Telecom's next wave comes calling (ntop gets a tag)
by Neil Adler
Staff Writer
Jan. 30, 2004
VoIP mixes old medium, new technology for potentially big savings on phone bills
gazette.net
As technologies for carrying telephone calls over the Internet continue to improve, large telecom and cable players, as well as upstarts, plan to cash in on what they hope is the next popular wave in telecommunications.
VoIP -- Voice over Internet Protocol -- is meeting a growing demand among businesses, organizations and individual consumers to save hundreds, if not thousands, of dollars on their monthly phone bills.
Telecommunications giants such as AT&T and Comcast are getting into the Internet phone service mix. Area startups such as Qovia of Frederick are also looking to capture a piece of the VoIP market. Venture capitalists say they expect more VoIP carriers and maintenance companies to sprout up to take advantage of the Internet phone craze.
"We've seen a spree of IP telephony ventures funded over the past few months," said Xander Perry, a general partner with Anthem Capital Management of Baltimore. Anthem has invested in Qovia, which makes hardware and software to monitor networks using VoIP.
R. Pierce Reid, Qovia's vice president of marketing, said, "We're in the perfect storm right now."
That's because VoIP is slowly emerging as an alternative to traditional phone service, primarily because international and other long-distance calls are cheaper when carried over the Web and there is currently no government regulation, telecom industry officials say.
VoIP's advantage: Voice and data may travel simultaneously over a high-speed IP network using cable or a digital subscriber line. A traditional phone network, on the other hand, cannot support both voice and data at broadband speed over one line, industry officials say.
In short, VoIP service is designed to save users both time and money, advocates of the technology say.
"Customers today are very focused on economics," said Joe Aibinder, product marketing director for AT&T's VoIP Business Services.
St. Peter's Catholic School in Olney, for one, had an outdated phone network and slow Internet access, so two years ago the school upgraded to a VoIP network that has made communication much easier among the four buildings on campus, said Eric Stone, facilities manager for the school.
"VoIP is a fantastic system. It's low maintenance. Problems are virtually nonexistent," Stone said. "Anyone can get on at any time."
Recent statistics indicate that more and more businesses and consumers are using an IP network, rather than a traditional phone network, to carry Net traffic, a sign that demand for VoIP is taking off.
In 2003, IP networks accounted for the majority of traffic for the first time ever, according to the 2004 Market Review and Forecast by the Telecommunications Industry Association, a trade group in Arlington, Va.
"IP ... traffic has grown explosively in the past three years," the report said, adding that by 2007, more than 80 percent of traffic is expected to travel over IP networks.
Old and emerging phone companies remain locked in a fierce competition with each other and cable companies to attract new customers, and industry officials say technologies such as VoIP are critical to opening up new revenue streams and markets.
"VoIP is the most significant, fundamental new technology shift in telecommunications in decades," said AT&T Chairman and CEO David W. Dorman in December.
Reborn technology
When VoIP first came on the market in the late 1990s, it was "difficult to use" and many telecom companies shied away from it, says Mark Heaney, CEO of CyberTalkOnline, an Internet phone startup.
Today, as technologies have improved, VoIP "is really exploding," Heaney says during a recent interview at CyberTalk's office at the Maryland Technology Development Center, a business incubator in Rockville.
In the middle of the interview he makes a call over the Internet to his colleague in India, where the company has a second office. The sound quality is crystal clear, though there is a slight delay between speaker and listener.
CyberTalkOnline is focused on the residential market for now, but it could jump into the enterprise market down the road, Heaney says.
Another area company, NexTone Communications, is a prime example of how VoIP is one of the bright spots in telecom.
Many companies in the telecom industry are struggling to stay alive, but not NexTone. The Germantown company, a provider of technologies to carry traffic over IP networks, saw revenue triple last year over 2002, said Dan Dearing, NexTone's vice president of marketing. He declined to provide specifics.
"We're very bullish on this market," Dearing said.
The privately held company also opened its second international office in 2003, in Japan, to capture more customers abroad. NexTone is considering offices in other countries, too, company executives said.
"The VoIP market in Japan is the most advanced in the world and NexTone has achieved significant growth in the region over the last year," said Hank Firey, the company's CEO, in November when the Tokyo office opened.
Cost savings
Lisa Pierce, a telecom analyst with Forrester Research, said a company should not consider switching from its current plan to a VoIP service unless it will save 20 percent or more on its phone bill.
