04/14/2010 05:12 am ET Updated May 25, 2011

A Free Market Stimulus for Struggling Consumers and Small Businesses

As American consumers and small businesses look for cost-saving opportunities, Internet-based phone services have emerged as a leading opportunity. Millions of families and small businesses can easily save $485 to $725 per year with these services, as compared to existing costs with traditional phone companies. At the same time, the technology is reliable, and the sound quality is excellent. Our blind nationwide survey found that lack of knowledge of these services, or false myths, were often preventing their use. For families and businesses, these services are ready for prime time.

We launched The Cost Savings Guy, for our increasingly difficult economy, as a for-profit initiative designed to identify high quality money saving products and services for consumers, small businesses and home offices. In addition, in this create-your-own job economy, we also wanted to provide guidance on how individuals could get started with quality services at low-cost.

As part of our initial work, we conducted months of research examining local phone service options. From the perspective of the local phone companies, landline (also called wireline) phone service is a dying business. Verizon, for example, divested a piece of these operations in rural areas last year, to focus on the "fastest growing" parts of its business that fit with its strategy around other services, while AT&T is scaling back its landline business. What does this approach mean for millions of consumers and businesses?

Our analysis suggests that this perspective is bad news for consumers and businesses. It appears to mean these companies have effectively stopped trying to offer a price competitive local phone service to consumers or small businesses. Instead, they are relying on bundled offerings, prices that are often associated with lock-in contracts, and years of pre-existing consumer trust, to maintain their existing business base. In effect, they have chosen to allow consumers and small businesses to overspend until this customer base eventually dissolves.

The problem is that millions of regional phone company users -- ranging from home owners to small businesses don't know that equal or superior service exists at far lower costs. They trust the regional phone companies to provide competitive services. This trust is now misplaced.

Our blind nationwide survey also found that the alternative phone providers have done a poor job in communicating that switching to these new services can involve no hassle and no risk effort, as explained below.

Finally, we found that many Web-based so-called comparison or phone savings sites provided shockingly poor guidance. These sites often recommended over-priced services; or lower-priced services based on long-term contracts or short-term promotional prices, with the full details of these offers hidden in the fine print.

In our detailed analysis we found a surprising lack of accurate or reliable information on the full range of consumer and small business landline phone options. In addition, despite the difficult economic climate, we found a high lack of awareness of among consumers and small businesses on the available, easy options for reducing landline expenses. As a consequence:

  • With all surcharges and taxes included, millions of consumers and small businesses are often paying between $65 per month ($780 per year) for and $90 or more per month ($1,180) for a single home or office phone lines, offering unlimited local and long distance service with voice mail and call waiting.
  • In fact, landline service through the Internet with equal sound quality and many more features is available nationwide, for about $25 per month ($300 per year), including all taxes and surcharges, with no contract or activation fee and many more valuable features.
  • In today's difficult economy for families and small businesses, this annual savings of $500 to $900 per phone line is significant, and more "cash in their pocket" than they will receive through many proposed federal programs.
  • The only technical requirement to be eligible for these lower cost services are a high speed Internet connection, which is widely deployed.
  • Our work reinforced an often recognized fact: The ultimate monthly fees for landline services with no contract or bundle, is often substantially higher than the prominent advertised price -- because of surcharges, essential add-on features, advertising of prices based on promotions or lock-in contracts of one-year or more and, state and local taxes.
  • Over 50% of consumers and small businesses in our national survey were either unaware of far lower cost VOIP (Internet-based phone alternatives) or believed the sound quality or reliability of such services was poor. All of our analysis shows this is entirely incorrect.
  • In addition, the small businesses and consumers who were aware of these lower cost services perceived the process of switching to a lower cost based Internet service as a difficult or high risk activity. Today, this is a mistaken belief.
  • Finally, in today's difficult economy many individuals are looking to establish home offices for a job search, contract work, or a new solo business. A large proportion of these individuals were unaware that options other than the traditional landline phone companies were almost always the most cost effective, easiest, and best means of establishing a dedicated home office line.

In this Great Recession, many people are opting out of landline service altogether. However, for the majority of small businesses and families this may not be a viable or desirable option. Here's the alternative based on our analysis: A high quality Internet-based service (VOIP) combined with specific phone equipment (available at a low-cost) consistently yields sound quality that is indistinguishable from landlines.

As part of our research, we identified seven central factors for assessing VOIP service. They include from the quality of customer service, monthly pricing, sound quality, ease of install, satisfaction guarantees, compatibility with a wide assortment of phones, and features included with the basic monthly fee. The results of this analysis, and our resulting specific service recommendations, are discussed at length at our site.

As American consumers and businesses look for painless cost-saving opportunities, we have concluded that Internet-based phones have arrived as a leading opportunity. The technology, reliability, and quality of the service combined with the phone hardware now create the opportunity for higher productivity and lower costs: Let's get the right information into the hands of the people that will benefit from it.