Word: broadband
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...like entrepreneurial bluster, but Citron has set off alarm bells at the big telephone carriers, who proved once already that they weren't swift enough to react when they ignored the challenge of cell phones. Before Vonage, telecom giants like MCI, Verizon and AT&T dismissed the technology for broadband phone service as too buggy and too complicated to bother selling. Vonage has proved them wrong, mostly because broadband phone service has one compelling advantage: price. It's half as expensive as regular telephone service. The company now has 220,000 subscribers, a pittance beside the 112 million traditional phone...
...they try to reach out and crush Vonage before it gains too much momentum. And there's added pressure because cable companies such as Time Warner Cable (owned by the same parent company as TIME) and Comcast are also in the game. With the heavyweights now in the ring, broadband phone service will be making its way into close to 5 million homes within two years, according to Forrester Research. Experts have been saying for years that broadband was the future of landline calls. Thanks to Vonage, that future may be arriving a little sooner than expected...
...phones work: you still need a phone, but instead of hooking it up to a jack, you connect it to a small modem-like box that in turn is hooked up to your cable modem or DSL line. The device translates between the home phone and the broadband connection, transforming your voice into data packets and sending it along the Web. Internet phone service treats a phone call just like e-mail or any other packet of data. Some Web phone services use private Internet connections, but Vonage uses the public Web, so phone calls travel alongside messages, digital photos...
...regulate Internet phone service. What Citron is desperately trying to avoid is a patchwork of state regulations--a logistical nightmare for Vonage. Since Vonage customers can select any area code they want and use their service not just at home but also anywhere they have a broadband connection, tax collection gets tricky. "How do I know where you are?" Citron says. "How do I know who to give the money to? I can't possibly get it right...
...worried about losing customers," says John Hodulik, a telecom analyst at UBS. There's a risk of cannibalizing their existing business, but it's one they have to take. Cable companies, on the other hand, can go after an entirely new market, connecting Web phone service to existing broadband customers...