September 5, 2003 1:32 PM PDT

VoIP goes to city hall

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The city of Coldwater, Mich., this week became the nation's first municipality to sell Voice over Internet Protocol, or VoIP, telephone service to its residents.

The city is trying to create competition for Verizon Communications, the lone telephone provider in this town of about 10,000 residents, said Linden Cox, the communications manager of Coldwater's Board of Utilities.

It's also hoping to get a competitive advantage over Charter Communications. Charter and Coldwater's Board of Public Utilities both sell broadband access, which is required for VoIP service. Charter Communications, however, doesn't sell a VoIP service. VoIP is a way of using the Internet rather than traditional telephone networks to place phone calls.

Coldwater's move is an example of a new tactic that may be used by cities that want to break a local communications company's monopoly by going into business themselves. While more than 200 cities sell broadband access, Coldwater is the first to sell a phone service that uses VoIP, which is considered an attractive extra to lure in more broadband customers. More cities are expected to follow Coldwater's lead.

"It's not so much the revenue but introducing the notion (that) there's another business in town to contend with," Cox said. "Hopefully, this will bring out some lower pricing and get us some more broadband customers."

In so doing, the municipalities are creating a niche market for VoIP service providers. For instance, Coldwater chose to resell VoIP dialing plans from Vonage. Vonage's national account manager, Dan Elwell, said Friday that the company is in talks with several other municipalities, but he wouldn't identify them.

Rim Ransberger, Charter government affairs vice president, played down the importance of Coldwater's VoIP service.

"Obviously, it's another piece of a puzzle, but I'm not so sure it's tremendously important in the competitive environment."

A Verizon Communications spokesman had no immediate comment.


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