Internet-based telephone service is overcoming its early reputation for being shaky and unreliable, and it might be on the verge of a high-tech communications breakthrough.

The technology - known as VoIP, for voice over Internet protocol - is pushing aside traditional telephone systems in some offices and is starting to win over home users.

"It is inexpensive. It has some nice features," said Joseph Klein, who earlier this year switched the telephone in his Milwaukee home to an Internet-based service provided by an upstart telecommunications company called Vonage.

"They seem to have worked out all the major kinks," Klein said.

The technology has been talked about for years, but new users such as Klein and companies such as Harley-Davidson, Metavante and Master Lock show it is gaining acceptance. Some think VoIP is ready to shake up and eventually dominate the telecommunications industry.

The ranks of companies able to hook up homes and businesses with IP telephone service are swelling. The technology once was largely only available from firms such as New Jersey-based Vonage and information technology companies like Madison's Berbee Information Networks Corp.

In recent weeks, however, traditional telephone companies have been scrambling to roll out or expand their VoIP packages. SBC Communications Inc., Wisconsin's dominant local phone company, has an IP telephone service aimed at businesses. Qwest Communications International Inc. is pushing a residential and business service. The cable unit of Time Warner Inc. is planning an aggressive expansion of its VoIP product over the next year that could bring the service to Milwaukee.

"This is the year it is bursting onto the mainstream," said Jeff Kagan, a telecommunications industry analyst based in Atlanta. "It is not going to take over overnight, but it will take over."

Conventional phone systems connect callers over a circuit that is closed to other callers for the duration of the conversation. An IP telephone system breaks a voice into digitized packets, sends the packets over a network and then reassembles them on the other end so the other party hears a normal voice.

Some systems send the voice packets over the public Internet. Others, such as those used by SBC and AT&T, rely on more secure private data networks.

The growth of VoIP technology will trigger a new round of fierce competition that will produce new groups of winners and losers within the telecommunications industry. Consumers will see plenty of benefits even before that plays out completely, Kagan said.

"You get lots of innovation and lots of attractive pricing," Kagan said. "It's a very exciting atmosphere. The customer wins. It's a buyer's market."

Regulation questions

The technology industry certainly has made promises before about the next big thing that turned out not to be so big after all. So is this really a big deal?

Internet telephone service still remains in its early days, Kagan said.

Federal and state officials have yet to work out myriad regulation and taxation issues that could hinder the development of the technology.

A key reason that the technology has not taken hold before now is that early versions of IP telephone calls often had a tinny, jittery sound. Today's IP telephone service sounds much better. Some who use it say that its reliability and quality equal other telephone systems.

They still must address concerns that phone service would be lost when power goes out, although VoIP advocates said this can be overcome by battery units and other back-up systems.

Many early converts to the VoIP technology have been attracted by lower prices.

Klein pays around $35 a month for unlimited local and long-distance service through Vonage. This price beats flat-rate bundles available from SBC and other traditional phone companies in the Wisconsin market.

Businesses installing voice over IP systems also can cut the costs of their calls.

HellermannTyton, a Milwaukee manufacturer that is using AT&T's IP telephone service, no longer pays per-minute long-distance charges when making calls over the system among its offices in Milwaukee, Illinois and Florida, said Chris Cantwell, e-business manager.

Even greater savings tend to come from advantages that make these systems much easier to administer.

"Voice over IP is being marketed as cheaper phone service, but that is the least of it," Kagan said. "It is so much more than that."

By blending voice, video and data onto a single network, the technology can do a lot more than place a phone call.

"It is going to allow us to have the science fiction future," Kagan said.

Crystal clear video conference calls, home automation, interactive gaming and other functions all are possible with this technology, Kagan said.

"Sitting with a laptop in a hotel room, you can have a video call with your family at home," Kagan said.

AT&T also sees VoIP as bringing a telephone industry transformation.

The new way of providing telephone service represents the "most significant, fundamental new technology shift in telecommunications in decades," David Dorman, AT&T's chairman and chief executive officer, said recently.

"We're on the verge of a VoIP revolution," Dorman said.

Berbee is seeing rising customer interest in the technology.

"The single biggest driver is still cost savings," said Pat Scheckel, who works with Berbee's IP telephone customers out of the firm's Chicago office.

The costs for the central switchboard and other equipment can be cheaper than a conventional system, especially when a company is connecting multiple remote sites, Scheckel said.

The ongoing maintenance cost is less, as well. A company's IT staff can make the telephone extension changes when an employee moves within an office building or a new worker joins the firm. This saves the cost of moves, adds and changes on a conventional system, which could involve bringing in a telephone technician.

