How to Choose VoIP

Buyer's guide to VoIP services

VoIP (Voice over Internet Protocol) can save money on phone service because it uses the Internet to transmit calls rather than traditional phone lines. It's especially popular for people who have cable service, since digital phone service can be bundled with TV and/or Internet. Even if you keep a landline phone for local calls, experts say you can save a lot of money using VoIP for long-distance calls. However, there are caveats to consider -- and lots of fine print in most contracts.

Types of VoIP

There are two main categories of VoIP: hardware-based VoIP -- such as Vonage (*Est. $10 to $25 per month) and cable VoIP (*Est. $12 to $60 per month) -- and software-based VoIP such as Skype (free for PC-to-PC calls) and Google's Voice Calls from Gmail feature. Software-based VoIP makes phone calls directly from your computer; a microphone and headset will improve sound quality. Hardware-based VoIP uses a regular telephone and can work even when your computer is off -- as long as your broadband or cable connection is active.

Classic hardware-based VoIP runs via broadband connections. A converter box, called an analog terminal adapter (ATA), connects your phone to your broadband modem or router. The ATA is usually purchased when initiating the service, though rebates and promotional deals often cancel out the cost.

Cable VoIP also requires hardware, but the converter box, like a cable box, is leased (*Est. $3 per month). The digitized voice signal runs through the same cable wires as the TV and Internet services. Cable companies say this makes for fewer dropped connections and better call quality -- and many reviews and surveys agree. Some companies combine the converter and Internet modem in the same box.

Overall, reviewers say call quality tends to be more consistent with hardware-based VoIP -- especially cable VoIP -- than with software-based VoIP. Since most software-based VoIP is free  or very inexpensive, reviews say it's still worth trying if you just want a supplement to your regular landline or cell phone service. With some providers -- Skype, for example -- calls are free only to users of the same service, but that's still a great deal for saving on long-distance rates. For calls to landline phones, rates can still be excellent, and international rates to landline phones are also cheap.

So is it worth it to ditch your landline for VoIP? Here's a rundown of the pros and cons.

Reviews say you should consider the following when looking for VoIP service:

• The calls you make: You'll need to assess what you're currently spending on local and long-distance calls to determine whether VoIP will save you money. Most VoIP services charge a flat rate for unlimited local and long-distance calls in the U.S., and many include Canada and Puerto Rico. Depending on the service, things can get more costly for international calls. Some plans, such as Vonage, include some international calling, but be aware that only calls to landlines are included in their unlimited calling plans. Calls to international mobile phones cost more.

• E911 availability: Enhanced 911 service (E911) automatically provides the caller's number and physical address to emergency personnel. However, software-based VoIP services cannot be used to call 911. For hardware-based VoIP, the Federal Communications Commission (FCC) mandates full E911 services. Experts urge that you check the E911 availability and procedures before signing up for VoIP. If you move or use a portable VoIP service (from a laptop, magicJack or cell phone) then it's up to you to register your location with the VoIP provider.

• Your landline: Because E911 service isn't yet universally available, experts say you should consider keeping a basic landline or cell phone for emergencies. Be sure to include that cost in your usage estimates. In addition, a corded landline will usually still work during a power outage; VoIP will work only if it's hooked up to a battery backup.

• Local number portability: Most companies allow customers to keep their original phone number. However, there may be a charge for this. The FCC mandates that a company must "port" your number to the new provider within one day, in most areas.

• Alternate or virtual numbers: By choosing an area code separate from the one you live in, you may be able to save out-of-state friends and relatives some money. Keep in mind, however, that local calls will no longer be local if you have a different area code than your neighbors. To solve this problem, some VoIP providers let you have more than one number or let you use virtual numbers.

• Calling features: Additional features normally cost extra through your local phone company. But with VoIP services, these goodies are usually free. Features include call waiting, call forwarding, conference calling, voice mail, caller ID, an online call log, do-not-disturb setting and more. Vonage has added new, nifty features like weather and traffic alerts.

• Compatibility with other equipment and services: For now, not all home security systems, TiVo boxes and satellite TV receivers with internal dial-up modems work with VoIP, so you may not be able to retire your phone line if you use it for these purposes. Be sure to check this out with prospective providers.

• Multiple lines: Some services only allow one line per converter box, while others have multi-line offers.

• Fax compatibility: Not all services support adding a fax machine, and those that do may charge extra. Vonage, for example, charges an extra $10 a month for a separate fax line (plus a $10 activation fee). Check availability and terms if VoIP fax is important to you.

• Hidden costs: Most VoIP services include an adapter for your phone, but not all do, so be sure to check when comparing plans. Many services charge fees up front for setup and/or shipping equipment. Also, be sure to determine the costs you will pay for international cell phone calls, which are not included even in all-inclusive overseas calling plans. Also check the taxes and fees that will be added for your area.

• Trial periods and cancellation: Check the cancellation policy. You will be refunded your money if you cancel within a specified minute usage and time frame. But you will still be charged for calls not included in your plan, as well as for directory assistance, international cellular calls and possibly for deactivation fees and shipping charges to return equipment. We found many reports from users who were astonished at the cost of their "free" trials.

Keep in mind that you can, in most cases, take your VoIP phone number with you when you move or travel. All you need to do is set up the hardware adapter in the new location. For cable VoIP, this depends on whether or not your new address is served by the same company.

VoIP and E911 emergency calling

A major issue with VoIP has been whether or not it's dependable for 911 calls, especially now that most areas have enhanced E911 service that tells emergency personnel the caller's location. Software-based VoIP services such as Skype are not equipped to make 911 calls and can't replace a landline or cell phone for this purpose, but what about hardware-based VoIP?

Major hardware VoIP providers, including cable companies, Vonage and Ooma, are now compatible with E911 -- that is, your phone call will automatically give emergency responders your address, even if you can't speak (as long as your provider knows your correct location). The FCC publishes expert advice on VoIP and 911, with a link to a printable four-page PDF file.

Enhanced 911 (E911) calling works best from phones at a fixed location. Hence, landline phones and cable VoIP are most apt to give emergency personnel the correct address automatically. With other VoIP services, the user must be careful to keep the provider informed about the location from which it's being used. VoIP service moves when the user moves -- but the user might forget to notify the provider.

In addition to a working broadband connection, hardware-based VoIP requires electricity. With a landline you can plug in an analog phone and make calls even when the electricity is out. Cordless landline phones will not work in a power outage, since the base must be plugged into a wall outlet. To use VoIP during an outage, you need battery backup. Some cable VoIP providers, such as Comcast and Cox, include this as part of the equipment they supply. For most VoIP services, it's up to the user to buy and install a backup power supply. An October 2009 article in Popular Mechanics suggests buying a relatively small UPS (uninterruptible power supply) so you can use a hardware-based VoIP service even in a power outage. The author recommends a "relatively low-power 300- to 750-watt UPS" that would cost between $50 and $150.

There have also been reports of problems at the provider end in routing 911 calls to the correct emergency personnel. The FCC has tightened rules for VoIP providers to make it more likely that a call to E911 will go to the correct location. In addition, the FCC advises VoIP users to be aware of the limitations of 911 service with VoIP and to update their address promptly if they move. (See the Useful Links page.) Most experts advise having at least one other phone -- a cell phone or landline phone -- available for emergency calls.