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soundingboardmag.com
A Foot in the Door
IP Telephony Key to Opportunity for
IDT
By Paula Bernier
IDT Corp. (www.idt.net) holds the claim of handling
the most Internet protocol (IP) telephony minutes of
any provider in existence.
"We've routed over 35 million IP telephony minutes
already," says Yonah Lloyd, director of Net2Phone,
IDT's IP telephony service. "We're confident we've
routed way more than any other company."
And, according to Moshe Kaganoff, operating
officer of Net2Phone, the company is now routing
between 5 million and 10 million IP telephony
minutes a month.
Of course, IP telephony only accounts for a small
portion of today's revenues at IDT, which offers
international long distance services to other carriers,
dial 1+ and dedicated services to business and
residential customers, Internet access for customers
with dedicated lines and callback services to large
corporations and foreign carriers. The company's
revenues for the third quarter ended April 30 were
$87.1 million. Of that, telecom made up $79 million,
with the Internet telephony division generating $2.8
million of that. (Net2Phone registered 10.7 million
minutes of use in IDT's fiscal third quarter.)
But IP telephony is key to the company's strategy.
"It is clear to me they really count on IP telephony to
be their leading business unit moving forward," says
Francois De Repentigny, an industry analyst for
Frost & Sullivan (www.frost.com), who, by the time
this article is published, will have moved to a product
management position at IP telephony gateway
vendor Clarent Corp. (www.clarent.com).
De Repentigny last year did a Frost & Sullivan study
that reported in terms of traffic, IDT held 30 percent
of the nascent world-IP telephony market in
December 1997. Delta Three Inc.
(www.deltathree.com) held a 17 percent share.
Australia's OzEmail Interline (www.ozemail.com)
held 16 percent. And smaller companies held the
other 37 percent.
But the overall traffic for that month was a mere 6.3
million of minutes in a year where total worldwide IP
telephony traffic amounted to just 30 million minutes
of use, De Repentigny says. Of course, since then
IDT and its peers have expanded their footprints and
forged new relationships to generate minutes, he
says.
"The most serious contender [to IDT] is Delta Three,
which is now benefiting from its relationship with
RSL [Communications Ltd.]. And Delta Three now
has the Telenor [Nextel] and ITXC [Corp.]
relationships. But Delta Three is not public so it's
tough to be sure exactly what they're doing."
De Repentigny adds that he understands IDT still
carries a lot of personal computer (PC)-to-phone
traffic, which he says is not a high-growth area
because there is a limited universe of PC users that
have the expertise and desire to make calls from a
computer.
According to Kaganoff, IDT on average routes 3.5
to 4 million PC-to-phone minutes (including the
company's real-time fax service, called Net2Fax)
and 2.5 million phone-to-phone minutes a month.
Jim Courter, IDT's president, says IP telephony
helps expand the company's retail business.
IDT already offers IP telephony voice and fax
services to end users. And last month it came out
with a bundled voice/data service, called Project
David (as opposed to services offered by incumbent
"Goliaths"), incorporating dedicated Internet with
IP-based phone calls at 3.5 cents a minute
domestically and 10 cents a minute to Latin America,
Asia, Europe and the Middle East. The new
package, targeted at corporations, became available
to companies in 10 major metro areas July 1. The
service allows corporate users to send their data and
private branch exchange (PBX)-based voice over a
single dedicated line to IDT's DS-3 backbone to
receive what IDT says is a toll-quality connection.
By incorporating voice over IP directly into their
PBXs, IDT dedicated users can dial "9" to get out
on a traditional phone line, and "7" to get out on an
Internet telephony line.
IP telephony also gives IDT high-level visibility with
its carrier customers, adds Courter.
"It sets us apart from a lot of emerging multinational
carriers. It clearly gets us in the door and gets us
talking," Courter says.
Major foreign carriers such as Deutsche Telecom
and Telecom Italia are calling IDT to get more
information on its IP telephony services, he says.
And when IDT gets its foot in the door, it pitches its
other products to them, he says.
"[IP telephony] gives us visibility. It opens doors. It
sets us apart," says Courter.
Adding New Channels
The company continues to increase its visibility by
forging partnerships with a bevy of popular websites
and services. As of press time, IDT's latest deal was
with IBM. As part of that deal, Net2Phone service is
now available to IBM Internet Connection Services
customers, and IBM will promote Net2Phone on its
IBM Internet Connection Services website
(www.ibm.net) to its Internet users worldwide,
except where restricted. Of course, the relationship
with IBM potentially could be far more extensive,
considering IBM's major share in the PC and
networking hardware business.
That followed IDT's May announcement regarding
an online marketing agreement with streaming media
company broadcast.com, formerly AudioNet.
Through that deal, Net2Phone becomes the
exclusive provider of Internet telephony services on
the broadcast.com website (Sounding Board, July,
page 10). Net2Phone also will have targeted banner
ads across certain broadcast.com websites.
"This agreement is part of our mission to identify and
maximize opportunities to expand our market base
and grow the Net2Phone brand," said Jonathan
Reich, IDT's vice president of business development,
in a statement.
The deal with broadcast.com makes perfect sense
since IDT knows that people going to that site
definitely have PC sound cards and speakers, says
IDT spokeswoman Sarah Hofstetter.
