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How to Be Your Own Phone Company

Ooma's VoIP hub routes calls over the Internet and gives callers the ability to use their phones without a phone company or a computer



iStockphoto, Anneke Schram

Although voice-over-Internet-protocol (VoIP) technology provides computer users with a free alternative to traditional phone service, a new company is offering Internet telephony that does not require a computer. Going back to basics, Palo Alto, Calif.–based ooma, Inc. last week introduced a routing device that enables consumers to make free calls within the U.S. using conventional landline phones.

Ooma relies on a peer to peer networking model to ensure that every call is treated as a local one by routing it over the Internet from one ooma hub to another owned by an ooma customer in the area code being called. The second ooma device completes the first ooma's call, making the call local, and thus free. The process does not interfere with any calls that the second ooma's owner might be making or allow the second ooma owner to eavesdrop or otherwise interfere with any calls routed through his or her system.

Ooma's Internet telephony is novel in that it provides the same unlimited, free domestic calling offered by a number of VoIP providers, including eBay subsidiary Skype, but it allows callers to use their existing telephones rather than their computers. Once a customer buys the ooma hub (at a price tag of $399 through the end of this year and $599 thereafter), he or she continues to pay for Internet access but no longer needs phone service from a public switched telephone network (PSTN) run by traditional phone companies.

Ooma has managed to lift several of the limitations that hinder other VoIP services, says Yankee Group senior consumer research analyst Patrick Monaghan. In addition to letting its customers use their home phone sets for VoIP, ooma offers a peripheral device dubbed a Scout, that lets users route incoming calls to other phones in their household even if someone else is already using one line.

The hub features what ooma calls a "broadband answering machine" that allows its users to listen to their voice mail messages from the hub device like a conventional answering machine, or users can access them via the Internet at the "ooma Lounge" Web site. As with most VoIP services, features like call-waiting, three-way conferencing and voice mail are included in the ooma package at no additional cost.

Internet telephony has already caused a stir as new players shake up established phone service providers. EBay's $2.6 billion purchase of Skype in 2005 portended VoIP's popularity, whereas Verizon Communications's patent-infringement lawsuit against Vonage earlier this year indicated that carriers have begun to view VoIP providers as a threat.

Still, ooma acknowledges that it has some holes to fill in its service: The company does not support international calls, because landline and PSTN technologies vary from country to country. But ooma founder and CEO Andrew Frame says international service is on the company's agenda. Also, because ooma's products are just starting to hit the market, it will be a while before there are customer hubs in every local area code. Until that happens, the company will subsidize the cost of all calls made via its devices within the U.S.

Ooma also acknowledges that online calling to 911 emergency services is not as reliable as dialing 911 on a landline, so the company lets its customers keep a landline with their local phone companies and will route calls to those landlines in the event of an Internet outage. Customers who opt to keep their landlines will end up paying their phone companies a $10 or so monthly fee for basic service.

Stuart West, a former chief financial officer at TiVo, began beta testing the ooma hub earlier this year after being hit with a whopping $200-plus monthly bill, because he used his cell phone as his home phone. With a three-month-old baby and many incoming and outgoing calls, West and his wife have made good use of the ooma hub, and "no one notices any difference in sound quality between ooma and the old phone service," he says.

West plugged his home's DSL Internet connection into the ooma hub, and then plugged his normal cordless phone into the hub. "I'm not an engineer, but I'm definitely a gadget guy," he says. He notes he considered other VoIP services including Skype, but he found them to be unwieldy and inconvenient, because they tied him to his PC and required a special headset for his computer. West pays AT&T a nominal fee to keep his basic landline service so he doesn't have to rely on the Web to reach 911 in case of an emergency.

Ooma's technology will initially appeal to technophiles like the ones who rushed out to buy the iPhone before Apple dropped the price by $200 and those who discovered digital video recording years ago, before TiVo became a household name. "It's a killer app for broadband," says ooma's Frame, who started working full-time for networking leader Cisco Systems at the age of 17.

While Monaghan is not ready to call ooma a killer app, he does acknowledge that cost has become the key factor in choosing a phone service. "Most people don't care that they have a technologically advanced product," he says. "They just want dial tone."

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