Last week Peer to Peer VoIP provider Skype announced it would be charging an annual fee for its “SkypeOut” program, allowing unlimited calls to any phone in the United States and Canada for a flat rate of $29.95. On network calls between Skype members will remain free, and users also have the option of paying by the minute for off network calls.
Owned by eBay, their original plan was to monetize the company through advertising revenue, but apparently with close to 12 million registered users they came up with a better idea. Not that the annual fee is going to break anyone, considering your total monthly telephone bill would be about $2.50. As an incentive for people to sign up, Skype is discounting the offer by half, $15.95 a year, if you sign up by January 31st.
Skype offers a VoIP soft phone, or software solution, that with a pair of earphones and a microphone can turn your computer into a telecommunications center. Throw in a web cam and you can make video calls in network all over the world for free.
It’s a good thing that these pure play VoIP providers should make some money. Although Skype says it’s not intended to replace your land line, for many, a computer and a cell phone are all they need to avoid the inflated costs of the traditional telecomm companies.
To start off, I would like to cover some fundamentals of VoIP as it relates to business and the residential community.
The business community has for some time now been realizing significant telecommunication cost savings by utilizing Voice over IP technology instead of the public switched telephone networks, as offered by traditional phone companies. What makes this possible, and indeed spurs the technology, is that they already have a data network (LAN) that connects to the outside world, (the Internet) usually through a T1 connection that is also provided by our traditional Telco’s.
A local area network generally has plenty of bandwidth to handle both data and voice. What the challenge has always been is squeezing all those little packets onto the internet through a tiny copper telephone wire. Dial up connections are tedious at best just for data, and adding voice packets through such a small “pipe” is pretty much out of the question.
Today, residential broadband internet access is becoming widely available to consumers, enabling them not only to surf the Internet at high speeds, but also to use the Internet to carry their voice transmissions all over the world. Arguably, the ideal broadband connection for our purposes is the cable modem, which is the equivalent bandwidth wise of a T1 connection.
Pure play VoIP companies like Vonage, Packet8 and Skype to name a few, are proliferating everywhere, and are offering a viable and cost effective alternative to the conventional telephone companies. With packages as low as $10 a month and long distance charges becoming obsolete, the cost effectiveness of using the Internet for voice just cant be denied, and is even forcing the big Telco’s to relent, albeit reluctantly.
VoIP: The Way it Works
In a nutshell, IP Telephony uses packet switching technology, converting the analog voice into digital packets and routing them over the internet. The PSTN (Public Switched Telephone Network) method uses copper wires to physically connect one caller to another (two cans and a string) through a series of circuit switches.
If the VoIP user is calling a regular PSTN phone number, the call does not leave the Internet until it reaches the nearest switching station, which makes it look to the phone company that it’s a local call. Hence, the absence of long distance charges.
Granted, this may be a gross oversimplification, and your VoIP provider will no doubt charge for calls routed onto the PSTN. But the rates usually take the form of a monthly payment plan for a fixed or unlimited number of minutes, and are way cheaper than the Telco’s long distance rates.