The poor man's second phone line

For the digital elite, life is a cacophony of chirping pagers, cell phones and high-bandwidth Internet connections. For the communications have-nots, though, life is a solitary home telephone line, one that is increasingly tied up by modem connections as more people dip their toes into cyberspace.

Enter eFusion Inc., a closely held company in Beaverton, Ore., that provides the technology behind a service some have called "Internet call-waiting" and others have dubbed "the poor man's second phone line." The service allows users to receive an alert on their computer screens about incoming phone calls as they merrily surf the Web on their sole telephone lines. The user can ignore the call, forward it to voice mail or accept it and conduct a normal voice conversation through his or her computer while continuing to use the Internet.

Telecommunications companies that offer the service to customers typically charge between $4.95 and $9.95 a month, plus an activation fee. That's still a sliver of the $21 or more a second phone line costs in most parts of the country -- if customers can even get one, that is. Many regions simply don't have the network capacity to add new lines to homes, or if they do, have long waiting lists for installations.

Ajit Pendse, president and chief executive officer of eFusion, says Internet call-waiting is aimed squarely at an audience often overlooked in all the chatter about superfast -- and so far, pricey --digital phone lines and cable modem Internet connections: middle-income people in Middle America.

"America is very price-sensitive once you leave the frothiness of Silicon Valley," says Mr. Pendse. Ideal customers for Internet call--waiting, he says, "are people telling their kids to get off the Internet because they're afraid it will tie up the phone line."

Strong interest in Europe
Internet call-waiting is just starting to creep into markets across the U.S. So far, eFusion's biggest coup was signing up U S West Inc., the regional Bell phone company that has tested Internet call-waiting in Omaha, Neb., and Minneapolis, with plans to widen the service to other big metropolitan areas. European phone companies are especially interested in Internet call-waiting, because of the scarcity of second residential phone lines in that part of the world. Dutch telecommunications company Royal KPN NV and Telenordia of Sweden have rolled out eFusion's Internet call-waiting to their customers.

eFusion's technology requires hefty investments by telecommunications companies, which may partly explain why service providers are slow to roll it out. The company makes server software, called eStream, that must be deployed throughout the bowels of a telecommunications network so it can switch incoming calls headed for a tied-up phone line. The average cost to a customer considering a rollout of eStream servers is "north of $2 million," says Mr. Pendse.

eFusion has another technology aimed at the single-phone-line quandary: Push to Talk, a service that lets Internet shoppers talk to a live customer-service agent at an online store. Like Internet call-waiting, Push to Talk works entirely through a user's computer and Internet connection, so he or she doesn't have to disconnect to make a phone call.

A cellular quality
The quality of Internet phone calls is a big concern for eFusion's customers. Internet telephony, the process of transmitting voice communications over data networks, isn't known for providing crystal-clear conversations. The last thing telecommunications companies want to do is offer a cheap, garbled Internet connection as a substitute for a second phone line.

But according to Troy Alvarez, a group manager at U S West, the quality of phone calls routed over the Internet hasn't been a problem for its customers. "It's cellular quality," Mr. Alvarez says.

Despite the cost, telecommunications companies are warming to Internet call-waiting. Mr. Pendse says 1998 revenues were between $5 million and $10 million, though he declines to be more specific.

But Robert Mirani, an analyst at Yankee Group, the Boston market-research firm, questions whether telecommunications companies will move quickly enough to support the growing number of technology firms in the market. "eFusion is facing reality -- the telco world moves kind of slowly," says Mr. Mirani.

Meanwhile, the company is up against Lucent Technologies Inc., Canada's InfoInterActive Inc. and an assortment of other competitors vying for a market that could generate upward of $399 million in service fees by 2003 and count 22 million households as subscribers, estimates International Data Corp., a Framingham, Mass., market-research firm.

Mr. Pendse has one thing working for him, though: experience dealing with telecommunications companies. At Intel Corp., he was the chief deal maker responsible for getting telephone companies to package Intel's video-conferencing software with ISDN, at the time the zippiest data connections that phone companies offered for homes. The effort ultimately failed, but his connection with Intel helped Mr. Pendse get funding from the semiconductor giant for eFusion. So far, eFusion has raised about $30 million in venture capital from various investors, including Microsoft Corp. and AT&T Corp.'s AT&T Ventures.