Tim, I thought you might enjoy reading this article as it relates to the Internet Telephone...It has an interesting twist I hadn't thought of.
Your Next Phone Call May Be Via the Net
Henry Goldblatt
Until recently, the business of Internet telephony--using the Net to make phone calls--seemed little more than a cheap hack. The technology first drew attention two years ago, when VocalTec, an Israeli outfit with operations in New Jersey, introduced softw are allowing users to make calls from one PC equipped with microphone and software to another. The calls were dirt cheap--you could dial Tel Aviv from Trenton, New Jersey, for the price of a local call--but the quality was terrible.
Now Internet telephony really is about to connect. A new piece of hardware, called a gateway server, is the first step in a transition moving long-distance phone calls from traditional circuit-switched networks to packet-switched networks like the Inte rnet. The new devices, made not only by VocalTec but also by manufacturers like Lucent and Northern Telecom, will make it easy for you to use the Net to carry phone calls that you dial from your telephone, at prices that will make those charged by the cut -rate dial-around companies seem expensive. Sales of gateway servers are expected to rise from a mere $5 million in 1996 to $60 million this year and $1.26 billion in the year 2000. By 2002, says Hilary Mine of Probe Research in Cedar Knolls, New Jersey, about 18.5% of all domestic phone traffic will be carried over data lines, up from just 0.2% this year.
Here's how it works: Let's say you want to make an Internet-based call from Chicago to London. First you dial the local or 800 number of the closest gateway server. These servers sit next to the huge central office switches that direct voice traffic fo r AT&T, MCI, and Sprint. Once connected, you get an automated voice prompt and punch in the London number you want to rea ch. The servers do two things: They convert your voice signal into packet data and route your call over the Internet. A server in London deconverts the data back to voice and directs the call over local lines there to its destination. You pay only for the local connections on either end of the servers. That's why a ten-minute Chicago-London IP (Internet protocol) call costs less than half the $1.20 you pay with AT&T's best consumer rate.
So far, you can get IP telephony only via Internet service providers or startups like Delta Three, in Israel, and Latic Communications, in Rockville, Maryland. They see the technology as a way to steal customers from the full-fledged telcos. Most bigge r phone companies seem remarkably unperturbed. GTE and MCI are testing gateway servers, but they haven't deployed them ye t. Says Fred Briggs, MCI's chief engineering officer: "We need much, much larger machines to make this a business. And we're not going to see that scale of machine until the latter part of 1998."
The telcos do have reasons to be sanguine. While the quality of IP calls has improved, it still doesn't approximate that offered by traditional voice networks. Equally important, the price difference between IP and standard calls may not last. On the d omestic front, regulators may modify the current system in which Internet service providers are exempt from the access charges that long-distance carriers pay the Baby Bells to use their local networks. And the price of international phone calls will tumb le as regulators take apart an antiquated system of tariffs.
Still, some observers feel the telcos could come to regret their patience. "They're investing a lot of money in traditional technologies. At some point the return on that dollar will slide," says Bryan Van Dussen, an analyst with the Yankee G roup in Boston. "If they fail to make investments [in new technology] early enough, then it may catch them unaware."
In the short term, the long-distance companies are likely to lose more customers than they expect to cheaper IP telephony outfits--just as they lost customers to the dial-around companies that give you a better price if you punch in a five-digit prefix . In the long term, the main problem for AT&T, MCI, and Sprint may be that this technology is in the hands of Silicon Valley outfits that move much faster than the telcos. Cisco, Intel, and Microsoft recently announced a partnership that may further popularize IP telephony. They want to make voice service part of the complete software package they offer corporate customers. Says Peter Alexander, executive director of marketing at Cisco: "Being able to call someone over the Inter net is not the driving application. We'll see an emergence of business-level intranet services...merging voice and data." One example: VocalTec's Atrium software, which lets employees on a corporate network have an IP voice conference while editing a presentation.
Sure, the long-distance companies still own the pipes. But competing with nimble software outfits is different from battling other telephone companies. There's little to worry about just now--but if the telcos don't pay attention, they may lose control of the future of telephony.
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Regards, Michael |
