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EarthLink Calls Vonage for Broadband VoIP

Atlanta-based access provider EarthLink plans to sell Voice-over Internet Protocol (VoIP) telephone service to its broadband customers, a flat-rate $39.99 per month service that could threaten traditional phone companies.

EarthLink, which is struggling in the race against AOL and MSN, will use technology from New Jersey-based Vonage to provide the SIP network-based Internet phone service, which will be offered as an add-on to EarthLink's high-speed subscribers.

Financial terms of the deal were not released but sources say it's a straight revenue share transaction.

EarthLink is the first major ISP to dial up VoIP as a carrot to lure new subscribers and it's not a stretch to imagine the other two national access providers -- America Online and Microsoft's MSN would follow suit.

Smaller service providers like Cablevision and Tele-Media Cable have dabbled with consumer-focused Net phone service for their broadband users but the limitations of the service have made it a tough sell. Cablevision's Optimum Voice, currently described as a test, sells unlimited calling in the U.S. and Canada. for $35 per month, cheaper than the EarthLink/Vonage service.

In its announcement Thursday, EarthLink said Unlimited Voice rollout would be marketed as a plug-and-play service that works with either a DSL or cable connection and can be installed in minutes to work on any touch-tone phone.

It will be targeted towards home-based business to provide a "second line" and will mirror Vonage's standalone Net phone service which lets users select an area code in most U.S. cities, an option that promises to "turn long distance calls home into local ones."

The absence of e911 capabilities on Vonage's service has been a major downside in the company's ability to effectively compete with the traditional telcos. Internet-based VoIP phone service has improved dramatically from the early days when the sector was dogged by complaints about low quality but the absence of certain core features has made it a tough sell to the consumer market.

Here's how it will work: Earthlink Unlimited Voice will use a standard router to split a subscriber's broadband connection between their modem and the ATA (analog telephone adapter) box. The ATA box then converts the digital signal to an analog telephone signal, allowing a regular home phone to be plugged into the ATA to deliver dial tone and a high-quality connection. The ATA box is free in the start-up kit but the $39.99 per month service is in addition to EarthLink's regular access rates.

EarthLink has more than 780,000 broadband subscribers but the company has seen its dial-up user base drop 4 percent from its 2001 numbers, to 4.03 million. The company is hoping add-on services like the Unlimited Voice offering will help lure broadband customers.

It is not the first enhanced service offering from EarthLink. The company already hawks fee-based online photo processing in a deal with Snapfish and digital music downloads in partnerships with FullAudio's MusicNow and MusicMatch.

For Vonage, the deal is a major boost in its race to win enterprise adoption of the fledgling service. Unlike sometimes competitor Net2Phone , Vonage has spent heavily on its standalone DigitalVoice service, even giving away the Cisco ATA box, which normally retails for around $130.

Vonage has already signed up about 15,000 users for its service and has completed more than 10 million calls in less than a year, minutes that bypass traditional LECs and IXCs. The company has a marketing deal with Amazon.com and is said to be negotiating a deal with offline retailer RadioShack.

Like EarthLink's service, Vonage offers voicemail, caller ID, call waiting, call return and call forwarding as part of the flat-rate service. International calls, priced significantly lower than traditional telcos, are additional.