Analysis: SIPphone's Free VoIP Calling Plan

SIPphone rattled the VoIP industry today, announcing free calling to PSTN and mobile phones for users of it's VoIP-IM service, Gizmo Project.

The move was an obvious take off on a similar announcement from Skype last May that introduced free calling to US-based users until the end of the year. Both plans are meant to expand the market share of the services.

However, the SIPphone effort differs in a number of significant ways from the Ebya's Skype offer. Unlike with Skype, the Gizmo Project plan is permanent and requires both users to be "active" Gizmo Project users. "Active" accounts are those used regularly to make voice calls using the Gizmo Project software. Also unlike with Skype, the calls aren't confined to North America, but can be placed from anywhere in the world and received in 60 countries. Finally, while SKype allows any regular phone number to be dialed within a designated region, Gizmo Project limits user to calling users at the mobile and landline numbers in their Gizmo profile.

It's not the first time that SIPphone challenged the field of VoIP services. Gizmo Project was the first service to provide a graphical measure of voice quality in its client; the first service to let users interject sound effects into their calls. It was also the first service to show the locations of callers and recipients on a map and one of the first services outside of Skype to use the GIPS CODEC for stellar voice quality. Gizmo Project includes IM, like Skype, but unlike Skype, Gizmo Project provides voice mail for free.

Even still Gizmo Project's penetration has been nominal at best. The service's audience today "approaches a million," says Kevin La Rue, the vice president of marketing for SIPphone. How close to a million, he won't say, but regardless that's still a far cry from the over 280 million users who've downloaded the Skype client.SIPphone is betting that the grassroots marketing force created by "All Calls Free" will help close that gap. The company will fund the campaign on value added services such as call-in and call-out services, says La Rue. SIPPhone also offers its Area775 number that for an extra $3.95 provides users with US based telephone number with a number of unique feature including call screening to listen and intercept voicemails in real time and call transfer between two phone numbers. Phone numbers can also extend to a standard phone. A $7.95 package also provides a fax number, and a toll fee number to access emails.

La Rue might have a point. SIPphone is containing the costs of the 'All Calls Free' plan in several ways. The company warns that it may interrupt excessively long phone calls placed with the plan. Even then active users may only call the most inexpensive foeign locations for free

"All of the free destinations that I've seen for Gizmo Project cost under two cents per minute to terminate," says Stephen Beckert, director of research at TeleGeography Research. "They won't let you call Swiss mobile users for free, for example, because it's just too expensive." The termination rates for Swiss mobile users run around 20 cents per minute, he says.

But while free calling is interesting, it's hard to imagine that it'll be interesting enough to draw the market that Gizmo Project requires to compete with Skype. Beckert takes an analogy from European telecoms. "When Europe changed over to a deregulated environment we saw a huge traffic spike as the cost of terminating calls dropped from $1 a minute to 5 cents a minute. Subsequent drops of a cent or two have had nominal or no impact on traffic volumes."

Then again turning profit ultimately is more important than huge market share and in public VoIP-IM services, profits are hardly a given. Just look at Vonage or the problems that Ebay is having with Skype. If SIPphone can turn Gizmo Project into even a small, but sustainable, profit-making VoIP-IM service that might just be this industry's biggest shakeup yet.