Ooma now for sale: Is it worth it?

A few months ago, my co-worker Stephen Shankland took a look at a preproduction Ooma--the pay-once-and-you're-done phone service that's going on sale for real today. His experience setting up the Ooma hardware wasn't the best. I just got one of these gizmos myself and checked it out here at the CNET office. I found it to be pretty straightforward to get running, although my setup was much simpler than his. My take: This is a very cool, and very well-priced product. It's also technologically fascinating. It's not just a VOIP box.

I set up my Ooma by plugging it into the Ethernet in my office and to a spare telephone. That was the extent of it. After a few moments of blinking, the Ooma box settled down, and I was able to dial out straightaway. Inbound calls worked perfectly, too, to the number attached to my device. People I talked to said the calls were clear, and I didn't notice any lag on my calls (like you get with cell phones or bad VOIP).

Initially the Ooma setup instructions scared me. If you're installing it in your home, some of the connection diagrams are off-putting, especially installations for DSL customers. Ooma also wants to connect to your phone line. In fact, Ooma is being pitched as a great product for long-distance calling, not local calling, although its best payback is when you use it for everything. Ooma expects most users will keep their old phone line active for 911 calls. And it's the users that keep the old lines alive, and just let Ooma handle the long distance, that make the Ooma system work. That's where Ooma gets really interesting.

Here's why: Ooma uses a trick called "distributed termination" to run its system (read more on GigaOm). That means that when you call someone in another area code, the Ooma network routes your call over the Internet to the Ooma device of a user in that other area whose hardware is still connected to the landline. And then that box (the other user's) makes a local phone call out to the person you are trying to reach. Without a network of users connected to the phone network, Ooma's financial model doesn't work, as it has to pay for the calls itself. And this is why the company was so eager to give out Ooma devices to early adopters a while ago: It needed to build its network. CEO Andrew Frame assures me that this pilot program succeeded, and that the Ooma network is now fully operational and financially sound.

The borrow-a-phone-line model worried me for several reasons, but Frame reassured me that the Ooma system is secure and that a variety of contention issues you might think would pop up in this service have been solved. Apparently, through phone hacks I probably couldn't understand (and that he wasn't about to reveal to me, on the off chance I did), the system maintains your call privacy and the other user's line availability even when you're borrowing his or her connection.

The Ooma device and service costs $399 until 2008, when it will go up to $599. For the price, you get all the U.S. phone service you can eat (and international calls at reasonable rates), forever or for three years, whichever comes first--apparently, Ooma's accountants won't approve of a lifetime service plan. Other VOIP-ish features include voice mail you can retrieve over the Web, call-waiting, and a "second line" that you can access if you have more than one phone in your home. The second line feature requires that your extensions are connected to $39 Ooma "Scouts," satellite units that transmit Ooma signals over your home's phone wires to your extensions. (If you use one of those multihandset cordless phones, you won't get the full-featured second line on them.)

If you consider the Ooma as a three-year investment, it's $8.33 a month if you cancel your landline and trust the 911 service that Ooma routes you to--it won't know where you are calling from. That's a steal for a phone line, and it's a great solution for a second line or a business phone where 911 isn't necessary. If you keep the landline, it's still very cheap long distance, but depending on your usage patterns, dial-around long-distance services and pure-play VOIP plans like Skype Out might be competitive.