Established phone companies challenged by small rivals for calls via the Internet


A startup company will use Internet technology to offer flat-rate phone service for $199 a year.

The service, from a Vienna, Va., company called SunRocket and started by former MCI Inc. employees, includes unlimited local and long-distance calls as well as two new cordless phones.

Serving about 50 markets - including Baltimore and Washington - with fewer than 50 employees, SunRocket illustrates how easily entrepreneurs with little money can start a phone company using what's known as Voice over Internet Protocol.

"Someone could start a VoIP service out of his spare bedroom," said Jeffrey Williams, chief information officer at Cleveland-based Broadvox LLC. He said it's possible to launch service for less than $50,000.

Broadvox, which handles about 300 million minutes a month in Internet phone communications, serves many carriers as well as some business and residential customers. The company launched service in Maryland last month; it is available in Baltimore and surrounding counties, and in the Washington suburbs.

Unlike the $40 or $50 flat-rate monthly calling plans offered by traditional phone companies, SunRocket's service has no fees or taxes to inflate its once-a-year charge. Because the technology is new, government officials haven't settled upon rules for regulation and taxes.

That gives SunRocket and other newcomers, such as Vonage Holdings Corp., an advantage over established carriers.

While Internet phone has only a few million residential customers, large companies are moving into the business. AT&T; Corp. announced this year that it would withdraw from marketing traditional phone service to concentrate on VoIP.

SBC Communications Inc. said last month that it will start offering Internet telephone service next year to its customers who use the phone giant's DSL service.

The technology's popularity is soaring, especially among corporations, according to a survey released this week by Changewave Research.

"Two years ago our survey found that most people weren't interested" in VoIP, said Tobin Smith, Changewave's founder. "We saw a big switch starting in late 2003. It's in full swing now with VoIP deployments doubling in 2004."

The upsurge in demand is attracting new entrants in much the same way competitive phone companies sprang up after the new federal telecommunications law passed in 1996 or the way long-distance companies bloomed during the 1980s to exploit new opportunities.

Nearly all VoIP carriers offering service to consumers require customers to have their own broadband Internet connections, usually purchased from a cable TV carrier or a local phone company. VoIP phones are hooked into the modems used by computers.

Most VoIP services enable customers to place calls to wired or wireless telephones that aren't connected to computers.

Companies such as Broadvox provide the technology necessary to bridge the gap between data networks and the traditional voice networks. Some of Broadvox's customers have switches and wires in one or two markets and then resell Broadvox service elsewhere. Others have no facilities at all, Williams said.

Needing little more than about $20,000 in equipment to connect to a service like Broadvox and some money for marketing, newcomers can get started quickly.

The marketing hook for SunRocket, besides its low yearly price, is the name. It was named like a spaceship to make it stand out amid the forest of new firms selling the new technology.

Most new providers choose names referring to voice, broadband, telephony or other terms that evoke spoken communication.

"We wanted a brand name that's different," said Joyce Dorris, co-founder of SunRocket.

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