Does VoIP 'Phone for Life' Have Sticking Power?

VoIP has opened up a new realm of possible phone service plans that is resulting in creativity among telephony marketers. One plan that caught a lot of attention is a "Phone for Life" package launched in early December by RNK Telecom. While on the surface this new telecom voice plan appears to make the monthly bill a thing of the past, RNK may have another idea for the service entirely.

Massachusetts-based RNK Telecom is a wholesale telecom provider with switching facilities in Rhode Island and New York City in addition to its home state. The company was founded in 1997 and just eight years later is marketing its VoIP services through resellers in its serving area.

With RNK's Phone for Life plan, customers pay the reseller a one-time fee of $999 up front and receive a residential phone, adapter and unlimited calling within the United States and 22 additional countries. The plan is designed so that end customers receive a bill only if there is a new tax or if they call outside the 22 nations included in the plan.

The wholesale provider also created a $99 Phone for Life measured plan for businesses that offers measured service, but with prices per minute that are below traditional telecom rates. This plan largely was crafted to appeal to people with multiple phone lines, such as those who have a home office, or for small to mid-sized businesses with five to 20 lines. RNK Telecom's President and Chief Executive Office Richard Koch comments that often, a small business with a PBX may have 10 employees but four lines, so that only four calls can be made simultaneously. With the VoIP service, however, all 10 employees could use the service at once.

The Phone for Life plan comes with many of the attractive features that often entice subscribers to make the switch to VoIP: voicemail that goes to e-mail, call forwarding, a blacklist feature and do not disturb. It also includes an outbound conference call feature that allows the user to create a list of people to call. The people on this list can be dialed all at once to initiate the conference call.

Another feature that has captured the interest of users is one that enables a subscriber's office phone to ring to additional numbers, such as a cell phone. The feature allows the buttons on the user's cell phone to act like those on the office phone. This is accomplished by sending inbound signaling features to the cell so the network recognizes the cell phone tones. Koch says this feature is particularly attractive to real estate and construction professionals.

Targeting Niche Communities

RNK has experience with prepaid calling cards and, as in that market, RNK's resellers are finding success with niche customer segments, marketing their services to various ethnic communities. Koch says in some sections of New York and Cape Cod, almost all the long distance calls are made to Brazil. In some communities in Chicago, calls are being made to Bulgaria. To attract these callers, RNK and its reseller partners have developed marketing brochures for the new VoIP service plans in various languages.

While the RNK plans offered through resellers include unlimited calling to specific countries, Koch notes that some destinations, such as Brazil, are still extremely expensive to call. For these countries, optional add-on plans may be included with the $999 VoIP service. A reseller could offer plans two ways: First, the reseller could offer the plan at a base monthly rate with calls to the high-cost country on a per-minute charge. Alternatively, the reseller may charge a flat fee per month for calls to a certain country in addition to the $999 paid for lifetime service—for example, $60 for unlimited calls to Brazil, for all Phone for Life subscribers.

RNK chose not to include these high-cost countries in the Phone for Life plan because it did not want to be at risk in case the customer did not pay the bill. RNK is, however, adding more countries to its unlimited calling list when it receives better rates for them.

Koch says many of RNK's wholesale customer leads come from other countries. The plan is appealing to overseas customers because they may possess, for example, a New York number that can be used in China.

Long-Term Commitment

Some customers may fear a long-term commitment to a provider, but how does the provider feel about a long-term commitment to a subscriber when the landscape for VoIP is still so undefined?

"It made economic sense for us," Koch says of the Phone for Life plan. "Having a customer is an asset to us," he adds—even though the lifetime costs of supporting a customer could outweigh the $999 paid up front. When compared to the normal rate for offering VoIP service (between $25 and $30), in just under three years—the 34th month—after starting a customer's service, the provider could begin to take a hit. Koch says RNK banks on the fact that some customers will want to switch providers, and for those who do not, RNK can upsell them to additional features that VoIP has now and will offer in the future.

In the first month after the Phone for Life program was announced, 300 to 400 subscribers had signed on. More than 1,000 had chosen the $99 plan.

Koch says the small business uptake has been greater than activity from larger companies, mainly because the larger firms are hesitant to leave their traditional phone company. But for the smaller businesses that have made the switch, the pricing and the features are the greatest lures.

In the Northeastern states served by RNK, the company can offer 911 and 411 service by connecting to the public safety answering points through dedicated trunk lines, and Koch remarks that sale of the company's service only extends to where it can provide 911 or 411. "New England to New York is more than we can chew," Koch says, so the company plans to focus on that area.

