I’m writing this from a hotel room in Santa Monica in California. I’m on holiday here with my lovely wife Lynn and our two equally gorgeous daughters, Eilish and Maddie, and am about to embark on an RV trip across America to Orlando in Florida.

Lynn will attend a conference on digital scrapbooking at Disneyland in Orlando in a fortnight if we make it. I’ll tell her story about how she came to be a digital design exporter (earning a lot more than me…) in this blog at a later date.  Suffice to say, this trip will more than pay for itself in US dollar earnings.

I’ll try to blog about the trip and what I learn from an economic and business point of view as often as I can. It should turn out a lot easier to do than in New Zealand. Free cable broadband or WiFi access in hotels seems fairly common here, unlike back home. I have a laptop and the Stuff publishing system will allow me to do this remotely as long as I have a broadband connection. It is amazing really. Even a couple of years ago, this would not have been impossible. It reinforces the importance to me of getting proper broadband access into every home and business in New Zealand and making it as ‘freely’ available as water and power. After all, we don’t pay extra for water and power when we book into a hotel do we? What I’m about to talk about reinforces that message.

When I visit another country I like to do a couple of things to start to understand the place I’m visiting.

Firstly, I visit a supermarket to see what the locals like to buy and how businesses market the basics of life to the locals. The locals in Santa Monica like food that doesn’t have Trans Fats in it and they like to eat bacon made of Turkey. They seem to buy a lot of cranberry juice and cookies (not biscuits) are very, very popular.

Secondly, I buy a newspaper to read the news that matters to the locals. The Los Angeles Times reports on how the cops in one region in the local police force, Inglewood, seem quite keen on shooting unarmed people.

Thirdly, I switch on the television to watch the advertisements. I reckon they say a lot about a place and what it’s like to live there. The first one Lynn saw was for a DVD for the “low, low price of US$24.95″ that showed how the buyer could make a fortune through buying forclosed (mortgagee) real estate cheaply.

But the one television advertisement that caught my eye was something called “Magic Jack“, pictured above. It is device that is slightly larger than a USB memory stick that plugs into your computer. It has a “Magic Jack” that allows you to plug your regular phone into it and make phone calls while your computer is connected to the internet via broadband.

This is not a radical idea. You can already sign up to Skype for free and buy a package of ‘minutes’ to call regular landlines and mobiles. In America, you can also buy a VOIP (Voice over Internet Protocol) phone that plugs into your computer and can be used to call regular landline and mobile lines for a monthly fee.

But the difference with “Magic Jack” is that allows you to plug in your existing phone and start calling anywhere in the United States or Canada for free. Interestingly, you can also use the Magic Jack outside of the United States and Canada and dial into the US and Canada for free. The killer is the price. It costs US$39.95 to buy and calls for the first year are free. Every year after that costs US$19.95 a year.

This compares with Skype, which charges US$35.40 a year for calls to landlines in the United States, and US$119.40 a year for unlimited free calls to landlines in 36 countries, including Australia and New Zealand. Obviously, calls to other Skype users are free. You also still have to buy a VOIP phone or a headset to make it work properly.

Other VOIP competitors in the United States offer more expensive services where you buy a special VOIP phone and then pay a monthly fee with per-call costs for international and non-local calls. The most prominent of these is Vonage, which charges around US$29.95 a month or US$359.40 a year for its service.

“Magic Jack” has the potential to turn the whole Telecoms market upside down in the United States, as well as give the likes of Skype a big fright. I’m not the first to say this. Herb Greenberg at MarketWatch.com (an excellent company I used to work for) describes “Magic Jack” as a potential Vonage/Skype killer. This review in the Washington Post by Daniel Greenberg also says “Magic Jack” compares favourably with Skype, while the New York Times’ John Biggs is complimentary.

So what, you may ask. What does it matter to phone users in New Zealand?

Currently Telecom, and Telstra in Wellington and Christchurch, have us by the short and curlies when it comes to landlines. Skype hasn’t taken off here because most people still don’t have broadband and you do have to pay a fair amount to call regular phone numbers. It’s also a bit fiddly for non tech wizards. I’ve downloaded Skype but have hardly ever used it because it either doesn’t work on my Telecom broadband or when it does, the sound quality is poor. Others tell me it’s getting better but I’ve stopped bothering.

