Voice over IP wins converts
The signal is clear: IP telephony has been accepted by the telecom world.
June 11, 1998: 6:21 p.m. ET
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OSLO, Norway (The Red Herring) - Internet Protocol (IP) telephony used to be the sole preserve of "phone phreak" hackers and computer hobbyists. But at this week's Voice on the Net (VON) Europe '98 conference in Oslo, Norway, today's established players in the telecom market made it clear that voice over IP networks will soon become a mass medium.
According to observers, previous VON conferences pitted the data communications world against the telecom powers-that-be. Data communications startups like VocalTec held that the fast-moving computer industry would use its expertise in moving bits to offer customers discounts and services that the telecom industry could not match.
But at the VON conference series' first-ever European gathering, telecom carriers and equipment vendors have repeatedly underscored their intention to co-opt IP telephony by offering more reliability and services than less intelligent data networks can provide.
Calling for a quarter
In his keynote speech, Sven-Christer Nilsson, CEO of telecom equipment vendor Ericsson, estimated that IP telephony traffic would reach $10 billion by 2001 and account for 25 percent of international calls. He equated IP telephony with the development of mobile telephony and pledged his company's commitment to develop carrier-class IP equipment with high robustness and low latency.
Nilsson offered few specifics, but analysts at the conference agreed that traditional telecom powers will not be unseated by pure "next-generation" IP telephony companies like Level 3 and Qwest. According to Dean Bubley of Datamonitor, a U.K. analyst firm, "There will be no overnight revolutions." He estimates that companies like Level 3 only have a 2-3 year window before mainstream telecom carriers offer full IP telephony.
Francois de Repentigny, an analyst at Frost & Sullivan, estimated that sales of IP telephony gateways will skyrocket from $47.3 million in 1997 to $3.15 billion in 2002. Since the vast majority of these sales will be integrated gateways -- IP gateways that work in concert with voice switches -- he thinks telecom carriers are moving quickly to address the IP telephony market.
Right now, the only discriminating factor in IP telephony is price. But participants at VON do not think that Internet service providers will be able to continue their scorched-earth flat pricing wars. Pointing to AOL's recent price increases, John Lilley of Dataquest states, "The low prices of IP services are not sustainable." VON attendees plainly believe that the focus of IP telephony has shifted from transport -- simply carrying voice signals over the Net -- to applications -- applying digital intelligence to those signals. The question will be which players can provide the most reliable and robust applications, and when?
Both sides now
The telecom world faces real challenges in delivering these applications. Although telecom pundits argue convincingly that flat-rate pricing is not sustainable, the industry must reconcile its per-minute billing infrastructure with the less rigid environment of the Net. Also, creating software like IP telephony call centers could prove challenging for companies that historically have built intelligence into hardware.
As well, telco culture is notoriously bureaucratic. In his speech, Ericsson's Nilsson cited an old Swedish saying: "A sailor doesn't ask for favorable winds." But in comparing his company to a sailing ship, he surely was being optimistic. Ericsson had a whopping 160 people at the event -- and big companies inevitably move more like supertankers than sailboats.
David Isenberg of Isen.com, a U.S.-based consultancy, in his speech "Voice over Stupid Networks," challenged the conventional wisdom of the telecom industry. "Give me a break! (IP telephony) is already a useful communications channel," he said, in response to the industry's historical tendency to overengineer systems and dictate how users should communicate.
Jeff Pulver, founder of VON and author of IP telephony newsletter Pulver.com, concurred with Isenberg. He sees the industry's ability to provide services as a key challenge for the future.
However, a representative of Telia, a Finnish operator, said he did not see turnkey service offerings at the conference. "The services just aren't there," he said.
Nonetheless, the overwhelming presence of large players from both the data world and the telecom world suggests that partnerships or acquisitions between these factions may speed the development of "carrier-class" voice calls on the Net. Indeed, there's little question that IP will be the protocol for the future of voice calls. If VON Europe is any indicator, "IP telephony" will soon be redundant -- as will the voice-only networks that telcos have engineered.
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