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Communications - Friday, July 22, 2005

TelEvolution (PhoneGnome) - Profile

HQ: Danville, CA

Founded: 2004

Management: David Beckemeyer is Founder and CEO. He was co-founder of EarthLink, where he was as VP of Engineering and CTO.

Investors: Bootstrapped by founders and angels including Joi Ito and Reid Hoffman.

Business Model: The company sells a VoIP device called PhoneGnome, a small box that costs $120, and is not accompanied by any monthly services or charges. The PhoneGnome prudently marries the best of VoIP and the best of traditional phone service. The PhoneGnome connects to your phone line, your Internet connection, and your phone. It allows owners to keep their existing phone numbers, they can call any other PhoneGnome in the world for free and they can dial any other phone in the world without access codes. Instead of switching to a new service, getting a new phone number, or transferring an existing number, PhoneGnome automatically configures itself. So there is no need to own a computer, run software, switch to a new phone number.

Competitors: Vonage, Lingo, AT&T, Skype, Packet8.

Dirt: Telco geeks have boners over PhoneGnome and indeed PhoneGnome offers some significant ease-of-use advantages over the likes of Vonage. Still, the VoIP game at this point is being won on marketing. Most consumers are just not sophisticated enough to be able to compare the features and benefits of Vonage vs. PhoneGnome so they need to be sold. Vonage has unlimited marketing dollars and its promotions are ubiquitous on the Net and in BestBuy. Unless PhoneGnome can quickly raise a quarter billion dollars, it might make sense for a large company to acquire PhoneGnome and go mano a mano with Vonage.