Sorting out the choices can make you long for the days of simple black rotary phones. But you don’t want to go there. Old Ma Bell, a smug, regulated monopoly, fought the rise of cheaper phones. Since competition opened the field, the real cost of local, basic service has dropped by 11 percent, reports the Federal Communications Commission. It could well drop faster, thanks to a fundamental shift in the way this business operates: phones no longer need phone wires to operate and it’s not just cellular. Every line coming into your house–the TV cable, an Internet connection, even your electric wires–is potentially a way to dial out. The new voice systems haven’t been fully developed yet, but they’re emerging faster than anyone expected. All sorts of companies are scrambling to offer new services to make sure they’re not left behind. But since the plight of phone companies generally doesn’t inspire much sympathy (many people itch to switch), let’s instead focus on what all these services promise and deliver, and which one might suit you best.
What’s the bottom line? A cellular phone is the cheapest choice. Nearly 20 percent of users consider it their primary phone. You usually sign a contract for certain amounts of minutes per month, paying flat rates ranging from $10 to $40 (more, for any minutes over). The wireless company throws in popular features such as caller ID, call waiting and so on.
But always read the fine print! As an industry, wireless generated more complaints to Better Business Bureaus in 2002 than anything else, says McKinsey, the consulting firm. Users gripe about sound quality, dead spots, billing foul-ups, deceptive sales and the high cost of canceling contracts when they get fed up. Wireless companies may even disable your cell phone electronically if you desert to another service (to protest, check out EscapeCellHell.org). For personal safety, however, use cell phones as second lines. They don’t work in a blackout and, in an emergency, can’t reach the usual 911. There’s a substitute 911, but those operators won’t know where you are if you’re unable to say.
To compete with wireless, landlines now use a similar pricing strategy (when did we start calling plain old phones “landlines”?). They’ve bundled local and long-distance calling together with the usual phone features, for flat monthly rates in the $50 to $60 range. “The distinction between local and long distance is vanishing fast,” says Sam Simon, head of the Telecommunications Research & Action Center. Check out the bundled Verizon Freedom Plan, AT&T’s One Rate and MCI’s Neighborhood.
Still, these plans save money only for heavy users of telephone services. Lighter users are stuck with other plans–the ones where costs are going up. In January, AT&T added $3.95 a month to the bills of the 10 million customers still on “basic rates” (35 cents a minute at peak hours). Sprint added two cents a minute to two of its Solutions plans.
There’s one more landline group to pay attention to: the long-distance discounters, such as Pioneer Telephone and Unitel. They don’t give much service but charge less than 4 cents a minute, with no monthly fee. The weaker discounters have been dropping like flies, but there will be enough strong ones left to ensure competition. To find them, check out SaveOnPhones.com or SmartPrice.com.
VoIP phoning is the game to watch. It’s a true disruptive technology that will bring stiff price competition even to wireless and the local Bells. VoIP circumvents phone wires by carrying your calls over any high-speed Internet connection. That allows the big cable operators to offer you telephone service, too. Another way VoIP can enter your home is through “black boxes” that plug your phone directly into the Net.
You may or may not be able to transfer your current phone number to VoIP service, depending on the companies involved. To find out, test your number portability at Vonage.com, one of the pioneer VoIP providers. Besides your regular number, you can pick “virtual” numbers with any area code. For example, a Chicagoan whose mother lives in Phoenix might want a spare number with a 602 area code. Every call she made would then be local.
The battle for VoIP supremacy is going to be a heavyweight fight. In one corner: cable companies (Cablevision, Cox Communications, Time Warner) with one big advantage–they control their own line into homes. In the other corner: companies that can’t afford to pretend that VoIP isn’t going to matter. AT&T’s CallVantage launched last month in parts of Texas and New Jersey, starting at $19.95 and rising to $39.99 six months from now. Qwest is testing Minneapolis. Verizon should be up by June.
Well ahead of the biggies are small, private companies that started it all–FreeWorldDialup, Vonage, iConnect, Net2Phone. For home use, they charge about $15 to $40 a month for unlimited calls in the United States and Canada. They’ve also got rock-bottom rates on international calls. A company called 8x8 sells domestic plus unlimited calling to Europe or Asia for $49.90 a month. Small businesses can rack up huge savings.
Last week I tried Vonage’s VoIP. I plugged a phone and my computer into the company’s little black box, plugged the box into my cable broadband connection and dialed. The calls were clear and sharp (more than I can say for my landline). Vonage’s packages run from $15 to $35 a month, plus taxes.
At present, VoIP doesn’t work easily on all phone systems–for example, if you have several phone lines on a single phone. Some VoIPs take extra work to install, if matched with AOL Broadband or certain high-speed DSL connections. Even your computer might object. When I plugged into Vonage, my Internet service died. I needed a tech’s help to get it back.
But that’s small stuff that will be fixed. VoIP will be coming at you everywhere. Consider Cinergy, a Cincinnati utility. It’s testing ways of getting online through your electric wires–giving new meaning to “plug and play.” If plans work out, long-distance phone companies might lease these wires for themselves. AT&T, for one, demonstrated power-line calling to stock analysts last month.
Finally, VoIP hints at the possibility of getting phone service free. The team that brought you the music-file-sharing program Kazaa is beta-testing free software called Skype. With it, you can talk (through a mike on your computer) to any other Skyper in the world. Cost: zip. There’s also free software at FreeWorldDialup, usable with a computer mike, PDA or special IP telephone. FreeWorld lets you call any phone free in the United States and Canada, and the equivalent of 800 numbers in the United Kingdom, Japan, the Netherlands and Norway. These are the players who will really shake up the status quo. Once they blow up all the old businesses, we’re going to love our phones.
