Counting down to VoIP

Net2Phone Chief Executive Stephen Greenberg doesn't use automated teller machines.

He remembers using an ATM only once, about 15 years ago when he was stuck on a business trip in Los Angeles. When he needs cash, Greenberg says he grabs it from an envelope at home that his wife stuffs with twenties.

Though he?s simultaneously ignoring one modern-day technological staple, Greenberg is among the biggest players trying to make a staple out voice over IP (VoIP), a new technology many believe will one day challenge, if not unseat, dominant telephone companies such as Verizon Communications and BellSouth.

VoIP creates a telephone service that uses the Internet rather than a telephone company's privately owned network. The result is unlimited dialing plans at prices that undercut anything most telephone companies offer.

At Net2Phone, Greenberg has managed to build a sizeable following among cable companies, which use Net2Phone to launch their own VoIP dialing services. The company is also expanding its calling card business. Greenberg spoke recently to CNET News.com about these and other issues.

Q: Who is taking most of the VoIP initiatives nowadays? Is it the cable companies, or are telephone companies finally starting to work on something for their digital subscriber line networks?
A: The RBOCs (regional Bell operating companies, or Baby Bells) really don't want to see an encroachment on long distance by offering voice over DSL. But for cable companies, this triple play--voice, video and data--is the kind of glue they need.

Is there a cable operator among them that's shown the most leadership?
Really, it was cable's Cox Communications, which first started on the circuit-switched side. They clearly showed that when a cable operator offers VoIP, their churn rate goes down and penetration rate goes up.

What are the cable companies doing right now?
Cox is trialing VoIP in Oklahoma City, with more trials by end of year. Comcast is testing "friendlies," or test homes, in suburban Philadelphia with Motorola hardware. Cablevision Systems began trial a voice service--$35 for all you can eat--using Siemens soft switches. The only other is Time Warner's second-line service, which is called Digital Phone and uses Cisco Systems equipment. It's got about 1,000 users. But doesn't that highlight a big problem? Most are only trials at very early stages.
I would have said that, too. But I think cable operators are accelerating their IP telephony deployments.

What makes you say that?
I can tell by phone calls, the discussions we have with cable operators, the increased competition they are seeing, how RBOCs are lowering prices for broadband and how virtual operators like Packet8 or Vonage DigitalVoice are out competing with some cable operators. Again, I see Cox's success with high penetration and low churn.

So when does VoIP take off?
VoIP as a technology has just reached the starting line.

When does the starter's pistol fire?
I think that'll happen in 12 to 18 months. All you need is one cable operator to commit before you see others rolling out and scaling.

I'm in the business of VoIP; I'm not a psychiatrist, and I don't know what's going through the Bells' heads.

Who wins and who loses if circuit-switched versions of IP telephony disappear?
Consumers win. They get telephony at a lower price with more features and one unified bill.

Won't the Baby Bells lose?
The Bells have been pretty resilient over the years. Just look at the history of telephony in this country. The Bells have done pretty well. They'll figure something out. They have deep pockets. They'll always do well. I have great confidence in their ability to bob and weave and do whatever they need to do.

Net2phone only hosts cable telephone service, not DSL. Why? There are 19 million or so DSL users nationally and even more worldwide. Isn't this practice crippling VoIP growth?
I happen to believe in loyalty. I am making my bed and aligning myself with cable operators. If you're saying to me, "Hey, wouldn't I rather have a universe that includes DSL?" the answer is yes. On the other hand, it really doesn't make sense. Think of the Bells and their business model. It's not quite as compelling for them to offer VoIP. If I looked at it on a purely empirical database, I'd want the whole universe. But there's so much out there, and the rate we need to hit in order to make ourselves profitable is very low.

Could a Bell possibly buy Net2Phone out and start selling VoIP?
If I wanted to be Machiavellian about it, sure. If I were an RBOC, I'd want to own Net2Phone and put it out as way to accelerate the market.

Only 5 percent of your calls, in actuality, avoid the telephone networks. So you're still at the mercy of the Baby Bells and others. How will that affect you?
We're okay. We have CLEC (competitive local exchange carrier, the equivalent to long-distance carrier) status through some of our affiliates. They give us what we need.

When VoIP makes substantial inroads in this business, it will only be a matter of time before RBOCs unleash lawyers and lobbyists.

Many Bells are using VoIP to do their international calling now. So doesn't that put them in a bit of a corner, demanding regulation of newcomers like yourself yet relying on the same technology?
I'm in the business of VoIP; I not a psychiatrist, and I don't know what's going through the Bells' heads.

There seems to be the beginnings of the regulatory backlash against VoIP. Does that mean the usual honeymoon between new technology and regulators is over?
I'm a great believer in history. When VoIP makes substantial inroads in this business, it will only be a matter of time before RBOCs unleash lawyers and lobbyists. In the meantime, regulatory bodies should maintain what they are doing--taking a hands-off approach.

When does this honeymoon period end?
There's no formula you can use. Again, we're at the starting line now. I can't say there's a hard-and-fast rule that determines when VoIP is no longer considered nascent.

Who are VoIP's friends in Washington, D.C.?
The FCC (Federal Communications Commission) is VoIP's friend. So is this administration and the prior administration--it was during that time that the whole VoIP world was born. They've been very good to our industry. The FCC has been very friendly, because cable telephony brings facilities-based competition. Many international regulatory bodies are also friends of VoIP.