IP telephone systems can bring operational savings of around 20% to 30%, he said.

Companies are finding that the telephone systems also can bring other benefits.

"There is an acknowledgment that the productivity gains are there," Scheckel said.

When he travels, Scheckel calls his office's voice mail system and has e-mails automatically read to him over the phone. If one is urgent, he can send a reply or forward a message to a colleague who can take care of it.

Another sign of how the IP phone trend is taking hold is that Berbee had been debating last year whether to shut down a team of a half-dozen programmers designing new systems that tap the productivity-enhancing potential of IP telephone systems. The team is increasingly busy now, though, as more customers install the technology.

Doing more with less

SBC's IP telephone customers also are finding advantages in switching from old phone systems to this new technology.

An IP phone system can be set up so certain calls go automatically to voice mail and other, high-priority calls come right through, said Marianne Gedeon, director of voice-data convergence for SBC.

Employees who travel can use a find-me, follow-me function. They set up the system so calls coming into an office phone automatically are forwarded to a cell phone or other number where the person is working.

"Most businesses are faced with how to do more with less," Gedeon said. "Companies that have dug into this truly have seen some savings."

Within the next five years, IP phone technology could account for as much as half of the market, Gedeon said.

AT&T said it has hundreds of business customers using its VoIP service, a fourfold increase from last year.

Vonage has signed up 75,000 customers since launching its service in the spring of 2002 and is aiming for 250,000 by the end of next year, said Louis Holder, executive vice president of product development.

Top Seven Questions You Should Ask About Internet Telephones
 
People switch from their traditional telephone service to an internet telephone provider for three reasons: lower cost, new features, and more control over their telephone service. Of course, one of the best features mentioned by users is the lower cost, so you can see how some people get focused a bit too narrowly and forget to ask some necessary questions.

Internet telephones from service providers like Vonage (the leading American service), Packet 8, Lingo, BroadVoice, and others do a great job of replacing the majority of traditional telephone features. However, there are some features they can't provide because of a combination of technical details with their own service, or products in your home that demand the simplicity of the traditional telephone. So, if you're in the market for an internet telephone, here are seven questions you should ask before you make the switch.

1. Will my phone number still be listed by the phone company?
Technically, no, because you are no longer using the traditional telephone company as your provider. Since the traditional telephone companies generally produce the phone books, they only list their own customers.

Realistically, if you transfer your number to your internet telephony service provider, you will be listed in the phone book until the traditional telephone company prints the next version. Sometimes, your number will be listed an extra year or even two, because phone companies suffer "number inertia" and leave the listings unchanged.

  
Of course, people could Google you for your telephone number, but that information comes from telephone books, so after a year or three your number wouldn't show up there, either. But phone book copies tend to linger in the databases, so your number should be available online for years.

Freedom from some telemarketing calls may be the upside of having an unlisted number. The traditional telephone companies, in their never-ending greed, charge people to not publish their number, but your number will be not-published for free.

Many directories now come from independent publishers, not the phone company directly. Often, those companies are spin-offs of the telephone company division that made directories before, but they are now officially separate. Whether these separate directories will want to list broadband phone users, and whether they can gather the information from the broadband phone providers, will be interesting to see.

2. How do extension phones work with my new internet telephone service?
The wiring running to your extension phones now will not connect to your broadband phone plug, so you will have to either rewire or get new phones. Your broadband phones must be plugged into your broadband router, and all your extension telephone plugs now run through the house back to the traditional telephone company line where it comes into your home (called a demarcation point).

There are two ways to add extensions. One, you can get a new cordless phone with multiple handsets for your extensions. Put one of the cordless phones everywhere you want an extension, and plug the cordless base unit into your broadband router.

The second option is to rewire the extension phone cable away from the existing connection point (with the traditional telephone company line) and to your broadband modem. This option includes a large number of caveats and warnings, and may well be impossible if you live in an apartment or any type of multi-family dwelling where you don't have access to the telephone line connections from the traditional telephone company.

Take heart, because cordless phones with multiple handsets support all of the modern features, including intelligent communications with your broadband phone provider. Even better, these units cover a wide price range (from fairly low-priced to feature-laden and expensive) but are dropping in price regularly.

This shortcoming causes problems for many customers. Expect the broadband phone vendors to develop better ways to integrate with existing wiring and handle the voltage sent over the traditional telephone network. But in the short term, look into purchasing cordless telephones with multiple handsets.

