Video Phone Still Battles Weak Reception

Video phones seem like a natural fit in new "converged" home networks, but they won't be a mass market item until more consumers want to use them and the industry can force phones from different manufacturers to work together.

So far only about 100,000 video phones have been sold in North America, according research firm Frost & Sullivan. And no technical standards are in place to ensure that all brands of video phones can talk to one another.

A Motorola Inc. (NYSE: MOT) OJO cannot trade video and voice with an 8x8 Inc. (Nasdaq: EGHT) Packet8 VideoPhone, for example.

While consumers aren't yet demanding a video phone service in their livingrooms and kitchens, PC applications that offer free video conference calls, such as Skype, and video-friendly Instant Messaging clients are extremely popular. And, cellphone services, such as NTT DoCoMo Inc. (NYSE: DCM)'s i-motion mail have been around -- and very popular -- since 2003. So home phone manufacturers keep hoping consumers will eventually desire video communication somewhere else outside the home office.

Well-known companies like Motorola, D-Link Systems Inc. and Cisco Systems Inc. (Nasdaq: CSCO), Viseon Inc.  (OTC: VSNI) each have a video phone in their consumer product portfolios. But they're probably not flying off the shelves at Best Buy.

"If you look out into the market today, as in the past, there are quite a few video phones," says Verizon Communications Inc. (NYSE: VZ)'s director of consumer product development, Mike Naggar. "But they have all pretty much failed in the market, at least in the North American market," Naggar says. To help sell the video phone idea, vendors are finding new ways to introduce telephony-plus-video to consumers outside of what they would experience using PC-applications such as Skype and instant messaging clients. Naggar says vendors believe that consumers will appreciate having video on their phones, just not real-time Jetsons-style video-phoning.

Verizon last year launched a video phone intended for FiOS households called the Verizon One. The device supports video such as weather reports and pre-recorded video clips, but not real-time video.(See Verizon's Kitchen Phone Dials VOIP.)

What video phones won't likely do is help stand-alone VOIP service providers become something more interesting than just another phone service. Vonage Holdings Corp. (NYSE: VG), the largest independent VOIP provider, in fact, has never delivered on the video phone promises it made at the Consumer Electronics Show in 2004.

"We chose a partner, evaluated beta units, and completed some user acceptance testing to offer video phones," says Vonage spokeswoman Brooke Schulz. "However, the results of the testing indicated our users weren't ready to adopt video phones for their everyday communications needs." (See Analysts: Vonage Feeling Cable Heat.)

So Vonage pulled the plug on the product, even after talking it up at one of the world's largest consumer trade shows. Says Schulz: "We diverted the R&D efforts away from the video phone in order to focus on mobile products like WiFi phones and V-phones, because we simply didn't foresee demand for that product."

Vonage competitor 8x8 has been selling a videophone since 2002, and is the only VOIP provider doing so today. The company says its sold 10,000 of its video phones.(See 8x8 Sees Video Phones in Its Future .)

But absent technical standards and consumer interest, the video phone business isn't making 8x8's balance sheet sing.

In 2004, when Vonage made its video phone announcement at CES, 8x8 CEO Bryan Martin asked Vonage CEO Jeffery Citron if the two companies could make their video phones interoperate. Citron originally agreed to the idea, before Vonage bailed on video phones altogether. "They might have looked at our sales numbers for the video phone and decided it wasn't a good idea," says 8x8's Martin. (See 8x8 Adds Video.)

— Mark Sullivan, Reporter, Light Reading

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