Woodrow Cundiff is a born salesman. Like many others before him selling the likes of Amway, Tupperware and Avon products door to door, he has been waiting for the "next big thing" to pitch. And like others before him, he found it on the Internet: a newfangled digital phone service offered by a Canadian company.
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In March, Cundiff spent $500 to become a "reseller" of the service that aims to replace expensive landline phones with software that runs on high-speed data lines to provide voice connections. A month later, he says he has already made his money back, nearly 10 times over.
That someone like Cundiff, with little technical background, can start selling Internet-based phone service so easily is a sign of how wide open the emerging industry is. With the cost of entry so low--a few hundred dollars, a Web site and some marketing moxie--hundreds of mom-and-pop operations are expected to join the fray soon.
But like other affiliate programs where sales representatives sell to friends and neighbors--who sell to their friends, and so on--there are plenty of potential pitfalls. In this case, the telecommunications, billing and services are all handled by the Infinet Communications Group near Vancouver, British Columbia; Cundiff and others like him, however, are the ones on the front lines signing up customers. If problems develop, angry consumers may be knocking on their doors for restitution.
"It's uncharted territory, and the people who are the pioneers bear a lot of risk," said Peter M. Birkeland, author of "Franchising Dreams: The Lure of Entrepreneurship in America" (University of Chicago Press, 2002). "The danger to the company, too, is that the people selling the service might make wild claims."
While established companies and consumer groups often look askance at pyramid selling plans, Birkeland said there was nothing intrinsically devious about individuals or small businesses selling an Internet phone service. Indeed, hundreds of tiny operations already sell long-distance service, phone cards and mobile phone plans.
For now, these resellers are tiny compared with the likes of, and .
Still, Cundiff seems to have no trouble finding customers. In less than a month, he has signed up more than 200, he said, working mostly from his home in Port Charlotte, Fla. Half his clients answered ads he placed on Yahoo, through Google and on Craig's List. The other half walked into the mobile phone shop he manages during the day and asked how to find a cheap home phone plan.
Cundiff carries no inventory but has to pay for his own marketing. His main service is to explain how the Internet phone works and how, as a reseller, you can make a few extra bucks, too. Infinet has the servers, routers and digital switches needed to connect calls, and handles questions about the service over the phone or via e-mail exchanges.
Cundiff steers customers to his Web site, which Infinet customized for him. Customers use the site to choose a phone plan and an area code. They also plug in their credit card number and address, so Infinet can ship them an adapter and a phone number. Monthly bills are sent electronically.
Cundiff collects a one-time fee equal to the customer's first monthly bill--typically $24.99--plus $2 a month for as long as the customer keeps the service. If his customer signs up a third person, he receives $1 a month from that sale, too.
"Voice-over-Internet is the most up-and-coming thing, and I was going to sign up for it, so I said, 'Heck, I'll start selling it, too,'" said Cundiff, 35, who says he's made about $5,000 in commissions so far. "The way I look at it, if I can get a couple of thousand customers under my belt, it'll be a nice income."
Experts doubt that these grass-roots sales efforts will topple the likes of Verizon Communications or BellSouth, which have tens of millions of existing telephone customers and billions of dollars to spend. But like the start-ups that sold cheap long-distance service after AT&T was broken up two decades ago, opportunistic entrepreneurs on the front line are making popular a product that many analysts say is the future of voice communications.
Nearly all of them will die, too. Like the long-distance market that the giant Bell companies now dominate, the resellers are likely to fade away once the Bells, cable providers and other incumbents start selling Internet phone service in earnest. These companies canwith television programming, high-speed Internet lines and other products, while the resellers cannot.
The companies can also muster their marketing firepower, brand names, secure and extensive networks and 24-hour help lines to reassure customers who are skeptical of no-name entrepreneurs.
"The proliferation of VoIP providers doesn't surprise me, but the market will absolutely shake out the same way as the long-distance market," said Richard Nespola of the Management Network Group, a telecommunications consultant.
Like Wal-Mart arriving on Main Street, there are signs that shakeout is already under way. Vonage, a start-up based in New Jersey, is the market leader with more than 600,000 subscribers. (A small portion of sales comes from its affiliate program.)
But big cable companies have made inroads fast., for instance, has gathered more than 350,000 customers in just 18 months. AT&T, which has 53,000 subscribers, expects its well-known brand and technical superiority to lure consumers from the start-ups.
"If you look at the history of long-distance resellers, there were 400 to 500 out there," said David Dorman, AT&T's chief. "Over time, they've all disappeared. I don't think a non-network operator is going to win out against more fulsome offers."
Thus far, the Bells have only reluctantly sold Internet phone service, which requires a high-speed Internet connection and an adapter. The flat-fee plans that upstart Internet phone companies offer threatens the traditional local and long-distance services the Bells sell for twice and sometimes three times the price.
But in time, they are expected to sell the service aggressively, if only to keep their customers from defecting to a rival.
For now, Cundiff does not appear worried about elephants stomping on his parade. He has found a welcome audience for his product among older shoppers tired of paying $50 or more for a local line and long-distance plan from the local incumbent, BellSouth. He approaches customers who come into the mobile phone shop where he works, Quick Linq, but also fields inquiries from people who find his Web site, www.iqphonecall.com.
"The older people are hip for the technology," said Cundiff, who also resold long-distance service in the 1980s and sold candy and crayons as a child. "They are looking to save money and they are tired of paying for a home line that's expensive."
Like Amway salesmen who give out free soapsuds to potential customers, Infinet gives away the $80 book-size adapters that connect phones to Internet modems. David Stoneman, who runs franchising at Infinet, said it would take about four months to recoup the cost of the adapter. But with 50 or so resellers finding customers, his company spends little on marketing.
"We operate on a negative cash flow basis to get the product started," Stoneman said. "But we save money by not having to advertise."
Though Infinet gives new customers 14 days to try the service at no cost, its Internet phone does not include many of the frills that rivals offer. For instance, there is no battery pack to maintain service during power disruptions. And customers cannot check their voice messages on a dedicated Web site. In the next month, Infinet expects to meet new laws that require all.
Infinet's help line is also only staffed from 9 a.m. to 9 p.m. Pacific time and has limited hours on the weekends. And because customers do not need to sign long-term contracts, turnover could end up being high and Cundiff's residuals could evaporate as customers defect. New federal regulations could also force Infinet to spend more money to bolster its service--and scale down its affiliation program.
Cable providers, AT&T and others that operate their own networks also say that companies like Infinet that rely on other carriers to route their calls have shoddy phone quality, something Stoneham and Cundiff dispute. Like Vonage and other Internet phone providers, Infinet uses Level 3 and other network operators to route calls across the country and overseas.
Indeed, Cundiff is planning to expand even further. He wants to have 1,000 adapters on hand in his shop so customers can sign up for the service immediately. His boss would earn the one-time commission, but Cundiff would receive a $1 residual from each sale.
"Everyone wants a piece of the action," he said, "because they know this is the next big thing."
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