In a typical home or small office the traditional wired phone line has undergone many changes. High-speed Internet service and advances in voice and data compression have improved voice quality tremendously, making conversations possible without a telephone network while significantly lowering communications costs. Larger organizations have been using VoIP (Voice over Internet Protocol) for their phone needs for some time. Individuals and small businesses that mix landlines and cell phones can also benefit from this communications revolution.

VoIP technology allows voice calls to take place over an Internet connection instead of the traditional wired phone system. VoIP is a competitive and evolving technology that either requires or works best with a high-speed Internet connection. Numerous companies offer low-cost, high-quality services with an array of benefits. For some people more than one service may be useful. This article explores some of the options. Because these technologies are evolving rapidly, confirm all features and prices before signing up.

LANDLINE REPLACEMENT SERVICES

Landline replacement services are offered by local broadband providers such as AT&T, Comcast, Verizon, Time Warner and RCN. A technician comes out to replace or bypass the exterior connection from the phone company. You continue to use your old phones, and your phone number stays the same. You don’t have to be a broadband subscriber, but you’ll need to be within the broadband service area of your new provider.

Third-party providers, such as Vonage and Packet8, require an existing broadband connection. Their equipment is designed for self-installation: A phone plugs directly into a small adapter. Professional installation is available in some areas for those who aren’t comfortable with this process. Self-installation can be more complicated when dealing with multiple phone jacks throughout a home or office.

VoIP services offer attractive rates compared with a traditional landline service. Typically, you get unlimited calling within the U.S. and Canada for a fixed monthly fee, voice mail, call waiting, caller ID, and other features that vary by provider. Broadband providers usually charge $30 to $45 per month for a full featured plan, and often offer introductory discounts or bundle packages with their TV and Internet services. Since third-party providers require a separate broadband subscription, they typically charge less—about $15 to $25 per month.

One drawback is that broadband phone service doesn’t work during a power outage unless you and your broadband provider have a working battery backup. Traditional phone service is powered by the phone company and continues to work during a power outage. Also, a traditional phone line is hardwired to the local 911 emergency center. Some broadband phone services offer 911 calling, but this may not work during a power outage.

Traditional phone lines are rarely unavailable, whereas broadband connections are occasionally unavailable due to failure or maintenance. Fax machines may not work or may only work at a slower speed. Another thing to keep in mind for multiline installations is whether the service supports a “call hunt” feature, in which incoming calls to the main phone number ring on the next available line.

VONAGE V-PHONE

Besides offering direct landline replacement (“no computer required”), Vonage also offers a small portable device that requires a computer. The device is called a V-Phone, which is a flash drive with a headset jack. It plugs into a Windows XP computer. The software runs from the device—nothing is installed onto the computer it’s attached to. The device costs $29.99, then $24.99 per month for unlimited calls to the U.S., Canada and several European countries. Other plans start at $17.99 per month.

The V-Phone only works with wired headsets, only with PCs (no Macs), and doesn’t fully support Windows Vista. It has all the advanced calling features Vonage offers and is designed (but not guaranteed) to run on public access computers, making this a good choice for foreign travelers and residents who want to make and receive calls to and from the U.S.

MAGICJACK

A competitor to the V-Phone is MagicJack. Like the V-Phone, it plugs into your computer’s USB port but has a phone jack at the other end so a regular telephone can be used (users who prefer headsets must plug directly into the computer). The device costs $39.99 and includes one year of service. Current renewal rates are $19.99 per year. Service plans include an incoming phone number, and unlimited outgoing calls to the U.S., Canada and other MagicJack users. Many typical phone features such as caller ID, call waiting and call forwarding are included. Like the V-Phone, MagicJack requires your computer to be on and have a broadband connection to place and receive calls.

Unlike the V-Phone, MagicJack requires installing software, making it a good option for travelers with a laptop and broadband access. The MagicJack device is best suited to feed a single telephone or cordless base station. Faxing is not supported but may work for some users. Some users have reported that MagicJack triggers PC security software alerts. MagicJack runs on Windows XP, Vista and Macs.

T-MOBILE’S @HOME AND HOTSPOT

T-Mobile, a mobile phone service, offers two VoIP services to subscribers. T-Mobile @Home is a landline replacement service that costs $9.99 per month—if you have a monthly mobile phone plan of $39.99 or more. It also requires an existing broadband Internet connection, and a special router purchased through T-Mobile. The @Home service includes calling features typically found on other landline replacement services such as call waiting, caller ID, call forwarding, three-way calling and voice mail. The basic adapter supports one wired phone line, while the HiPort router can support two wired phone lines and can also add Wi-Fi to your network. A computer is not required to use this service, and it does not support fax machines.

