Voice over IP

T-Mobile has announced $10/month VoIP (Voice over IP) phone service. It's an interesting twist on VoIP, with the company leveraging portions of its wireless cellular network to reduce the cost of providing the service. It is, however, a landline service, and you have to have T-Mobile cell service AND a broadband connection at your home. But you can't beat the price, which looks pretty good compared to an average $40-$50 per month cost of old-fashioned copper-based local/long distance bundles.

Spit (Spam over internet telephony) may be worse than spam, according to this article. As more and more businesses and people make the switch to VoIP telephone services like Vonage, the spammers are gearing up for the mother of all dinnertime sales call efforts. But wherease the Do Not Call list mandated by Congress managed to get those annoying POTS (Plain Old Telephone Service) sales calls under control, Spit will be coming from servers in China, Nigeria, and other lawless areas of the globe, beyond the reach of U.S regulators.

While spam can be filtered at the mail server, before you ever have to see it, spit is just going to make your phone ring. Researchers are already trying to develop methods to try to combat it, but the end result will be to make VoIP services cost more as we all pay for anti-spit services. As one example of how these costs affect prices, Design Nine's cost of mail service is effectively doubled when the spam filtering service we use is added in. Email is still a bargain, but costs more than it needs to because of spam.

This short article from DefenseTech indicates that the Navy expects to save 24% per year on it's $4 billion dollar telephone bill by switching to Voice over IP phone systems. In round numbers, that's about $1 billion a year, or enough to buy an entire aircraft carrier in five years. Businesses are consistently seeing that much savings or more, and reports of 40% savings are common. Of course, you have to have a reliable broadband connection to switch your business to VoIP.

eBay's purchase of Skype, the Internet phone service, appears to be reaping dividends in terms of new features for the phone service. Skype has been making more frequent upgrades to the software and service, and in the process, is redefining the telephone.

We used to think of the telephone as an object. It is now a piece of software and an associated service, completely independent of a particular physical object. You can run Skype on your computer with a headset, but manufacturers are also producing "Skype phones" which have the basic Skype service protocols built in, so you can plug them into your computer but use the phone to dial calls just like an "old fashioned" phone.

The company is taking many different features and services and combining them into a unified interface--something other companies are trying to do but with less success. Skype seems to be taking a page from Apple and focusing intently on designing really good software to make the service easy to use from beginning to end. The company has excellent help tips and instructions, and the newest version of Skype with videoconferencing recognized my camera without making me do anything to set that feature up.

Skype is adding SMS, file sharing, conference calling, video calls, and voicemail, among other features. And Skype can also call to "old" telephone landlines. Some of these things cost money, but Skype is pursuing the now classic Internet model of giving part of the service away for free. With eBay's deep pockets, Skype may well come to dominate the phone space, whether we like it or not. Internet advocates are working on an Open Source equivalent called Gizmo, which has many of the same features, but Gizmo, which relies on volunteers to add new features, may not be able to keep up with a steady stream of new features coming from Skype. But free does not always mean good. I've tried to use Skype's conference call feature, and the quality is mixed, as is just person to person Skype calls, because the service is heavily dependent on the quality of your Internet connection and all the connections between you and the person on the other end. Skype is one reason the phone companies are calling for a two tier Internet with toll booths. The phone and cable companies want to extort, er, I mean, charge Skype fees for carrying their traffic. But that's not a solution, it's just another problem, mostly for users.

What is likely is that the notion of having a single "phone" number or even just one or two phone numbers, is long gone. We'll have to have multiple voice services and accounts to accommodate friends, family, and business associates. As long as we can forward our phone calls from one "number" to another, we should generally benefit from a very rich set of features....if we can figure out how to use them all.

Swedish-Finnish telecom company TeliaSonera has started selling hybrid phones that will automatically make phone calls via the Internet when in range of a WiFi hotspot, and use the normal cellphone network when not in a hotspot. Some other dual mode phones have been available, but this is the first phone (manufactured by Samsung) that will switch automatically between the two. The firm is targeting in home use first, which is clever, because we make a lot of calls from home. If you have a wireless router in your house, the phone will automatically make VoIP calls, saving money.

Devices like this illustrate the need to design communitywide broadband networks that offer BOTH fiber and wireless connectivity. We are going to want and need both, and communities should plan and design for both.

This new Skype-compatible VoIP phone is cordless, which fixes a limitation that has always made Skype and other Internet phone services clumsy--you had to be tethered to your computer. With this phone, a little widget plugs into a USB port and you can wander around the house or office with the cordless handset. As more phones like this become available, it will drive even higher use of VoIP.

This little device uses the videoconferencing facility of Skype (the VoIP software) to send a television stream to anyone with Skype. It's one of those odd little devices that often end up in ads on late night TV, and will probably amount to nothing, but it could become the monster that ate the Internet. It sounds like you could plug this into your cable or satellite TV jack, then have your computer call you at work to stream your favorite soap opera to your work computer, among other devilish uses.

It is just the kind of thing that frightens the pants off the cable and telephone companies that are selling broadband connections for fixed prices that have zero relationship to the things that people actually want to do. Their response is to stop people from doing anything they don't approve of, rather than redesigning their networks to support what people actually want to do (and will pay for happily in most cases).

