A Silicon Valley startup wants to shake up the telecommunications industry with a $399 device that provides free, unlimited domestic phone calls for homes with broadband Internet service. Ooma will also offer a free second line, conference calling, voice mail service and an online lounge where users may change their preferences or get voice mail in an e-mail format. The company will start selling the devices Thursday with an invitation-only offer to select U.S. residents.

The company backed by $27 million in venture capital eventually hopes to crack the home-based and small-business niches. Engineers are working on a system that forwards calls to cellular phones.

Frame and other executives assume, of course, that their company won't meet the same fate as other startups going up against telecommunication veterans. Earlier this week, Internet phone carrier SunRocket Inc. abruptly shut down, leaving more than 200,000 customers scrambling for alternate service. The No. 2 standalone Internet phone company after Vonage Holdings Corp. attracted customers with cheap plans and innovative features, but traditional phone and cable companies also lowered prices and started bundling their services.

Now SunRocket customers are out of luck. Many signed up for prepaid service plans that cost $199 a year and it is unclear whether they will have any recourse.

At ooma's headquarters in Palo Alto, executives say the 43-person company will have a steady revenue stream from hardware sales and international calls. Ooma's rates start at 1 cent per minute to Europe and 8 cents per minute to India.

Ooma, which has placed about 250,000 calls among 43 employees and 150 other «beta» testers, will compete against Voice over Internet Protocol services from companies such as eBay Inc.'s Skype division, which has 220 million registered users.

Unlike Skype, which works best when the caller and recipient talk through their computers, ooma uses standard home phones. Domestic calls are free even if the recipient does not have the ooma box.

Users plug in the so-called Hub a white machine smaller than a macaroni-and-cheese box to a broadband connection and primary phone. Ooma Scouts, which cost an additional $39 each, connect to every active phone extension in the office, kitchen or kids' rooms.

When you pick up the phone, you hear a melodic, digital dial tone. You place calls as you would normally and get voice mail by pushing a button on the Hub. You pay for international calls with a credit card online.

The technology hinges on a patent-pending call-routing algorithm called «distributed termination,» similar to peer-to-peer and distributed computing ideas.

Traditional phone switches connect a local-toll or long-distance call through the public switched telephone network but ooma, which works with both cable and DSL, uses the Internet and P2P technology to connect the calls for free. Ooma's architecture allows it to bypass fees that most telephone providers pay to connect calls to landlines and cell phones.

Ooma customers who maintain their landlines help enlarge the network by contributing their connections to a local calling area, allowing another ooma customer to use it to complete a call. Thanks to call-routing software, phone calls should not be affected if someone's line is being used by someone else.