Published by geoffroy on RB.
Business Week: May 1, 2000
The Talking Internet
The Net is beginning to be used for a dizzying array of voice
communications--and you don't even need a computer
Spokane is 250 miles east of Seattle, far enough to avoid the traffic jams
but close enough to be caught in the orbit of the nearby technology center.
So it shouldn't surprise anyone that this small city has started a
revolution of its own. School officials ripped out the district's old phone
network and, last fall, started using radically new Internet technology for
all its communications. The Net system is saving the school district about
$100,000 a year in telephone- and Internet-access fees. More important, it's
doing wonders for the education process. One example: Students scattered
throughout the district can listen in real time to a teacher giving a lesson
over the Net--and ask questions through their computers if they have them.
``The payoff has been unbelievable,' says information technology manager
Dennis Schweikhardt. ``But the real value is that it has changed the way
teachers teach.'
Welcome to the dawn of the talking Internet. What has been mostly a medium
for text, colorful graphics, and the occasional music clip, the Internet is
beginning to be used for a dizzying array of voice communications. Web sites
like Yahoo! Inc. and Excite@Home are letting Web surfers chat verbally with
each other about everything from a stock's prospects in the turbulent tech
market to the New York Knicks' prospects in the NBA playoffs. America Online
Inc. just introduced a Web browser that lets people click on a button so
that they can talk to friends over the Net. And you don't even need a
computer: Companies like Net2Phone Inc. will route a call from your home
phone over the Internet to another telephone, cutting your phone bill by as
much as 90%.
Voice-on-the-Net is serious business, too (table). Companies around the
globe are beginning to use new systems based on Net technology in place of
their old phone networks--not only because they're cheaper but also because
they can do so much more. In its New Jersey offices, brokerage giant Merrill
Lynch & Co. is installing 6,500 Internet phones that will let employees have
free conference calls over the Net and trade instant text messages at the
same time. That's just the first step in the company's plan to convert its
entire global network to let all 67,200 employees do the same. Compaq
Computer Corp. is expected to launch a massive initiative within the next
month that will let visitors to its Web site click on an icon to speak live
to a company representative. And American Express Co. is using voice
technology to combat fraud. When it suspects that someone is trying to use a
stolen credit card online, an AmEx employee can zip a text message to the
person and then start up a voice conversation over the Net. If the person
can't answer certain questions, such as the cardholder's mother's maiden
name, the transaction won't be processed. ``We can actually use this
technology to ask additional questions and go through a verification
process,' says Jeff Fleischman, vice-president of interactive services at
American Express.
All this adds up to the biggest change to hit telecommunications since the
invention of the telephone 124 years (table). Today's phone technology is
basically a souped-up version of the 19th Century system. It converts sound
into electrical waves and shoots it across copper wires and optical cables.
Internet technology is completely different. It turns sound, like the human
voice, into digital form and breaks it into chunks of data for transmission.
That allows many calls to share the same phone line. Voice-on-the-Net is
cheaper, and it opens up the communications field to a flowering of
innovation. While the old phone system was tightly controlled by a handful
of companies, the new technology is being developed by a host of fast-moving
companies in Silicon Valley and the rest of techdom. The outlook:
Voice-on-the-Net, which accounted for less than 1% of global telecom traffic
in 1999, is expected to surge to 17% by 2003 and more than 30% by 2005,
according to U.S. Bancorp Piper Jaffray. ``I think voice over [the Net] is
an inevitable outcome of technology,' says C. Michael Armstrong, the
chairman and CEO of AT&T, which is investing billions in Internet telephony.
The move of voice traffic to the Internet will force wrenching change on
established telecom players like AT&T. While they used to keep the same
equipment for up to 30 years, they now have to replace some gear every 24
months or so in order to keep up with competitors that are buying the latest
technology from the computer industry. To make matters worse, prices for
their core telephone services are plunging as lower-cost alternatives
emerge. To stay on top of the changes, AT&T agreed on Mar. 31 to lead a
coalition that is investing $1.4 billion in Net2Phone, a leading provider of
phone services over the Net. AT&T also is preparing to offer
voice-on-the-Net service over its cable networks.
Even more vulnerable are overseas phone companies that have been living off
international phone rates that are sky-high. For example, people in
Afghanistan who use Net2Phone to call the U.S. pay $1.13 per minute compared
with more than $5.50 per minute without the service. Not surprisingly, many
phone companies have fought off voice-on-the-Net services. They were illegal
in Japan until last year, and Telefonos de Mexico has been trying to shut
down Net-based services offered by AT&T and British Telecommunications PLC.