"We're trying to get our PC-to-phone products out
to as many customers as we can," she adds.
A week prior to the broadcast.com deal, IDT
announced it had integrated its Click2Talk
application, which allows website visitors to initiate
Internet telephony calls to the website sponsors, into
the Internet 800 Directory (www.inter800.com) site.
Internet 800 Directory, which is directly linked to
WhoWhere?, Excite, InfoSpace and WorldPages,
provides
free listings and searches by company name,
business category, 800/888 number and by state.
IDT also has expanded its deal with popular Internet
search engine Yahoo! (www.yahoo.com), which, as
part of the deal, is adding a new "call" icon button to
its site that allows customers to download the client
software to make Internet telephony calls, says
Hofstetter. IDT had announced its relationship with
Yahoo! this spring (Sounding Board, May/June,
page 26).
IDT also is working on joint promotions with
StarMedia, which Hofstetter refers to as "the
Yahoo! of Latin America."
And in April, e-Net Inc. (www.datatelephony.com)
and IDT entered a cross-marketing agreement under
which e-Net can bundle IDT's Net2Phone Internet
telephony software with e-Net's NetConnect
full-duplex audio card.
"We are continuing to work on a number of major
deals. We feel we've signed some deals that are
important," says Courter. "We expect robust
growth."
IDT also is promoting its IP telephony services
through radio spots in 25 major cities, including
Atlanta, Chicago, Los Angeles, New York and San
Francisco, he adds.
Expanding the Footprint
IDT's IP traffic runs over its DS-3 (45 megabits per
second--mbps) IP backbone throughout the United
States. A total of 450 local points-of-presence sit on
that backbone to support both dedicated and dialup
IP voice and other services, says Kaganoff.
The domestic IDT network carries only IP traffic,
but bandwidth on international routes are shared by
IDT's circuit- and packet-based services, he says.
Internationally, the company has IP telephony nodes
in several Asian and Latin America locations,
including Argentina, Brazil, Colombia, Hong Kong,
Korea and Trinidad, Kaganoff says. Courter says
IDT has partnerships in Japan with Maribene and
Naray, and in Korea with Daewoo, which terminate
IDT calls on their networks there.
To date, the company has not announced plans to
peer with other Internet telephony service providers
(ITSPs) in the United States or to put its traffic on
other ITSPs' networks through settlements providers
such as ITXC (www.itxc.com). And Courter says
the company has no immediate plans to do so.
Kaganoff says since the company has a pretty large
footprint, there's not much of an incentive for IDT's
IP telephony business to interconnect with other
ITSPs, considering the other carriers are handling
very few minutes at this point.
As for the network itself, despite the availability of IP
telephony gear from a bevy of vendors, IDT has
elected to stick with its homegrown IP telephony
equipment, which it can build for no more than
$15,000 per T1 (1.5mbps circuit), says Kaganoff.
The company "would love to" move to off-the-shelf
products, he says, but today's commercial systems
for IP telephony lack much of the operations support
system functionality IDT requires.
"Lucent [Technologies Inc.] is a year behind us and
Nortel is six months behind us," in terms of IP
telephony equipment development, Kaganoff says.
"They lack customer management, real-time billing.
We can remotely turn on and off servers. We can
add new lines without affecting the integrity of the
network."
With any luck, IDT will be able to put the ability to
good use.
Going forward, IDT CEO Howard Jonas tells
Sounding Board he'd like to see at least 30 percent
quarter-to-quarter sequential growth in the
company's IP telephony revenues.
A View from the Front
IDT Corp.'s President Jim Courter is a former
congressman with 12 years (1979-1991) in office
representing New Jersey. He also was chairman
of the National Base Closing Commission.
Sounding Board grilled Courter about the
regulatory climate for IP telephony, how IDT
expects to react to potential regulatory changes
and IDT's position in the market.
SB: What are your thoughts about the Federal
Communications Commission's (FCC's) April 10
report?
Courter: It wasn't as bad as it could have been, so
in one sense I was relieved.
SB: What do you expect to happen next, from a
regulatory standpoint?
Courter: Clearly, and I've spoken to many
members of Congress, I know the Congress may
take a position on this issue. There's legislation
introduced by Congressman White and
co-sponsored by Billy Tauzin, who is chairman of
the telecom subcommittee, that says Internet
telephony should not be regulated and if there comes
a time that an incumbent argues [against the
conditions under which ITSPs can offer service], the
incumbent would be able to petition the FCC for
forbearance. Then the FCC would have to deal with
this matter when somebody files a petition.
SB: If regulators today decided that IP telephony no
longer falls under enhanced services, how would that
affect IDT's Internet telephony activities?
Courter: We would continue what we're doing.
Nothing would change.
SB: What's next for IDT and the industry at large?
Courter: There will be a dramatic spread in the use
of Internet telephony as Internet phones become
available and affordable. Meanwhile, we are looking
at ways to make more efficient the packets and
innovative ways to be able to get more data on the
existing lines. We're now using 8:1 compression for
IP telephony.
SB: How do IDT's IP telephony services compare
to the other IP telephony services available today?
Courter: I don't know of anyone that is more
affordable. We offer in most markets in the U.S. 5
cents a minute. International service is 10 cents from
any country to the U.S. and we have a separate rate
sheet from calls outside the U.S. to over 200
countries in the world.
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