Spending: Cheaper chats

Stefan von Buren jumped into a telephony revolution by chance. While surfing the Web for long-distance service, he found a new breed of phone service that works over the Internet. Called Voice over Internet Protocol, or VoIP, the service taps cable or DSL broadband Internet connections to make and receive calls.

For von Buren, the technology was a perfect fit. His total monthly phone bill from VoIP service Vonage comes to about $30. When he was using Verizon for local service and AT&T for long distance, von Buren was spending more than $95 per month.

VoIP's appeal lured about 400,000 U.S. households to make the switch by the end of 2004. That number will jump to 8.4 million by 2008, estimates Joe Laszlo, senior analyst at Jupiter Research. And recently cable-TV giant Comcast said it was entering the VoIP business this year.

VoIP services, such as AT&T CallVantage (www.callvantage.com), Verizon VoiceWing (www.voicewing.com) and Vonage (www.vonage.com), can cut a typical home-phone bill in half. Vonage, for instance, charges $25 per month for unlimited local and long-distance calling in the United States and Canada. (CallVantage is $30 and VoiceWing is $35 for a similar service.) By contrast, a typical Verizon plan costs around $30 for local calls only.

Smaller companies offer greater savings. Packet8 (www.packet8.net), BroadVoice (www.broadvoice.com), Broadvox Direct (www.broadvoxdirect.com) and Lingo (www.lingo.com) tout $20 monthly plans that provide unlimited local and domestic long-distance calling.

One reason for VoIP's lower rates is the lack of government regulation. A typical phone bill contains taxes and surcharges that can cost $10 or more per month. Industry analysts expected state and federal governments to tax VoIP services, but the Federal Communications Commission ruled in November that states can't regulate Vonage-type services — though the FCC itself can. The decision should at least delay the adoption of VoIP taxes.

Meanwhile, a price war is afoot. Since July, Vonage and CallVantage have cut rates on their unlimited long-distance plans by $5 per month, and Broadvox has dropped its monthly rates by $10. Andy Abramson, an industry watcher and publisher of the blog VoIP Watch, predicts $10 local and national service by year's end.

International callers may have more to gain from VoIP. Most VoIP services consider calls to Canada the same as domestic long distance. Some, such as Lingo and BroadVoice, offer unlimited dialing to much of Western Europe for $20 per month. Lingo's Unlimited Asia Plan ($35 per month) lets you make calls to nearly a dozen countries, including Australia and Japan.