The Leading Wholesaler, For Now, of Internet Telephony
By Sarah l. Roberts-Witt (printed Jan 1st - DW)
Some things just work. Lights, telephones, water faucets. But if you thought for a moment that the messy old Internet was a key ingredient in any one of those household utilities, you'd immediately start to worry about reliability, right? Start worrying.
There's a good chance the Internet is already a part of the phone calls you make, particularly when you reach out internationally. If you didn't notice the difference, that's precisely the point that officials at ITXC, an IP telephony wholesaler, are trying to make.
Founded in 1997 with seed money from AT&T and VocalTec Communications, ITXC is in the business of augmenting traditional telephone infrastructures by way of the Internet and then offering that capacity to carriers both in the United States and abroad. Currently, ITXC has arrangements with carriers--called affiliates in ITXC parlance--in 40 countries, including China, Brazil, Russia, Korea, and the United States. ITXC requires its affiliates to have reliable access to the Internet and the telephone network of their respective countries, as well as networking experience.
By using ITXC, these affiliates can charge their customers considerably lower rates for international phone calls. According to Tom Evslin, ITXC's CEO and founder, a call from New York to SÆo Paulo, Brazil, can cost between 5 and 15 cents per minute with a traditional carrier. ITXC, on the other hand, can handle the same call for about one-half cent per minute by pulling it off the public switched telephone network (PSTN) and onto the Internet. The trick, of course, is to provide the same level of service as the PSTN, which is accomplished using the company's patent-pending BestValue Routing technology.
"Using our network allows carriers to pay less for international calls, which is reflected in what their customers pay," says Evslin. "And because of the BestValue Routing, you get Internet economics and high quality." Evslin says ITXC chose wholesaling and will stick with it because it lets the business grow more quickly by eliminating the need to devote resources to consumer education and marketing.
And business is apparently booming. In November, the company had its first million-minute day, in which 1 million minutes worth of telephone traffic traversed its network. The current monthly traffic average stands at about 20 million minutes, which is up from an average of 1 million minutes per month a year ago.
The company raised $78.5 million in its initial public offering in October, and had a valuation of well over $1 billion as of this writing. But losses are still steep. The company reported third-quarter losses of $6.3 million on revenue of $6.5 million; for the same period in 1998, losses were $2.3 million and revenue came to $311,000.
The Network ITXC's network is what's referred to as an overlay network, meaning that it uses the physical infrastructure of the Internet, yet applies its own proprietary technologies via software. When a regular telephone call (the telephony industry has an acronym for that: POTS, or plain old telephone service) is placed by a customer of one of ITXC's affiliates, the call travels over the PSTN to that affiliate's switch. The switch identifies the call as ITXC traffic based on its destination and then forwards it to an ITXC switching hub. ITXC currently has switching hubs in New York and Los Angeles, and the company is planning to build additional hubs in New Jersey and London.
Within the switching hub, the call is forwarded to a voice-over-IP (VoIP) gateway, where it is converted from analog signals to IP packets and sent out to the Internet. ITXC uses gateways from Cisco Systems, VocalTec, and Lucent (Lucent also invested in ITXC before the IPO). Once the traffic hits the Internet, ITXC's BestValue Routing algorithms kick in. These algorithms are constantly combing the Internet to determine trouble spots, such as congestion and network outages. They can also switch packets from the Internet to one of the private networks belonging to companies, such as AboveNet and Digital Island, with which ITXC has partner arrangements, or even back to the PSTN if necessary. And, as Evslin points out, all this switching happens in real time as the call is being conducted, to ensure that the voice quality remains as high as customers are used to on the PSTN.
Once the call reaches its destination country, it terminates in another VoIP gateway in the United States, or in what's called a Snarc (the name of an ITXC trademarked device) in other countries. The gateway or Snarc converts the VoIP traffic from packets back to analog signals and forwards it to a voice switch on the PSTN, which routes the call to the intended party.
Customers and Pricing ITXC, which is often called a carrier's carrier, has service providers as its customers--companies such as Ameritech (now part of SBC Communications), Bell Atlantic, and New Global Telecomm in the United States, while international clients include WorldXchange, China Telecom, and Korea Telecom, among others. These carriers install either the VoIP gateway or ITXC Snarcs on their networks, and then pay ITXC for the number of call minutes that travel over its network. All call minutes are provided to the carriers on demand, so they don't have to guess in advance how many phone call minutes will travel on ITXC's network in a given month.
Challenges In addition to adding ever more capacity and affiliates to its network, ITXC also intends to eventually provide enhanced telephony services. One example of such a service, according to Evslin, is roaming, meaning that a person would have one telephone number that all calls could be routed to regardless of where that person is at any given time.
However, ITXC may have to do more than that if it intends to survive in the long term. Although the IP telephony wholesale market is sparsely populated right now--a company called iBasis is ITXC's primary competition--large carriers may eventually take it over.
"The day is coming when IP telephony will simply be telephony, and it's not clear what the role of ITXC will be then," says Robert Rosenberg, president of Insight Research Corp., a telecommunications market research firm. "It could be that ITXC will eventually get bought for the customer base they're building, because that is the real differentiator in this market." |
