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Don't look now, but your telephone service is about to get a lot smarter--and more affordable. By the end of 2006, Forrester Research predicts, nearly 5 million U.S. households will adopt Voice over Internet Protocol phone service, which operates over both broadband cable and DSL Internet connections.

VoIP phone services from companies such as 8x8 and Vonage helped launch this telephony revolution by offering sharply lower fees. Subsequently, consumer giants such as Cablevision, Comcast, and AT&T entered the fray, hoping to lure a flood of new subscribers. More recently, U.S. telecommunications giant Verizon jumped in with a national VoIP service of its own, called VoiceWing. And AT&T, in announcing in late July that it would no longer market traditional phone services to consumers, said it would keep its feature-laden CallVantage Service and other VoIP offerings.

AT&T and Verizon appear to be competing on service and features rather than on price. While Vonage service costs $30 a month, AT&T's CallVantage runs $35 per month for unlimited local and domestic long-distance calling, and VoiceWing's basic price is $40 a month for similar service--rates that are still nicely below most traditional phone bill totals.

Meanwhile, next-generation VoIP services are starting to appear, including some that use wireless 802.11b networks. Ultimately consumers may find themselves with a single, intelligent handset that combines Wi-Fi Internet phone and cellular access.

The crux of VoIP's attraction right now is the fact that it lets you cut your phone bill significantly. Nevertheless, as tempting as that may be, the complexity of Internet telephony makes it a poor fit for most households and small businesses today. Every dollar saved by moving to an Internet phone service could be lost to unpredictable service outages, network configuration hassles, and spotty call quality. To put it simply, when was the last time you had to reboot your phone?

Talking Shop

What began in 1995 as a way for PC hobbyists and geeks to circumvent long-distance charges is now mainstream. With a service subscription, setup is simple, at least in theory. You're provided with a small box called a VoIP gateway, or adapter, that connects to the cable or DSL modem on one side and to the PC or network router on the other. Plug a standard phone into the jack on the adapter, and just start dialing.

Offering this level of service is a model that has worked well for Vonage. Now AT&T's feature-rich CallVantage and Verizon's entry are raising the profile of VoIP.

"Now Voice over IP is not some flaky, call-from-your-PC service, delivered by some brand name that you've never heard of," observes Charles Golvin, a principal analyst with Forrester Research.

More important, CallVantage delivers superior performance and features, adds Andy Abramson, an Internet phone industry watcher who publishes his own blog.

"The call quality of CallVantage clearly exceeds [that of] everybody else. If you upload a file while on a CallVantage call, you don't notice it, because they do quality of service [processing] in the box," says Abramson. Behind CallVantage's clear calls is an updated adapter that does all the work of translating voice signals into digital packets bound for the Internet. The new D-Link DVG-1120 Gateway with two telephone ports incorporates service-quality features to prioritize and reserve bandwidth for phone calls. Without such processing, even a simple file upload--such as sending mail--can reduce call quality. CallVantage also touts a Personal Call Manager Web site that lets each subscriber fine-tune dozens of features--from standard fare like call forwarding and voice mail to extras like a "do not disturb" setting, calls that can reach you at multiple numbers, and multiparty conferencing.

Verizon's VoiceWing service was announced too late for me to test, but will it legitimize VoIP? "Absolutely," says Abramson. Still, he faults Verizon for "charging more and delivering less."

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