Vonage may be the first big casualty of the "Web 2.0" craze. While Voice over IP is technically not a Web 2.0 application, we can use Web 2.0 as shorthand for the same kind of hysteria we saw in 1999 and 2000, when a lot of really bad ideas (from a business perspective) got way too much venture capital funding.

Proving that there is still a sucker born every minute, investors poured nearly half a billion dollars into the VoIP firm's IPO--even though the company has never had a single profitable quarter in its five year life, and in fact has lost nearly half a billion dollars in that time.

The problem for Vonage is that they set the stock price too high (well, the company has lots of problems, but I'm talking about the IPO). The $17 initial price has dropped below $15 in just a few days, and some are predicting it will fall below $10. High flying tech stocks are supposed to shoot upwards in value and make early buyers of the stock big profits.

But wait! There's more!

Vonage offered users of their telephone service an opportunity to buy stock at the initial opening price. That's an attractive offer if the stock value shoots up quickly; you can buy the stock and immediately know you are going to make a profit if you sell right away. But what if the stock price drops? Now you have to buy shares at $17 that the market says are only worth $14.50. What some subscribers are saying is that they are going to renege on their agreement to buy. And Vonage is now suggesting it will force subscribers to honor their purchase commitments.

It can't get much uglier than that.

Stepping back, Vonage has two structural problems. First, the business model for Vonage, in which you can make free calls to other Vonage users and pay to make calls to people not on the Vonage network, is not working--the company is losing money every day.

Second, the big access providers have started playing games with VoIP data traversing their networks so that the quality of the phone calls is much reduced. This is part of the "two tier Internet" issue, where the big providers first "prove" extra fees are needed by monkeying with the way their competitor's data traffic is handled, then claim special fees are needed to make the network work better. Vonage is an early victim of this because they have so many people using their service.

And in fact, heavy VoIP traffic can and does affect networks. But the solution is not to start charging companies like eBay, Vonage, and Google special fees to carry their traffic. The real problem is that the bandwidth model of selling Internet access that we have used for the last decade is badly broken. The two tier Internet "solution" is like putting a band aid on someone having a heart attack.

We need open access digital road systems where bandwidth is free and you pay for services. This allows everyone in the service chain, from customer to service provider, to price or pay for services based on the value of the service, and not on some completely artificial cost of some increment of bandwidth that has no relationship to what people and businesses actually do.

Some communities are already planning open access systems. As they become operational in the U.S., we'll see more and more movement toward them, because they are the only ladder out of the hole we are in. In the meantime, we have to hope our state and Federal legislators don't cave in to the two-tier Internet crowd and really screw things up.

In a perfect world, we would throw our cellular phones away and move as fast as possible to an all Internet wireless system, using VoIP to make phone calls and the same packet-based IP transport for all other kinds of data--one kind of transport system for everything--voice, video, Web, you name it.

But infrastructure usually trumps good ideas. We already have a vast cellular infrastructure that works pretty well, at the expense of having a separate wireless road system for phone calls--one that does not work with the more versatile Internet road system. And it is hard to imagine how you just throw away all the billions already invested and invest billions more for a new wireless Internet everywhere.

But the cellphone manufacturers may have cracked this problem with UMA, or Unlicensed Mobile Access. Using a single wireless phone, users can use it to make calls when near a WiFi hotspot OR on the conventional cellular system. Even more interesting, you can do so seamlessly. You can start a call on the cellular network, walk into a WiFi hotspot, and the phone will switch to the Internet seamlessly while you are talking.

There are a lot of issues to be worked out, including pricing (it's cheaper to carry voice calls over WiFi/Internet), but it gives the cellular companies a roadmap for making the transition to an all Internet road system gracefully. We'll see more and more phones coming standard with WiFi, which will also make it easier to use our phones and PDAs to check mail, surf the Web, watch movies, and stream music.

I am not a big fan of me-too municipal wireless projects. Wireless technology remains in flux, with new equipment and systems coming online constantly. Interference and bandwidth issues have to be considered very carefully when designing these systems. And you have to know how you are going to pay for the network management and maintenance.

In other words, a community should not be planning a big wireless initiative just because "that's what they are doing in Philadelphia."

The city of Toronto has just announced a big wireless project, and they have an interesting approach to making the system pay for itself--VoIP.

The city wants to create competition for the cellular companies, and wireless VoIP could be just the thing. From a technical perspective, VoIP is clearly superior (think BetaMax). But wireless VoIP phones are not very appealing because they only work where there is a hotspot. And we want our phones to work everywhere.

So the cellular companies have an inferior voice/data combo (voice and EVDO data service) that works with an infrastructure already in place (think VHS). Wireless VoIP phones won't catch on unless they work, but how do build out the infrastructure when you don't have enough customers to pay the bills?

It's a classic chicken and egg problem.

But if local government steps in and helps with the infrastructure part, everybody wins. Suddenly, lots of people can use VoIP phones throughout the city, and competition drives voice prices down.

What would be great is if the city of Toronto allows multiple service providers to sell VoIP over the city network--that creates a win-win situation that creates jobs and opportunities in the private sector while those service providers pay small fees based on income to the city, which pays for the investment and maintenance.