RELIABILITY. The transition to Net technology won't be easy for corporations
and other customers either. Spokane had to redo part of its $19 million
project last summer because of technical glitches like strange pauses in
conversations and scratchy music when callers were put on hold. Another big
hurdle is reliability. Calls over the traditional system are completed on
the first attempt 99.999% of the time, and even if the power goes out, the
network continues to work. The Internet, or people's connections to the Net,
fail all the time--and if the power goes out, so does a phone link to the
Net.
Carriers are rushing to fix these problems. AT&T originally installed
batteries in people's homes to make sure that its local telephone service
would continue to work even when the power went out. However since AT&T
would lose some control with that approach, it later decided to put power
supplies for each neighborhood in its own facilities. Qwest Communications
International Inc. and other carriers are investing in their own Internet
equipment so they don't have to depend on the sometimes unreliable public
Net.
Still, the sheer economic benefits of voice-on-the- Net keep the market
growing. Geoequipos SRL, a mining equipment company based in Peru, slashed
its international phone bill 90%, to $150 a month, by using a Net telephone
service from an upstart called deltathree.com Inc. Parsons Brinckerhoff
Inc., an engineering company in New York, has cut the cost of its conference
calls in half, to $3,000 a month, by conducting them on the Net. And Merrill
Lynch's new Net phones in New Jersey are expected to reduce its telecom bill
by one-third, people familiar with the project say.
UP FROM WALKIE-TALKIES. Cost savings will pale in comparison to the
innovation that lies ahead. Voice-on-the-Net will lead to profound changes
in how we communicate. A company called Voyant Technologies Inc. in
Westminster, Colo., plans to make its click-to-chat technology available for
handheld Palms and other devices in about three months. That means you could
make a Net phone call with your electronic organizer--and wouldn't need to
carry around a cell phone. Tellme Networks in Mountain View, Calif., and
other companies are developing voice-recognition technology that will allow
people to navigate the Net from a phone by asking verbally for things like
stock quotes or movie locations. And Evoke Inc. in Louisville, Colo., is
working on software that will let people make cheap video calls over the
Net. ``I believe that our services will be as popular and pervasive as
e-mail and the telephone,' says Evoke CEO Paul A. Berberian. ``We believe
these tools will be used every single day in the corporate environment.'
If that happens, the new voice services could have a powerful effect on
electronic commerce. Right now, 80% of people who begin a transaction on the
Web cancel it before it's completed. While market research on the topic is
thin, that could be because those folks get confused, or they're worried
about security. If they could speak live to a company representative, that
completion rate would likely shoot up. ``The fact that you can click on the
button of a Web page and instantly talk to someone over the Internet will
make people feel more comfortable about buying things online,' says AmEx's
Fleischman. Market researchers agree. ``Companies that voice-enable their
Web sites will achieve an immediate improvement in the number of sales that
are completed--in the realm of 50%,' says Charu Gupta, an analyst with
Renaissance Strategy in San Francisco.
It's hard to believe that voice-on-the-Net didn't exist until five years
ago. It began with a pioneering Israeli company called VocalTec
Communications Ltd., which developed early commercial versions of the
hardware and software for making calls on the Net. Users downloaded the
software from the Web for a fee. Once installed on a PC with a speaker and a
microphone, free calls could be placed to other similarly equipped computers
around the world. But there were drawbacks: Both users had to be logged on
to the Internet at the same time and the callers had to take turns pushing a
button to talk, just as if they were using walkie-talkies. To make matters
worse, the sound quality was terrible.
The big break occurred a few years later when VocalTec developed a device
called a gateway that allowed people to make Internet calls with regular
phones. The gateway serves as a bridge between the Internet and local phone
networks around the world. It essentially allows callers to bypass the
long-distance networks. That means you can call around the world for the
price of a local call. Because the service was so much easier to use and the
quality had improved substantially, upstart phone companies like Net2Phone
began buying VocalTec's gateways and marketing the service aggressively. In
some markets, such as South Korea, voice-on-the-Net accounts for 20% of
international calls.
Internet telephony is becoming an extremely contentious issue among major
phone companies. AT&T and British Telecom, through their Concert joint
venture, have created a clearinghouse that finds the cheapest international
route for other phone companies. Sometimes that's a traditional telephone
cable, and, increasingly, it's an Internet-based network. ``We have been
using voice over [the Net] to carry traffic to countries such as Mexico,
China, and Vietnam,' says Cathy-Ann Martine, president of Concert
international carrier services. In contrast, consider China. The country
imprisoned Chen Zhui, 36, and Chen Yan, 30, last year after they launched a
tiny discount phone service using Internet technology. The brothers were
released on appeal, and now China has issued a limited number of licenses
for voice-on-the- Net. Taiwan, Vietnam, and Singapore continue to limit use
of the technology.
