It's the kind of cheap telephone calling envisioned a decade ago when competition in local telephony was no more than a concept and convergence was only a buzzword. Employees at Yans NY, a small Brooklyn, N.Y., retailer that sells Chinese motif handbags and accessories, make as many local and long-distance calls in the United States as they want for less than $70 a month, and they can call Hong Kong for 6 cents a minute.

The telephone traffic runs over the retailer's broadband Internet connection, but the service is provided by Vonage Holdings Corp., a startup in Edison, N.J. Increasingly, the quality of VOIP (voice over IP) resembles traditional telephone quality, and VOIP providers are starting to build a market. If the VOIP providers start to take significant market share from incumbent regulated phone companies, they inevitably will incur pressure from the incumbents. But VOIP providers are mostly unregulated, and they pass the advantage to their customers.

"I like the single-rate concept with Vonage. We have people on the phone all day long, and I don't have to pay the [Federal Communications Commission] taxes," said Allen Tsong, managing director of Yans NY, which has been using the service since spring.

Broadband providers, such as ISPs and cable companies, have dabbled in voice services, but it is costly to add the infrastructure to the network. Early this year, Vonage plans to begin partnering with such providers to allow them to bundle the voice service with their Internet data access, said Louis Holder, executive vice president of product development. Path of voice traffic over Vonage Talk into analog phoneVoice signal travels to media terminal adapter (Cisco ATA-186), which converts it to a digital signalDigital signal travels to cable or DSL modem and over the broadband carrier's network to Vonage's network "The cable companies have been talking about voice, and now we're giving them an opportunity to partner with us," Holder said. "We'll power the offering for them, and they can brand it."

Vonage, which launched the service in April 2001, built proprietary online billing and provisioning systems. The company supplies customers with a media terminal adapter, which converts the voice signal from analog to digital signals. Vonage's network consists of Cisco Systems Inc. gateways in co-location facilities in 30 cities. For unlimited local and long-distance calling, small businesses pay $70 per month, and for $40 per month, they can use 1,500 minutes.

Tsong said he likes not having to rely on the local telephone company, which charged him high rates for calling within New York. "Regional calls were more expensive than long-distance calls on the Verizon [Communications Inc.] bill," Tsong said. "I'm in Brooklyn, and with Verizon, it cost me more to call Long Island than to call California."