Calls made over the Internet may be 20 to 40 cents a minute cheaper, said Jonathan Ebinger, a general partner with Nokia Venture Partners of McLean, Va., another investor in Qovia.
"It's not just the per-minute cost for a phone call," he said. Network maintenance "is easier because you only need one pipe for voice and data."
Anthem Capital's Perry, a former telecom systems designer, said maintaining an IP network may cost 30 percent less than a traditional phone network.
A Turkish airline is saving $16,000 a month by using VoIP service from Net2Phone of Newark, N.J., said Simon McIver, the company's director of enterprise products. He declined to provide more details.
Other VoIP providers would not name their customers, citing confidentiality reasons.
The best business candidates for VoIP are companies that make a lot of international calls, providers say. Businesses that make a lot of calls between offices, either in the United States or abroad, also would benefit from using an IP network for phone calls, they say.
"It can be compelling if 40 to 50 percent of your bill is intra-company calls," McIver said.
On the flip side, employers that make fewer long-distance calls within the United States will not save much, if anything, Pierce said.
That's because domestic long-distance calls are already inexpensive -- from 2 to 5 cents a minute, she said.
"Who's going to be 20 percent lower than that?" Pierce asked.
So far, VoIP providers have been targeting medium and large businesses with annual telecom budgets of, say, $300,000 or more because they will save the most, Pierce said.
This may change, however, as providers introduce new plans and more options become available to small employers, industry officials say.
Some recent VoIP-related announcements indicate that the VoIP market is in for a big expansion:
*Qovia, which in late 2003 received a $500,000 investment from the state and several million dollars from private investors, plans to expand its 40-person staff to about 70 this year, said Richard Tworek, the company's founder, president and CEO.
*CyberTalkOnline, which is developing a VoIP product for long-distance residential calling, spun off from a Rockville consulting company earlier this month.
*Telecom behemoths AT&T and Verizon announced major expansions of their VoIP service. AT&T, already in the business market, will introduce a VoIP service to consumers, while Verizon selected Nortel Networks to provide equipment as the nation's largest phone company plans to "dramatically accelerate" its VoIP service this year.
*Cable companies Comcast and Time Warner announced initiatives to test VoIP service in select U.S. markets. "Clearly, VoIP is very exciting and something that customers will greatly benefit from," said Comcast spokesman Brian Edwards.
Factors to consider
While every business and consumer wants to save money on phone bills, telecom industry officials point out that many companies would need to upgrade their network to make Internet-based phone calls.
Upgrades vary by the size and condition of a company's network, but officials say it could cost a business thousands of dollars, if not more.
These additional expenses could dissuade employers from switching to VoIP, especially small businesses on a tight budget, industry officials say.
"We tell our customers, 'Do this at your own pace,'" said AT&T's Aibinder of upgrading from a traditional phone network to an IP network. "We want to be a migration partner."
Some businesses may have to change carriers to get VoIP service, another headache that could deter them from making a change.
"IP telephony is a growing commodity, but it isn't the answer to everyone's dreams yet," said Matt Brunk, president and CEO of Telecomworx of Monrovia, which resells Qovia's products and other VoIP services.
Current VoIP products are not completely reliable because technologies are still evolving, meaning employers must carefully consider a switch to VoIP, he said.
"You really have to know what you're doing," Brunk said. "No product is bulletproof yet."
VoIP advocates emphasize that Internet phone calls aren't regulated by the government, but that may change, some industry officials say. In December, the Federal Communications Commission held a forum on VoIP, at which time Chairman Michael K. Powell announced the formation of a FCC Internet Policy Working Group to identify and evaluate policy issues arising as telecom services move to Internet-based platforms.
Future VoIP expansion
As carriers roll out new services and awareness about Internet phone service grows, industry officials say small and medium-sized businesses will join large enterprises in embracing VoIP.
"The small and medium business base ... is ripe for this technology," Pierce said.
Qovia's Tworek said most VoIP growth today is in the enterprise market. "Businesses are looking for the next big productivity increase," he said.
The hype surrounding VoIP has shifted -- and in a positive direction, said Ebinger of Nokia Venture Partners.
"The timing risk is largely gone for VoIP. Execution is more of the risk now," he said, adding that "there's room for innovation ... in IP services."
Tworek agreed, saying that VoIP technologies have matured and the infrastructure is "coming into place."
"It's not the next big thing -- it's the current thing," Tworek said. "It's a tremendous time to be in this market. |