Although voice-on-the-Net technology was developed for discount phone
service, it's now evolving in myriad ways. Here's an example. Back in
February, Justin Ohrmundt, a project manager at the architecture firm Grund
& Riesterer in Chicago, faced the task of inspecting all 30 buildings in
Walpole Point, a condo development on the Windy City's North Side. A real
estate firm called Prairie Management & Development Inc. had hired
Ohrmundt's firm because it needed to know if it had budgeted enough money to
fix up the property. No problem: Ohrmundt used his digital video camera to
shoot a snapshot and record a brief voice clip about any problems. He then
sent the digital photos and audio descriptions over the Net to a group of
people at Prairie Management and his own firm. The job was done in one week
instead of the usual three--and the clients could use the Net to see more
accurately than ever before what problems they faced. ``We're a small firm,
but we can update our technology faster than larger firms,' says Ohrmundt.
``That helps us compete.'
The Web also is doing wonders for communications within companies. Managers
at the engineering firm Parsons Brinckerhoff used to gather once a year for
an annual training session at company headquarters in New York. The trip has
been replaced with 12 monthly conference calls on the Web. ``The total cost
is about $200, and that includes the cookies,' says Stephanie Parson, the
company's chief information officer. ``But more important, we are
communicating more often.' And more effectively. During the conference
calls, participants can send Parson instant text messages, which she can
answer privately or share with the group. The conference software also lets
the participants view PowerPoint slides as they talk to one another.
CLICK FOR HELP. Voice-on-the-Net is likely to be the biggest development in
customer service since the invention of the 800 number. While Compaq
Computer won't comment, people familiar with the company's plans say it will
roll out the technology on its site within the next month. That will allow
customers who press ``click-to-talk' icons on Compaq Web pages to speak
live with customer service agents. American Express is about to begin a
90-day trial of similar voice technology, from Lipstream Networks Inc., on
its Web site. If the trial works, AmEx plans to integrate voice throughout
its Internet operations.
There are a few big challenges for voice-on-the-Net before other companies
follow suit. One major issue is that the medium is split by a series of
currently incompatible technology standards. That means that someone using
Yahoo for voice chat can't talk to another Web surfer who is using AOL's
technology. The issue may get ironed out over the next year. AT&T'S
investment in Net2Phone, which also counts AOL and Yahoo among its
investors, is designed to make Net2Phone the industry standard for both
voice and text instant messaging. Once a standard is clear, businesses can
use voice-on-the-Net to communicate with many more people than previously
possible..
That's hardly the only challenge for the talking Internet. Instant
messaging's ``presence' function, which announces whether that person is
online, isn't that useful yet because many people are online all day,
especially in office environments, even when they aren't sitting at their
desk. Newer versions of instant messaging software are expected to correct
this problem by the end of the year. What's more, security is poor, so that
in some cases outsiders may be able to listen to private conversations. ``It
is vulnerable to security hacks,' says Jeff Pulver, CEO of pulver.com,
which publishes voice-on-the-Net research. Future generations of the
software should become more secure.
Perhaps the biggest problem for voice-on-the-Net is that sound quality can
be dreadful. In some cases, people can't even understand each other because
of delays and interference. Carriers have been boosting quality in recent
months by integrating their Internet telephony equipment with a high-quality
data transmission standard called asynchronous transfer mode. In addition,
some Net voice players, including Lipstream, are installing their own
servers so their can improve the quality of their service.
During the next few years, these new voice technologies will find as many
applications as there are users. Back in Spokane, the new network has
allowed the school district to create a special class for hearing-impaired
students, who use videoconferencing gear to work with teachers many miles
away. ``Yes, the network is faster, but that is not the point,'
Schweikhardt says. ``It is allowing us to do things we could never do
before.' Alexander Graham Bell, who began his career tutoring deaf
students, would have been pleased.
By Steve Rosenbush in New York, with Bruce Einhorn in Hong Kong
Europe Swoons for Voice-on-the-Net
Where the Money Will Be
Copyright 2000, The McGraw-Hill Companies, Inc. All rights reserved. Any use
is subject to (1) terms and conditions of this service and (2) rules stated
under ``Read This First' in the ``About Business Week' area.
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