from some U.S. regulators who argue it should lose its Internet exemption and meet the regulatory demands of traditional phone service providers.

Circuit City customers can expect to walk in and pick up a Vonage starter kit for $99, a price that covers equipment, two months of free service and waives the normal activation fee.

After the two-month free service ends, customers can pay $15 for a 500-minute-a-month calling plan, $25 for local unlimited calling and $35 for unlimited calling throughout the United States and Canada. Calls to Europe can run as low as 2 cents a minute.

The $99 price is at or below what customers signing up for the service at Vonage's own site will pay, Citron said.

Story Copyright  © 2004 Reuters Limited.  All rights reserved.