VoIP Call Cost in the USA

Michael Robertson, whom I admire for his entrepreneurial talent and technological flair has started what I regard as an inevitable trend in 2006. He is the founder of SIPphone, one of the best VoIP service providers and backer of the increasingly popular Gizmo Project, which has started a price war against Skype and MSN Messenger. Yahoo! Has followed suit selling USA for 1 cent per minute.

He claims “Unbelievably, SIPphone, backers of Gizmo Project, is making a profit at 1¢ per minute calls. Our cost is close to 1/2 a cent per minute. What you're witnessing is the march to free calling that I talked about a year ago.”

Although it is undeniable that in 2006 Jeff Pulver’s vision that voice will go the way of Gilette’s razors (give away the razors to recoup your margin on the blades), I cannot help but asking where Michael is buying USA at $0.005 per minute with per second billing after the first second. Last time I checked, USA continental (excluding Puerto-Rico, Alaska, Hawaii and obviously Canada) was trading for $0.008 1/1. It is impossible to make a profit with a $0.002/min margin because of slippage in connection times with the SIP/H323 protocols.

What I suspect is happening is that Yahoo! and SIPphone are playing the same game the calling card companies are playing, making a small margin not on the per minute rate but on the billing increment. Most calls last less then 3 minutes and have a 2/60^th chance of ending exactly on the dot. SIPphone makes a loss for those calls but gains by charging full minute increments to customers while being charged per second by the carriers. Some calling cards companies even charge per three minute increments and offer sub-wholesale per minute rate. Imagine a three minute and one second call costing you six minutes.

Anyway, all this discussion around per minute fees is academic if US based VoIP providers are hit with Universal Service Fund charges for both on-net and off-net calls. This bill, if enacted, would seriously hamper the development of VoIP in the USA. Vonage, Time Warner, Skype, Broadvoice may then elect to relocate their operations overseas so as not to be subjected to this charge.