Cheap PC gadget for Internet calls selling well

It's not Verizon Communications Inc. or AT&T Inc.--they're losing lines. What about cable company Comcast Corp., which is raking in subscribers for its phone service? Even that company is being beaten by a small Palm Beach, Fla., company called YMax Corp., judging by its own figures.

You may never have heard of YMax, but you may have noticed the TV ads for its product, the MagicJack, which works with a broadband connection.

It's about the size of a matchbox and plugs into a PC. After plugging a regular phone into the MagicJack, the user can make and receive calls much like using a regular landline.

In January, just after the broad advertising campaign started, YMax was selling a few hundred MagicJacks per day, said Jim Donlon, its chief marketing officer. Now, it's selling 8,000 to 9,000 per day, and the company is on track to have half a million subscribers by the end of June.

That's a meteoric trajectory in the phone business, propelled by the pricing: The MagicJack costs $39.95, including one year of free calls to the U.S. and Canada. Another year of service costs $19.95.

"It's extremely low-risk. Most people I know are willing to gamble on 40 bucks," said TeleGeography analyst Stephan Beckert, who follows voice-over-Internet providers.

Unlike most voice-over-Internet Protocol--or VoIP--providers, YMax is licensed as a phone company in the continental U.S. and operates a wide network of servers to carry its calls. VoIP providers generally outsource that side of the business.

Comcast, the fastest-growing cable voice provider, signed up a net average of 7,100 customers per day in the first quarter, ending with 5.1 million on March 31. Vonage Corp., the leading independent provider of VoIP that works with regular phones was averaging 334 per day, for a total of 2.6 million.

YMax's subscriber numbers are "significant," Beckert said, but he noted that its revenue is much lower than that of competing providers because it charges about as much for a year of service as its rivals do for a month. Even eBay Inc.'s Skype, which uses computers for calling, charges significantly more.