August 30, 2004 11:13 AM PDT

AOL testing Net phone service

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Joining an already crowded market, America Online on Monday confirmed it is testing its own Internet phone service.

The service, which AOL has been testing since early summer, will let customers place phone calls over the Internet, according to AOL spokeswoman Anne Bentley. The trials are preliminary and limited to a select number of testers.

AOL declined to say when the offering will be officially launched. However, people testing the service said on Broadbandreports.com that AOL is looking to launch it in 2005.

The company intends to offer a homemade VoIP service, using partner Level 3 Communications as a conduit to the local telephone system, according to a source in the VoIP industry.

AOL's entry into Internet telephony underscores a rush among many giants in the technology and telecommunications industries to offer the service. That's because VoIP is less expensive for providers to operate, resulting in a lower monthly bill for consumers and businesses.

AT&T recently said it would stop adding new copper wire phone customers and instead will pour resources into its own VoIP product, called CallVantage. Ma Bell is trying to sell the service as an added application for broadband customers.

Cable companies also are toying with their own services. AOL corporate cousin Time Warner Cable, for example, has begun selling a VoIP service and plans to launch it nationwide by the end of the year.

While Baby Bell phone operators such as Verizon Communications and Qwest Communications International have launched their own VoIP service, most of the players getting into the game are trying to beat out the Bells.

Providers such as AT&T, start-up VoIP service Vonage and Net2Phone are making traction in signing up new customers. The entry of AOL into the arena is expected to be significant but not earth-shattering.

"We're ready for the competition," a Verizon representative said.

AOL's product will likely compete with CallVantage, Vonage and other VoIP services that rely on subscribers to bring their own broadband connection, said Sarah Hofstetter, an executive vice president at Net2Phone. But unlike other so-called "unmanaged services", she said, AOL can bundle VoIP into its popular online service, aimed at broadband users.

Representatives from Vonage and AT&T did not immediately return calls seeking comment.

2 comments

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Its oh so vougue to ridicule aol
As the cover for this article on Cnets homepage did. Describing aol users as idiots that need pictures to describe how to use net features.

I like aol's most recent portal experience, and its communicator. I use it over my broadband connection and hey I even like some of Aol's content like their broadband radio.

This can only be a good move for AOL. It has a huge subscriber base of dial up and a growing base of broadband. the addition of VOIP can only help their somewhat stagnating business.

Not sure that I would ditch my vonage as i am pretty happy with it, but I might if the aol offering looked better.
Posted by robanga (47 comments )
Reply Link Flag
but can aol win against incumbents?
I still wonder if they can win voice competition against incumbents...?
Posted by mburakowski (4 comments )
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