TheGlobe Does VoIP

By Gerry Blackwell

May 11, 2004

A startup company with big ambitions is looking to medium-sized and small ISPs to be its distribution system. It's all part of the Internet's latest disintermediating trend.

voiceglo, an IP telephony company with an interesting past and a more interesting product (and a name written in lower case letters), wants to be your partner. And according to voiceglo president Edward Cespedes, a fair number of ISPs already want to be his partner too.

voiceglo, which came out of the chutes earlier this year with both a Vonage-like, hardware-based home and business phone line replacement product and an intriguing go-anywhere browser-based phone service, sees distribution and marketing as the only barriers to certain successand even they're not really that big a barrier.

"The product is so scalable and the margins are so high that all we have to do is make the distribution deals," Cespedes says. "We've got hundreds of ISPs interested."

voiceglo has already made one intriguing distribution deal with FTSWireless, a Florida company building out a chain of retail stores in which it plans to sell voiceglo's products, plus hotspot and other Wi-Fi services to supplement its main business of selling mobile telephony products.

voiceglo sees all kinds of potential distribution partners. Cespedes suggests Walmart and American Express as possiblesthough he is careful to make no claims of being anywhere near signing deals with either.

"I could walk into Walmart tomorrow, and with no capital expenditure and 40 percent margins they could start [selling the voiceglo products] the day after tomorrow," he says. "Anybody with a major customer base now can be in the phone businessbecause the Internet has removed the risk."

Anybody could be in the IP telephony biz, but apparently ISPs are voiceglo's main focus.

"There are a number of top-tier ISPs we're talking to," Cespedes says. "But the great bulk would be next tier companies. We've been pleasantly surprised at how hungry ISPs are for IP telephony."

He's expecting to announce "a number" of ISP distribution deals in the next 60 days.

For ISPs, of course, this may sound like dij` vu all over again. A few years ago, voice over IP (VoIP) equipment vendors and service providers tried to convince them that they could improve their ARPU (Average Revenue Per User) by offering VoIP services.

They could either resell service from an IP telephony specialist or provide their own using off-the-shelf VoIP infrastructure equipment. It sounded like a reasonable proposition, but few ISPs ended up doing it.

The reason: the service either wasn't very good, or it cost too much to provide. That was then, this is now. Cespedes is making all the same arguments, but they may make a little more sense now.

The spread of broadband access to homes and small businesses, the glut of cheap fiber for Internet backbone and managed IP networks, along with a drop in the price of VoIP infrastructure and customer premises equipment (CPE) have changed the quality and economics of VoIP.

Witness the success of companies such as Vonage, Net2Phone, and 8x8.

I've personally tried three different IP telephony services and they all delivered good enough voice quality and reliability to give even small business customers reason to consider them seriously.

Cespedes is probably overstating the case when he says of IP, "This is just a better way to do voice." But he really doesn't mean from the end customer's perspective, he means from the start-up service provider's perspective. In fact, he admits it won't be perfect at first.

"For the first few years of all this, of course we're going to experience occasional problems," Cespedes says. "You might have a bad connection one day, or the voice quality might be a little less than it should be another day. But think back to when you got your first cell phone."

True enough. The IP phone services I've tried are often better than even today's cell phone services.

It's the low cost of entry for service providers that makes IP so attractive. Cespedes compares his company's situation to that of Bell South, the incumbent telco in Florida where his company is headquartered.

"I have 40 employees, no debt and I can deliver phone service globally," he points out. "Bell south has 100,000 employees, 44 million customers it charges $54 monthly and has $11 billion in debt. It can't drop its prices without going bankrupt."

"I'm not sitting here and telling you I'm the giant killer, but this is a trillion-dollar-a-year market. The problem in the past was that to get into it you had to spend $50 million. You don't anymore."

What does voiceglo bring to the table that Vonage and other better established IP telephony players haven't already? A willingnesseven eagernessto work with ISPs as distribution partners may be the most important.

voiceglo does also have some patentable technology, the Glophone browser-based soft phone. Cespedes admits, however, that the hardware-based phone line replacement service which isn't hugely different from Vonage's, is the product most prospective partners are interested in for now.

For those still unfamiliar with the technology, here's how it works.

The service provider, in this case voiceglo, supplies the end customer with an IP telephony gateway, a low-cost hardware device into which the customer plugs his high-speed Internet access serviceand a regular telephone.

A pass-through port carries the Internet signal to the customer's computer or computers.

Once set up, the system delivers dial tone to the phone and lets the customer make calls to any PSTN phone exactly the same way he would on a telco-supplied phone.

The gateway device digitizes the analog signal from the phone's microphone, converts it to IP packets and sends it out over the last mile link to the ISP's nearest POP.

The ISP's backbone network carries the signal to the VoIP service provider's nearest POP. From there, it travels over the service provider's backbone to a POP closer to the final destination.

And there, the VoIP provider switches it through another voice gateway, which reverses the analog-digital process, and sends the call out over the PSTN.

This is such an economical way to carry voice that service providers like voiceglo can afford to significantly undercut telco prices.

voiceglo charges $50 a month for unlimited local and long distance calling to the U.S. and Canadaincluding voice mail and other calling line services. And customers can get numbers from area codes from places other their own area. My voiceglo number is a coveted 212 (Manhattan) area codeand I'm in Canada.

While companies like Vonage have multiple POPs, which reduces the distance and number of router hops that calls have to travel over the often congested public Internet, voiceglo so far has only two: one in Miami and one in New York. It is about to add a third in Los Angeles.

Cespedes claims his company's compression technology is so good that the longer distance over the public Internet is not a problem. Calls only require about 14 Kbps of bandwidth, so even a good 28 Kbps connection can theoretically carry them.

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