Net Phoning for the Dial-Up Set

Efonica aims to sell Internet-based service in parts of the world largely unreached by broadband, but many analysts are skeptical

Dina Bonnevie is no household name in the U.S. But to millions of Filipinos, she's Angelina Jolie, Oprah, and J.Lo rolled into one. Dina, as fans know her, has starred in dozens of movies, recorded a gold album, and hosted her own daytime talk show in the Asian archipelago. She has also endorsed products ranging from Pepsi to toothbrushes.

So when Fusion Telecommunications International set out to market its new Internet telephony service, efonica, to the world's 91 million Filipinos, including 7 million expatriates, naturally the company chose Dina as a spokeswoman.

The Dina endorsement deal underscores efonica's aim to set itself apart in the crowed market for Voice over Internet Protocol phone services. At a time when VoIP service providers are courting mainly broadband-connected customers in the U.S., Europe, and parts of Asia, efonica aims to provide low-cost IP-based phone services to residents of countries that have scant access to high-speed Internet, while wooing those nations' expats eager to stay connected to home.


  New York-based Fusion, which has offered private network and Internet services since 1997, debuted efonica in Singapore in June at CommunicAsia, one of the continent's largest communications trade shows. Fusion has invested about $20 million and more than a year in efonica.

Among efonica's attributes: a worldwide Internet "area code" (10) that, when used with a number dialed by an Internet-connected device, automatically routes call over the Net. Other features include free Internet-based calling with caller ID for registered users (calls to nonusers start at 1.8 cents a minute). Efonica also offers fee-based services such as voicemail and faxing.

Fusion is playing up efonica's ease of use. Rather than having to create and remember online handles, efonica users can register their current phone numbers. They can also use a range of devices other than a PC, including their own phones, as long as they're outfitted with an adapter.

"If I have to turn on my computer, sign on, and click on a screen name, that changes my habits to reach you," says Fusion Chief Executive Matt Rosen, referring to competing products.


  But perhaps the biggest selling point is efonica's aim to reach parts of the world that some other providers overlook. "Seventy percent of the world's Internet users are still on dial-up, but 90% of Internet telephony is geared toward broadband," Rosen says. "What we've decided to do is focus on the emerging markets and related populations of interest around the world."

Those populations include millions of immigrants who regularly call friends and family back home using calling cards or traditional telecom services at rates ranging from several cents to more than a dollar a minute.

Rosen is mum on customer numbers and sales figures at this early stage. But the company hopes to make money by pushing premium services alongside free calling, while keeping marketing costs low. It aims to generate interest by partnering with organizations such as chambers of commerce and by advertising in foreign-language media. Endorsements by the likes of Dina don't hurt either.


  With competitors like Skype and Vonage (VG) to contend with, efonica will need all the endorsements it can get. Acquired by eBay (EBAY) in October for $2.6 billion, Skype is VoIP's 800-pound gorilla. Like efonica, it offers free calling between users—and it has scads of them (north of 100 million, in fact).

Skype is also available to dial-up users, and until the end of the year it's offering free calling to any phone number in the U.S. or Canada (see, 5/16/06, "Skype Goes for Broke"). "Chasing Skype is like chasing a comet," says Scott Cleland, president of consultancy Precursor. "Anyone that chases Skype is going to eat their dust."

And while courting dial-up users may help efonica carve a niche for now, analysts say that's hardly viable as a long-term business plan. As soon as broadband becomes available, users are likely to switch to VoIP providers that offer services such as instant messaging and video.

"Frankly, I don't think they're thinking much beyond a three- to five-year period," says Jon Arnold, principal at J Arnold & Associates. Cleland puts it more bluntly. "Dial-up is a dying business," he says. "You don't shrink your way to greatness."


  Skype executives aren't losing any sleep over efonica. "We focus on our business rather than be distracted by other players in the market," writes Don Albert, GM of Skype North America, in an e-mail. "The fact that other companies are entering this space endorses our strategy.… Skype welcomes competition; it keeps us innovating at a rapid pace."

Where possible, Fusion hopes to avoid head-to-head competition with Skype and other services. "We are trying to take a look at the marketplace and take the best of what each has to offer," he says. That means combining the call quality and array of features provided by Vonage and cable companies with the low rates and online community of Skype and its ilk, Rosen says.

Smaller companies can hold their own if they can offer compelling innovations, says Will Stofega, research manager for VoIP services at IDC. "That's where the market is now," he says. But Fusion's offering may not be new enough to stir excitement, says Arnold. "They can't really come to the market and say: 'I've got something different and better than the Skypes of the world,'" he says.

Rosen says he's undaunted by the grim prognostications. "This is not something we're rolling out and hoping for the best," he says. "A world of many billions of people has room for more than one telecom provider."

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