There are a few VOIP operators in New Zealand, but they’re small and aren’t marketing aggressively. The only one I could find was 2talk.co.nz , which appears to charge calls to non VOIP phones at the usual rate. This is all I could find on what it charges to ‘call out’ (the bolding is mine):

Q. How are calls charged?
A. Calls are charged per minute by country. Charging may differ for calls to mobiles and landlines. Rates are subject to change without notice. Please note that all outbound calls will be charged at the applicable NZ landline or mobile rate.

Q. What is the cost of calling a 2talk 028 number?
A. A 2talk 028 number functions like a mobile phone number. It costs the same rate to call it no matter where you are in New Zealand. However, calling an 028 number from another 2talk phone will be free of charge – since all 2talk plans allow ‘Unlimited 2talk calling’. The cost of calling an 028 number from a non-2talk phone will depend on your telephone operator – but the rate should be equivalent to another NZ mobile (or count towards your minute bundle if calling in from a mobile phone)

  That seems to me like they couldn’t negotiate some sort of bulk deal with Telecom, Vodafone and Telstra.

The difference with “Magic Jack” is that it has done these various ‘bulk’ deals with carriers.

What’s also very interesting are the charges for international calling, which I found shockingly low, certainly compared to what we pay in New Zealand.

“Magic Jack” charges 2.5 US cents a minute to call New Zealand landlines and 28 US cents a minute to call New Zealand mobiles. Telecom New Zealand’s ‘Anytime’ plan charges 18 NZ cents per minute for national calls, 42 NZ cents a minute for Telecom mobiles and 49 NZ cents a minute for Vodafone mobiles.  At current exchange rates, Telecom is charging 4 times as much for national calls and about a third more for mobile calls.

So it actually makes sense to buy a “Magic Jack” and use it to call New Zealand landlines and mobile from New Zealand. Someone needs to buy a boatload and ship them to New Zealand. If I was a proper entrepreneur I’d have a go. Let’s hope someone else will.

Meanwhile, I’m off to the local Radio Shack in Santa Monica to buy one. Lynn can use it to call people in the United States for free and we can use it to call other landlines in New Zealand for 2.5 US cents a minute. It also costs 2.5 US cents a minute to call Australian landlines and 18 cents a minute to call Australian mobiles. Here’s all the rates for the other countries.

The reason I’m going on about this is that New Zealand has yet to see aggressive competition in the landline and mobile markets. Our rates are among the highest in the developed world. That’s all because of a lack of competition.

The advent of broadband and the likes of companies like “Magic Jack” have the potential to change that. No wonder Telecom’s share price is in the toilet. The great irony of Telecom’s supposed big broadband push is that it will build a highway for its competitors to run over Telecom with.

A disclosure. I worked for Telecom in 2005 when I was Managing Editor of Telecom’s XtraMSN internet content operation. VOIP was the elephant in the room for Telecom even then. Telecom knew that the harder it pushed broadband, the sooner it would be gobbled up by VOIP competitors. It was rumoured outside Telecom (although I never saw it while I was inside Telecom) that Telecom deliberately fiddled with its broadband to stop Skype working properly. I doubt it. I’m a  believer in cockups rather than conspiracies. I suspect the broadband was simply not broad enough or consistent to work with Skype in the early days. Although I haven’t looked at this closely enough to know for sure. I’m guessing Mauricio Freitas at Geekzone or Juha Saarinen would know the answer.

Bring on broadband is all I can say. This is yet one more reason for the new National government under John Key to accelerate the broadband rollout in whatever way works. Building productivity is all about spending less to produce more goods and services. Reducing our telecommunications costs would be a major way to boost productivity.

PS. If our readers know of any other VOIP deals in New Zealand that I’ve missed (other than 2talk.co.nz) please comment below with the info.

Last 5 posts by Bernard Hickey

• Dear John: Please tell us the truth about the economy - we can handle it - February 23rd, 2009
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• Why we should give thanks when Telecom ‘exports’ 250 jobs to Manila - February 4th, 2009
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