T-Mobile also offers subscribers a HotSpot service for cell phones. This service allows your cell phone to place and receive calls over a Wi-Fi connection. Calls made or received through a Wi-Fi connection are free and are not deducted from your monthly allotment of minutes. If you go out of Wi-Fi range and the regular TMobile network is available, ideally your phone can switch over, keeping the call free. If you are in an area where cell tower coverage is spotty, you might lose the call during the switch. Calls started on the regular T-Mobile network are deducted from your monthly allotment of minutes, even if you move into a Wi-Fi connection during a call.

The HotSpot service requires a Wi-Fi-enabled phone, such as certain models from BlackBerry, Nokia or Samsung, and a Wi-Fi-enabled router. The service works with a T-Mobile @Home router or an existing Wi-Fi router that you may already have in your home or office. It will also work with public access Wi-Fi. HotSpot calling allows cell phone use in places that have Wi-Fi but little or no cell phone signal. It currently costs $9.99 per month to add HotSpot calling to a qualifying T-Mobile plan.

There are some restrictions. Not all phones from T-Mobile support this service. Calls to non-U.S. phone numbers are not discounted. Wi-Fi calling works anywhere in the world you can access a Wi-Fi network—except T-Mobile HotSpots outside of the U.S., so international travelers are on their own in finding an accessible Wi-Fi network.

SKYPE

Skype gained worldwide attention in 2005 when it was purchased by eBay. Skype offers software for making and receiving calls using your computer. Skype offers many of the same features as landline replacement, but it also differs in many ways. For example, Skype can work with a dial-up Internet connection instead of broadband. Skype requires a computer for setup and usage, although special handsets allow Skype calling over most Wi-Fi connections without using a computer. Install Skype on your computer, plug in a headset with microphone, and you can talk with other Skype users anywhere in the world for free while connected to the Internet. If you have a webcam, you can also have a videochat.

For a small fee you can buy some useful and sophisticated additional services. For example, SkypeOut allows you to dial landline and mobile phones for very low prices. One plan available in the U.S. for $2.95 per month allots 10,000 minutes per month to call any phone number in the U.S. or Canada. There are discounted international plans also.

SkypeIn is a pay service that costs about $30 to $60 per year, depending on other services subscribed to. For that rate, you receive a local phone number of your choice (phone numbers are available in many area codes), voice mail and caller ID. Call forwarding is available for 2.1 cents per minute. Phone numbers are also available in more than 30 countries. For example, if you buy a French phone number, someone in France can reach you by making an in-country call to that number.

Because Skype was designed to run from a computer, it works the same (and with the same rates) anywhere in the world. If you take your laptop to Spain and have Internet access, you can use it just as you would back home.

Special phones that connect to your computer’s USB port can be used instead of a wired headset. Skype can integrate with Bluetooth-enabled computers so you can talk over a Bluetooth headset. Users can purchase adapter boxes for under $50 that allow a regular phone to be used instead of a headset. Most adapter boxes allow the same phone to be used for landline calls and Skype calls. Other features are available, such as broadcast SMS text messaging, conference calling, video conferencing and large file transfers. Faxing is not reliable over Skype connections, and touch-tone responses for navigating voice prompts (in other words “Enter an extension and press #”) are also unreliable with slower connections and older computers. There also is no 911 service.

Skype is also available for several mobile phones, and in March the company announced new applications for the iPhone and some BlackBerry models.

WHAT ABOUT FAXING?

If a fax machine is not compatible with your VoIP service, you can subscribe to an Internet fax service. A typical service will charge an annual or monthly fee and provide you with an inbound fax number. Faxes sent to that number are forwarded to you via e-mail in PDF format. To send a fax, scan the pages and attach them to an e-mail addressed to the fax service. Many fax machines support high-speed scanning direct to e-mail, making the transition to e-mail faxing easy.

SUMMARY

Each VoIP service discussed offers many advantages with certain requirements and compromises. For basic home or small office use, landline replacement services offered by broadband and third-party providers offer compelling prices and turnkey installation but are less reliable than traditional wired lines. They offer a host of calling features but may not work with fax machines.

The service that is best for you, of course, depends on your situation. If staying closest to 100% reliability for calls and 911 is important, traditional landlines are still best. If you want simplicity with savings, then look at landline replacement services. If you are a frequent traveler or make many international calls, consider Skype, MagicJack and Vonage V-Phone. If you want to never miss a phone call, T-Mobile HotSpot is a great option. Many people subscribe to more than one of these services to meet their specific needs.

Article by Steven I. Oster, CPA, is an independent consultant in Highland Park,