17 December 2007

Residential voice telephony has become an unlikely hotbed for clever new products and new pricing models. For example, several VoIPproviders are now promoting unlimited calling for one-time or lowannual upfront payments, notably Ooma (www.ooma.com) and YMaxsMagicJack (www.magicjack.com).

With Ooma, once users have purchased a $399 hub device that connects toa cable or DSL modem, plus additional $39.95 units for each phoneextension, they are promised unlimited local and U.S. long-distancecalling for no additional charge. Oomas business model assumes therewill be no public switched telephone network (PSTN) termination feesfor Ooma calls. How so? A call originated by an Ooma user is routed viathe Internet to the local calling area of the destination phone number;there, it finds another Ooma users hub device that completes the callvia the latter users backup phone line. These lines exist becausecustomers are advised to keep a local telco line as a backup and toretain 911 access. The terminating telco only sees a local phone call,and meanwhile there is no visible cost to the Ooma user, whoseflat-rated backup phone line was borrowed.