"Ooma is the only company in the history of the telecom industry to offer you the opportunity to own your dial tone," the company says on its Web site, noting that there are no monthly fees or hidden costs.

In addition, Ooma offers a second-line feature (calls coming in when the first line is busy will ring on a second handset), online access to voicemail messages, three-way conferencing, call screening (like with old-style answering machines), and international calling for "pennies a minute."

"We're building the ultimate phone system for the house," Ooma CEO Andrew Frame said.

Exploiting Users' Landlines

Ooma naturally requires a high-speed Internet connection. Its real innovation, however, is in its exploitation of existing phone lines. Ooma routes calls over the Internet, then uses the local user's phone service to deliver the call to its final destination.

"If you have an Ooma phone in L.A. and you're calling New York, it makes a VoIP call to an Ooma box in New York and exploits that person's land line to finish the call," explained Yankee Group analyst Patrick Monaghan in a telephone interview. "By doing this they are able to circumvent the long-distance tolls they would have to pay to the carriers."

The local toll is covered by the flat-rate local service, Monaghan said, but "if there isn't a local box, it will make a pure VoIP call and they'll have to incur the local phone charges."

Security Concerns

Some bloggers have questioned the security of this "distributed termination" system, saying that a recording device on the Ooma user's landline would compromise calls. "That's an interesting question and a good one," observed Monaghan, who said he doesn't know the answer. "Consumers think with their wallets first and they don't think about security."

Ooma's Web site only addresses the concern by saying, "Ooma has been engineered to detect and thwart third-parties from being able to listen in on your phone calls."

Ooma requires users with a landline to sign up for their local phone company's "call forwarding busy" feature, which adds roughly $10 a month to the local phone bill. CFB sends "busy" calls to Ooma, which routes them to the user's Ooma device, explained Jeff Peck, an Ooma technology executive, on the GigaOm blog. (continued...)

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