3. Can I plug my TiVo or satellite TV receiver into the broadband phone connection?
There are two parts to this question. First, since your existing phone extension plugs do not connect to your broadband phone service, you have to reach a plug that does connect to your broadband phone service. Second, some media devices that rely on a telephone line do not work over internet telephones, even when physically connected.

Some models of TiVo, for instance, successfully communicate over a broadband phone service. Others must be installed with a traditional telephone line and can then function without a phone connection of any type, but that limits your ability to order pay-per-view events via your television remote control.

TiVo officially says it does not support any broadband phone services, but expect big changes in two areas over the next year or so. First, TiVo and the broadband phone services will reach some type of coexistence. Second, TiVo and other devices will start communicating back to their programming services via the internet. This will allow them to connect over wireless network equipment that also supports streaming internet media, probably within two years.

4. Can I connect my home alarm system to my broadband phone?
Like the question above, this depends. Some do, some can be configured to work after a service call, and some won't work at all.

The good news? Alarm companies already provide backup communication links to your telephone line, usually over the cellular telephone network. These devices cost extra, and depending on your alarm service, they may cost quite a bit extra.

More good news? Alarm.com now leads the alarm industry to the internet by monitoring home and business alarms over internet connections rather than telephone lines. Vonage already has a partnership with Alarm.com, and Alarm.com will happily monitor your security system over the internet no matter which broadband phone service provider you prefer. Or, in fact, if you don't use a broadband phone service at all but want to bypass reliance on the telephone link, Alarm.com will monitor your alarm over your broadband network connection.

5. Can I call customer service and talk to a person, or do I have to do it all over the internet?
Larger broadband phone service providers, like Vonage, do have customer service personnel, as well as sales personnel, on its 800 number. If you feel better talking to a person, call them up.

Other internet telephony service providers have live operators, and they will say that on their websites. However, the modern service providers allow customers to make nearly every conceivable service change to their own accounts via a personalized web account management screen. You can make the changes you want quickly, and avoid listening to bad music while on hold.

6. Can I leverage the expanding number of wireless hotspot connections in public places to make phone calls through my broadband phone service with a portable phone?
Yes, you can. Internet telephony providers usually include a softphone option, which means they have an application that runs on your laptop computer and handles dialing and receiving phone calls. You'll need some way to talk to your computer (or PDA, in some cases), such as a headset, but you can do this today.

New phones now reaching the market include dual-service capabilities. They will work over wireless internet connections when available, and fall back to a cellular service provider when necessary. Experts promise great improvements in wireless calling convenience, allowing one phone to provide service whether the call is a broadband phone call or a cellular phone call.

7. Am I giving up more of my privacy with an internet telephone provider than with my traditional telephone service?
It depends on what you consider the most important personal privacy issue. Your traditional telephone company installer ties your phone line wires to a physical address, so they know exactly where you are. Internet telephony providers often ship hardware for connecting your existing phone to your broadband service, but they don't physically verify that you install the equipment at your shipping address. In addition, your broadband phone works on any broadband connection, and some users carry their phone and connecting equipment to multiple locations.

While your traditional telephone company knows your physical address, they don't ask for a credit card number, which every broadband phone service provider demands to provide service. Do you protect more privacy by hiding your address or your credit card number? The first locates you physically, but the second opens the door to your financial history. Different people have different sensitivities, and you may prefer to hide your credit card more than your address, while your neighbor may prefer the opposite.

Privacy issues are one of the reasons given by internet telephony providers as a reason to avoid mandatory 911 registration. Several providers contend that some users do not want their fixed location tracked for inclusion in the 911 address databases. These users wish to opt out of the 911 system, and the broadband phone providers allow this measure in the name of privacy.

Is this a legitimate plea for individual privacy, or an excuse by broadband phone providers who haven't done enough to protect their customers? As a society, should we demand every adult enroll in the 911 address database as a precondition to receiving home telephone service, or can individual adults opt out of the program? This is just one of the many 911 issues that will be kicked around over the next two years.

Summary
Broadband phones can replace at least 90 percent of all traditional telephone service requirements today. For many users, internet telephony will give them 100 percent of their traditional telephone service, including 911 calls. For a few users with multiple telephone extensions and media equipment that needs a telephone line for installation and service details, a broadband phone will require configuration beyond the normal plug-and-play nature of most installations.

That said, millions the world over are converting to broadband phone service for cost savings, new features, and control over their telephone service. If they must do a little tweaking and change the way they handle extensions or their home alarm systems, the cost savings have been too high to ignore, and they're adjusting their way into the new world of internet telephony