IQ News: Closeup - Total E-Call

PhoneFree promises to deliver free Internet-based telephony to the masses. Sitting around a table in their modest, fourth-floor office in downtown Manhattan, PhoneFree.com execs plot their next move against the telecom giants. The night before, employees at the four-year-old Internet telephone service provider celebrated the company's growth by spray painting the walls in their newly-acquired space across the hall--a deviant behavior encouraged by PhoneFree CEO and president Jan Horsfall. The graffiti artists displayed their commitment to the cause by scripting the company's rally cry, "Let Freedom Ring." Horsfall smiles with pride at his employees' amateur artwork, which will be washed away in renovation, but not forgotten. "We're fed up with the AT&Ts of the world and their cents-per-minute calling plans," Horsfall exclaims vehemently. "How's this for a cents-per-minute calling plan: Zero-cents-per-minute. No fees. No hidden charges." The New York-based PC-to-PC and PC-to-phone voice communications provider offers free telephone service via the Web, regardless of duration and destination. To use, visitors to the PhoneFree site download the proprietary software and dial directly to a telephone or any computer that also has Internet telephone capabilities. In addition, PhoneFree provides voice mail, video calling, video mail, voice conferencing and file/data transfer at no additional cost. The company reports about 15,000 new users a day and projects four to five million users by year's end. Some of the site's traffic is attributed to word-of-mouth. However, much points back to branding, an important factor to the equation, the PhoneFree team claims. Last fall, the company tapped Daniel Gallagher, vice president of brand strategy, and Geoffrey Hatheway, senior vice president of marketing, two ad industry vets, to build the PhoneFree brand in a category that had zero brand awareness. Gallagher brought with him two decades of experience from agencies such as Ogilvy & Mather, Bozell and McCann-Erickson, where he worked on major telecom accounts including AT&T, MCI and Sprint. Hatheway's rEsumE included gigs at Bozell, where he worked on the Valvoline account, and Lycos, where he spearheaded the ad campaign that sports a Labrador retriever as the brand icon. PhoneFree.com's ad effort--built around consumers' frustration over opaque phone bills--lambastes traditional telephone companies for hidden charges, confusing calling plans and unpredictable, hard-to-understand bills. "The genesis of [building the brand] was tapping into people's phone rage over the telcos," says Hatheway. PhoneFree.com launched a multimillion dollar, multimedia campaign produced by New York ad agency Hampel/Stefanides earlier this year. With the tagline "Let Freedom Ring," the online and offline effort focused on the "free" factor and carried the image of a clenched fist holding a burning phone bill. Instead of charging consumers to subsidize the business, like traditional phone companies, PhoneFree.com uses advertising. The company reports that 73 percent of PhoneFree.com users spend more than 10 minutes on each call and 26 percent spend over 40 minutes. "When someone is talking on PhoneFree for 45 minutes a pop, we're talking incredibly sticky applications," boasts Horsfall. The company has signed on advertisers such as MasterCard, DealTime.com and FreeAgent.com. In addition, the company garners revenue from e-commerce offerings, such as headsets, PC video cameras and phone cards. Horsfall predicts profitability in less than 30 months. With free or low-fee business models, Internet telephony companies hope to present an attractive alternative to the old-fashioned phone service providers. However, the looming possibility of taxation could threaten their progress. A provision inserted into a House telecommunications bill in May exempts Net calls from a moratorium on Net access taxes. (The House voted on May 10 to extend the moratorium on Net access taxes until 2006.) The legislation leaves Internet telephone service providers vulnerable to the possibility of per-minute access charges--a move that could undermine the backbone of PhoneFree's business and others like it. Horsfall says the last-minute provision is an example of the telecommunications behemoths throwing their weight around Washington to stifle competition. "The legacy telephone companies are legislating their own corporate welfare because they are unable to adapt their sprawling bureaucracies to the new market environment," Horsfall wrote in response to the legislation. Despite this setback, execs at PhoneFree remain optimistic. As they consider their next move, they make one thing clear--the company will continue fighting the fight against traditional telcos.

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IQ News: Closeup - Total E-Call

Ann M. Mack

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Ann M. Mack