OSS and Billing Support

RNK tracks every call and allows the reseller to design its own plans. RNK may charge resellers 1.3 cents per minute and suggest that the charge for end customers be 1.9 cents per minute for measured rate calls, for example.

Koch says many resellers provide their own OSS, while RNK provides the Tier 2 and Tier 3 support. Many of the problems that arise are easily addressed by the resellers, but RNK will sometimes assist if a business needs firewalls or if, say, a customer has billing issues.

RNK provides all the billing records so its resellers can bill for the services, but Koch notes that sometimes billing can get complicated when four calls are made at once in a conference call. When a subscriber makes a call, RNK creates a CDR and associates it with an end user by the phone number and by identifying that customer with a particular reseller. RNK applies the rates based on the reseller's package. The end user can look at billing info on a daily basis, since RNK operates a Web site for presentment and self-care with a custom front end for each reseller. The reseller is responsible for setting up the site to take payments. RNK provides a wholesale bill to its reseller partners.

While RNK does comply with the Communications Assistance for Law Enforcement Act of 1994 (CALEA), the company does not get involved in credit and collections.

An RNK Reseller

Gatewood Group Ltd. owns Half Price Telecom, a reseller serving New York that works with RNK Telecom. Gatewood Group was introduced to RNK in early 2004 and learned that RNK wanted a presence in New York.

Vice President Michael Propper said Half Price Telecom had to determine how its departments would interface with RNK before launching. Once this was worked out, Half Price Telecom launched services in July 2004 and has gotten more aggressive with its marketing since last fall. The provider's name is based on its price points, which it claims are half the price of the incumbent provider, Verizon.

Half Price Telecom offers two residential packages: one for $9.99 that includes local calling for 1 cent per minute and long distance calling for 1.9 cents per minute, plus many features. The second package is offered at $24.95 and includes unlimited calling in the United States and in 24 countries. Propper explains that the smaller package is generally used by subscribers as a second line. These two plans were formed around RNK-created templates that Half Price Telecom chose to deploy.

While major VoIP providers are launching mass advertising campaigns, Half Price Telecom is finding success with targeted ethnic communities. "It's not the easiest close, but they don't tend to go anywhere" once they sign on, Propper says. These groups are largely neglected, he says; one that Half Price Telecom targets through an agent is the Korean community. These customers "stay within the lost city, so to speak," Propper explains.

Half Price Telecom has had luck with two other groups, by offering free rates to Israel and marketing to the Indonesian community. The Indonesian plan includes phone service at a flat rate that includes 1,000 minutes per month.

The reseller coordinates with agents within these communities to market the services to potential customers. Its Korean agent markets services at the photo development and cell phone stores he owns and receives a commission for sale of the services. Propper notes that this helps the company overcome any language barriers and that the agent will sometimes handle the installation as well. Agents can also work with the company to form their own plans.

Half Price Telecom outsources its call center. The company has 12 representatives available at any time, with a capacity for 100 CSRs if needed. RNK generates both the wholesale and end-customer bill for Half Price Telecom, and it manages OSS for the reseller.

Taxes

Currently, RNK does not charge taxes on VoIP, but that could change if the government imposes taxes on VoIP services. "We're beginning that debate, but we haven't faced it yet," Koch says.

But Propper says, "I'm not that concerned about it, because there hasn't been any activity on Internet [access taxes]."

In many instances, RNK executives believe phones end up overseas. Propper says, "I do not know conclusively that I see it, but I'm almost certain that it happens." This will most certainly become an issue in the future. "I think it will cause problems for taxation and regulatory agencies," Koch notes.

VoIP: Changing the Telecom Landscape

As VoIP services become more widespread and marketing departments develop new and creative campaigns and packages, the future of telecom billing stands to be dramatically altered.

Packages like RNK's Phone for Life challenge traditional billing paradigms and change the entire concept of long distance.

"Long distance is going to be free everywhere," Propper says. He believes the features that VoIP offers will drive uptake of the service. "There are toys that you get with VoIP that you cannot get with a traditional telephone."

The regulatory bodies that may ultimately place restrictions on the service, Koch says, are "going to be behind. Area codes and long distance calls are disappearing." For now, users and providers alike are moving forward with the service, not too concerned about regulatory bodies being close on their heels.

It's a pioneer's fantasy, with an open landscape and unlimited potential for growth. "VoIP is very much in its infancy," Propper says. "It's just a great toy." That's exactly what drove him to open as a VoIP reseller in the first place.