By now, you've probably heard of VoIP. It's arguably the cheapest way to call anyone anywhere, thanks to the vast infrastructure of the Internet. But is it for you?
How it works
VoIP is an acronym that stands for voice over Internet protocol. Most of the time, IP is used to transport the 1s and 0s that comprise an email, a Microsoft Word document, or a Web page.
Voice over IP treats voice data in roughly the same way. Every call is sent over the Web, but packed with all sorts of additional information to assist with fast routing. And that's important, because nothing ever seamlessly travels from point A to point B when it comes to the Internet.
The upside of this approach is that it's cheap. The downside is that relatively large VoIP data packets can eat bandwidth in a big way. That's why providers typically demand that customers sport a broadband connection before signing up for VoIP service.
Cutting the cord
But that's becoming less and less of a bottleneck. The Federal Communications Commission reported last week that U.S. broadband subscriptions jumped to 50.2 million lines during 2005, up 33% from the year prior.
VoIP adoption is growing even faster. According to researcher Telephia, 2.9 million U.S. households had VoIP service at the end of the second quarter, up from 2.2 million at the end of Q1. That's a 31.8% sequential gain.
Cost must be what's driving adoption. That's what did it for me. Last November, I rid my office of a landline phone, opting instead for eBay's Skype service. The ensuing eight months have been littered with dropped calls, but my home office phone bill, which used to exceed $50 a month, has dropped to $14.18 -- $438 in annual savings.
Dial I for Internet ... or incomplete
Nevertheless, we still use a classic landline for our primary residential service. Doing so feels prudent to me. Why? First, many VoIP services aren't yet connected to the 911 emergency services network. I'm simply not willing to wait for the Fire Department to look me up on MapQuest if they need to reach my home in a hurry.
Second, the Internet isn't 100% reliable when it comes to calls. Many times, Skype calls are no different than what I hear on my cell phone in terms of reception quality. Landline phones very rarely have that problem.
Third, you need a broadband connection near a phone jack. At least that's what a Vonage representative told me when I thought of trying the service. I quickly nixed the idea because our broadband feeds come from outside the west wall of the house, in the utility room that we use to keep from tracking mud all over the house during winter. There was no point in installing a phone jack in that room when the house was built, and there still isn't. Except, that is, to save some cash on VoIP.
Fourth and finally, we're getting an excellent deal from Qwest, our local provider. Roughly $30 a month gets us unlimited local service plus call waiting, caller ID, and other useful services. That's roughly half what the bill used to be and it's low enough to make the physical upgrades needed for VoIP look far less attractive.
Long distance charges still add up, of course. But a deal with Sprint Nextel has reduced those fees to just a few cents a minute so that calls to family in California only cost a buck or two.
Follow the money
Still, we'd save with VoIP if we simply cut all the analog cords. It's certainly worked for my business. And it may work for you, too. Start your investigation at this comparison site. Then be sure to check out top-rated services in your area. Skype, AT&T's CallVantage, and Vonage are the best-known options, but upstart SunRocket and Verizon's VoiceWing are also catching on.
So look around. And then check back here often. Each week, I'll be writing new personal finance and investing articles as part of our new newsletter service, Motley Fool GreenLight. Click here to learn more.
Fool contributor Tim Beyers hopes you'll write if you have a great money tip. Tim didn't own shares in any of the companies mentioned in this story at the time of publication. Check out all of his stock holdings at Tim's Fool profile. eBay is a Stock Advisor selection. The Motley Fool has an ironclad disclosure policy.