[December 3, 2004]

Internet Telephony Pricing Gimmicks: It�s All in the Numbers

BY JOHANNE TORRES

Shopping around for an Internet Telephony calling service for your residence? You are not alone. In fact, the prospect of saving money by switching from a legacy telephone service over to Internet Telephony, also known as Voice Over IP (VoIP - define - news - alert)-based calling, has allured the unwary investor in many of us. I’ll bet you are extraordinarily baffled after seeing the slew of wacky tariffs and payment options for VoIP services. After seeing all the pricing gimmicks popping up around the Net, I decided to try to sort it all out to ease your pain and help you embrace the technology along with its potential savings.

In my research, I learned that most plans offer features similar to those we might get from a legacy telephone service, as well as some extras and advanced features. These include caller ID with name, call blocking, call waiting, three way calling or multiple caller conferencing, call forwarding, enhanced Web interface-based voicemail, “do not disturb” automatic voice answering service, contact list management, Web-based call logs and area code selection.

Most providers charge a monthly fee for unlimited or at least 500-1,000 minutes of local and long distance calling within the United States and its territories like Puerto Rico. There are many monthly plans that also consider calls to Canada local calls. Most of these plans charge users for international calls by the minute. Here is a comparison of monthly priced calling plans for the most popular Internet telephony providers in the US residential market:

Vonage (news - alert) – Offers two monthly calling plans: Basic and Premium Unlimited. The Basic plan includes 500 anywhere in the U.S. and Canada for $14.95. The Premium plan includes unlimited calls anywhere in the U.S. and Canada for $24.95.

AT&T CallVantage (news -alert) – Offers two monthly calling plans: The $19.99 monthly CallVantage local calling plan, which offers unlimited local calling, and 4¢ per minute long distance calling. And the CallVantage service plan, which includes unlimited local and long distance calling in the US and to Canada for $29.99 monthly.

Verizon’s VoiceWing (news - alert) – Offers unlimited calling in the US and its territories including Puerto Rico for $34.95. Verizon’s pricing is lower when customers use the company’s high-speed broadband service.

8x8 (news - alert) – Offers the Freedom Unlimited plan for $19.95 a month, which includes unlimited calling in the US and Canada. The company’s Freedom International plan includes 1,000 international minutes and unlimited calls to other 8x8 users for $19.95 monthly.

Today, I learned of a provider that offers an Internet Telephony calling plan that is paid for once a year. SunRocket (news - alert), a company founded by former MCI executives, came up with an innovative way to price their service. The Vienna, VA-based company enables customers to pay a $199 flat-fee per year and receive 12 months of all-inclusive home phone service. The plan, which comes to about $16 monthly, includes unlimited calling throughout the U.S. and 100 free minutes of international calls every month.

Trying to figure out how much calling you might do for a whole year to commit to a plan like SunRocket’s could be a bit scary. I believe customers would be able to make a final decision by also considering broadband service pricing—as many plans reduce their monthly fees for calling if you already use their broadband connection service or if you sign up for it too. Another thing to consider is the amount of taxes and other fees you pay with your legacy telephone service—which are mostly “on hold” for VoIP-based services, while the technology awaits definite regulation.

All the pricing information listed above reflects my research conducted today. Customers should be aware that VoIP-based service providers belong to a very competitive market, therefore their pricing has been fluctuating for the past year or so.