The Dawn of the Free Local Call

Since the emergence of VoIP and industry disruptors such as Vonage and Skype, many people have been talking about the day when local calling would be free. Well, that day is coming. In fact, it’s coming in September when Ooma launches.

Aside from being a silly name (the new realities of a crowded domain name world), Ooma plans to sell a $399 piece of Linux-powered hardware that lets you make free calls in the U.S. (Hey, Canada’s like attached to the U.S.!). According to Om Malik, all you need is a broadband connection and you’re ready to go. You can also purchase units called Scout that let you extend Ooma across the house by plugging it in phone jacks. For more on how Ooma works, check out TechCrunch and Walter Mossberg.

In terms of Ooma, free local calls and its impact on the telecom industry, I’m still trying to get my head around it.

Obviously, the local phone service providers (carriers and cablecos) are going to hate it. The carriers have their hands full with cablecos stealing high-margin local phone customers, while the cablecos love the local business because it generates more revenue and helps them sell multi-service bundles (aka the triple and quadruple plays).

There’s obviously a lot of different ways to look at Ooma but perhaps the most intriguing is how Ooma, Slingbox and all the other devices that leverage the power of broadband will change how broadband is marketed and sold. Right now, broadband is a great business for carriers and cablecos. There’s still plenty of growth left, competition is modest (most markets have a DSL and cable supplier) and prices have been rising. For carriers, the growth of broadband has tempered the loss of local customers.

The question is how carriers and cablecos will react when traffic on their networks continues to climb due to services offered by third-parties such Ooma, Slingbox, YouTube, etc. There will come a time (and it’s coming soon) when the carriers and cablecos will say “Enough, the free ride is over”.

You’ll hear them talk about how they’re being forced to make huge investments to upgrade their networks, and how someone has to pay for it. You’ll start to hear and see the carriers and cablecos offered tiered service based on traffic consumption as opposed to all-you-can-eat plans based on speed. You’ll start to see the whole net neutrality debate heat up again as carriers and cablecos push for a tiered Internet in addition to tiered broadband packages.

Ooma is just the tip of the iceberg. That said, it’s a pretty high-profile iceberg with $27-million of venture capital, actor Ashton Krutcher as its creative director and, of course, free local calling. But it’s just one “straw” that will eventually help break the camel’s back, which will eventually change how the broadband industry operates.

Final thought: As much as free local calling is appealing, I wouldn’t rush out and buy a $399 device. It just doesn’t have the same sexiness as spending $200 to buy a Slingbox so you can watch TV anywhere, anytime.

Update: Put Cynthia Brumfield in the skeptics camp while Aswath is “decidedly negative”.