Applications

That is the Sound of Fonality

ISPs would like to be able to provide phone service without handing a packet or a dime to the RBOCs, like one Los Angeles-based startup.

by Alex Goldman ISP-Planet Managing Editor [April 9, 2004]

Founded in 2003 in Los Angeles, startup VoIP provider Fonality knows the ISP business. The company's executives bring ISP and CLEC work experience (for example, Adrian Otto, the CTO, founded JetLink, which was bought by Verio), and CEO Chris Lyman himself founded webhost Virtualis, which was sold for $30 million in cash in 2000. As a result, the company, founded by three people including Lyman, is self-funded (but it is talking to venture capitalists).

Lyman says that with VoIP, ISPs of all sizes can get a jump on the big companies, which are moving too slowly. "There's a demand for bundling," says Lyman. "Right now, the cable companies are pushing for it internally, but it's not rolled out."

He says that ISPs can sell a $10 per month voice package providing what would cost almost $30 per month from the phone company. That should ease some of the competitive problems caused by RBOCs selling wholesale DSL at prices that are above retail.

In its day to day management, Lyman says that the lessons he learned in the webhosting business are very useful. "We have a data center. We learned about load balancing and edge routing. We learned our upstream lessons. Automation is part of how to run a tight ship. Updates are pushed out automatically, but we're pushing changes to ATA boxes, not Web servers."

Lyman feels that his company's focus gives it an additional advantage. "We are very narrowly focused on partnering with broadband ISPs in secondary markets or special verticals, not the RBOCs or cable companies."

That means Fonality is working with local broadband providers, from rural ILECs to DSL ISPs of all sizes. The company has also found a growing niche serving MDU Internet providers. The MDU business appears to be trending up, after a disastrous few years.

VoIP provides instant savings because it subverts the telecommunications paradigm. "It is the death of locality. The packet is beyond the walled garden created by regulators."

International customers can set up a Fonality ATA and take and receive phone calls as if they were in the U.S. In some cases, Fonality's international rates can even be cheaper than the local phone rates abroad (rates are as low as 3 cents in Europe, and Canada is considered part of the local calling area).

The company's rates are published on its website, including its per-minute international rates. All plans cost $29.99 to set up, and Fonality supplies the ATA. Plans are:

• $0: Free on network calls.
• $9.99 per month: Free local, fees for long distance calls, plus a wide variety of calling features.
• $19.99 per month: Free local, 500 minutes of free long distance calls, plus a wide variety of calling features.
• $29.99 per month: Free local and long distance calls, plus a wide variety of calling features.

The ISP gets a recurring revenue stream based on the number of subscribers and the extent to which the ISP is willing to let Fonality do the billing. "We can come in as a partner of the ISP to the ISP's customers, or we can get less exposure, for which we lower the commission," says Lyman. "We can answer the phone in their name, rebrand the control panel, and provide integrated billing. These are knobs we can turn based on how comfortable the ISP is in exposing us to the end user."

"Bad debt is not a huge concern but it happens," says Lyman. "There are end users who do still think everything on the Internet should be free. But there's the law of supply and demand." (That is, demand for zero dollars insures supplies worth zero dollars.)

But Lyman sees ISPs as the best partners. The failures of MSOs and RBOCs give Lyman confidence that he's right. He has Adelphia at home, which is bad but survivable. Until recently, he had Verizon DSL at work. He is apoplectic about the experience. "Verizon . . ." He pauses, searching for something printable to say. "Verizon seems to have sub-par network availability and heavy latency issues. We had packet loss in just three hops, and latency over 1000 ms. I canceled it and ordered Speakeasy."

He likes working with small ISPs because they understand that Fonality is a startup. "The people who run ISPs have been through the roller coaster, and are more savvy and pragmatic than they were. They're respectful that we're a startup, and they like that we're not partnering with the cable guys."

The company works with CLECs, not RBOCs, to achieve a national footprint. Asked if the RBOCs are involved at all, Lyman asserts, "we are 100 percent RBOC-free. We do not hand a packet or a dime to the RBOC networks."

— End