A couple articles from this week's Economist:
economist.com
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Internet telephony
Growing up
Voice over the Internet was once just a minor inconvenience for incumbent telecoms companies. It is now threatening to reshape their businesses <Picture>
ONCE upon a time (about 18 months ago), Internet telephony was the sole preserve of miserly geeks who delighted in "beating the system". Tooled up with a PC, a modem, a sound card, a microphone and some special software, a determined nerd could talk with a similarly equipped soul-mate on the other side of the world for the price of a local telephone call. The call quality was dreadful and the whole business had the user-friendliness of camel-riding, but the miracle was that it worked at all.
But now Internet protocol (IP) telephony is growing up, and incumbent telecoms companies have some unpleasant choices to make. The potential of voice over the Internet has been transformed by the launch this year of services by newcomers such as Delta Three, USA Global Link and Qwest that require only an ordinary telephone. They make it easy to use-just open a credit card account, dial an access number, give your personal identification number and then make the call to your destination-and call quality is at least up to cellular-phone standards.
It is also cheap. In America it is now possible to make long-distance calls for between seven cents and ten cents a minute and international calls for about half the average 89 cents a minute charged by traditional carriers. The Internet's indifference to distance threatens to put a time-bomb under the carefully worked out framework of charges that underpins the telephone companies' most lucrative business.
Getting voice to work satisfactorily over the Internet has been no mean technical achievement. Ordinary voice networks are based on connections. The connections at each end create a channel reserved for the duration of a call. The Internet, by contrast, is a connectionless network designed for routing packets of data. Every packet contains the address of its destination and is individually routed through the network. Computers have little difficulty putting data files back together again in the right order, but speech is altogether trickier. The sound signal is digitally coded and sent in packets, but the packets must arrive within 20 milliseconds to prevent horrid noises and within 250 milliseconds or the call will go down.
Improvements in voice quality using the public Internet are due to more sophisticated software, but the big change has been the increasing use of private networks. These allow the operator greater control over quality by cutting down the number of router hops the packets have to pass through and managing traffic flows to avoid congestion. The other development is the spread of gateway servers that link the standard telephone network to the IP-based network.
One of the companies that has been quickest to exploit these technological developments is Delta Three, a subsidiary of RSL Communications, a fast-growing new telecoms firm. A customer using the Delta Three network to call Singapore from Ohio will have his call routed by the local telephone company to a gateway in America. The gateway then translates the voice into digits and sends the data packets across the Internet backbone, terminating at another gateway in Singapore. That, in turns converts the data back into voice and sends the call down local telephone lines to the recipient in Singapore. This week, Delta Three launched its service in Europe.
Is IP telephony poised to rule the world? The Yankee Group, a telecoms consultancy, predicts that in America, IP telephony minutes will grow from 0.4% of consumer long-distance today to about 15% in seven years. Analysys, another consultancy, reckons that by 2003, 25% of international call minutes worldwide will be made over the Internet, resulting in revenues for service providers of around $7 billion. However, because IP minutes are replacing more expensive minutes, revenue loss to incumbent telecoms firms is likely to be much more severe-about $10 billion a year by 2001 if Analysys has got its sums right. Although voice gets most of the attention, a high proportion of IP traffic is likely to be fax, which WorldCom's John Sidgemore describes hungrily as "the low-hanging fruit" for Internet telephony.
This is not to say that IP telephony firms will have everything their own way. One cloud on the horizon is regulatory. In America, the Federal Communications Commission (FCC) has been toying with the idea of making Internet telephony providers contribute to its universal service fund, a sort of tax to subsidise services for the poor levied on normal carriers. Last week, the FCC stayed its hand, despite howls from incumbent carriers who would like to see the Internet upstarts forced to raise their prices. In Europe, the EU's competition directorate is holding off similar pressure for the moment. But in less developed countries, the promise of cheaper calls may be outweighed by the desire to protect the revenues of state-owned incumbents.
[Re: regulatory threats, Qwest's Naccio said, "Shakespeare and Macbeth --- 'sound and fury signifying nothing. . .'" By the time any legislation could be turned into law, the new systems will be in place and survival won't be an issue. I asked a friend at T how it would affect VoIP and he said even if it were taxed, it would still be cost effective.]
Another constraint is capacity. Companies who are building their own managed intranets, such as Delta Three and Qwest, with its ultra-high capacity fibre network, will avoid congestion. But Internet service providers who want to bundle telephony to their customers using the public Internet will have to invest heavily in bandwidth if quality is to be acceptable. As more voice minutes are switched to the Internet and traditional telecoms firms react, marketing and service costs are likely to rise, narrowing the price-gap over time.
The incumbents are also developing strategies to "manage" the growth of IP telephony. Most appear resigned to the gradual loss of high-margin switched-call revenues and are gambling that it is better to cannibalise your own revenues than to watch others do it for you.
Companies like AT&T and Deutsche Telekom are introducing their own IP voice services, exploiting their bandwidth, switches, customer base and well-known brands to gain a share of the new market. They hope to weave IP services together with their traditional products, using the Internet to offer low prices for unfussy voice customers, while earning new revenues from advanced services that integrate data, voice and video.
Analysys argues that in the medium term the main impact of IP telephony will be to force the pace of competition and thus lower prices, especially in countries that have dragged their feet over liberalisation. However, in the longer term, IP telephony will be just a part, albeit an important one, of the digital revolution.
In time, packet networks will almost entirely replace more expensive and less capable circuit-switched networks. As an executive in one big telephone firm confessed to Cisco Systems, the data networking giant which provides the routers and switches that power the Internet: "When I look at our current network, I see the valley of death. When I look at IP, I see the mountain of hope." >>>>
economist.com
Note in this one C&W is mentioned. Also, Mr. Sommerer mentioned NN is working on wireless modems. By having solutions all the way to the user, sales at the core will be spurred.
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Will it play in Penang?
H O N G ÿÿÿK O N G ÿÿÿA N D ÿÿÿT O K Y O ÿÿÿ
Technology companies are using the wired cities of Asia to test technologies that they plan to launch on the world, but the results can be misleading
EVERYONE knows that Asia is technology-mad, but to gauge the full magnitude of that mania consider a day in Hong Kong. You drive to a business district, feeding the parking meter with a cash-carrying smart card. From there to the subway, where a wave of another smart card over a turnstile pays the fare. During the ride the mobile telephone beeps, signalling that an Internet email has arrived. The message appears on the telephone display, and it is a simple matter to peck out a short response and send it.
Back on the street, a hunger pang prompts you to check the mobile again: it can suggest a nearby bakery that is offering discounts. You pay for a cake with Mondex digital cash, then go on to the usual wired office. That evening, back at home, you do the grocery shopping using interactive television, having watched a video ordered on the same service. In a few months this broadband data link will also provide high-speed Internet access at home, so that you can justify putting the subscription fee on your expense account.
Life was never quite like this in London, Paris or New York; not even in Silicon Valley. Hong Kong, along with Singapore and a few other Asian technology hotspots (including, to one degree or another, Tokyo, Seoul, Taipei, Shenzhen and Kuala Lumpur), is the most advanced technology market in the world. Hong Kong, for example, has the world's first commercial interactive television service, the first mobile phone network that works in the subway, the largest rollouts of not one but two competing digital cash cards (Mondex and Visa), the first transport system (subway, trains and buses) using "contactless" smart cards, and one of the world's highest penetrations of mobile phones, PCs and pagers (see chart). Singapore can now match most of that wizardry, and the two cities compete fiercely to be the world's most electronically sophisticated.
Because much of Asia is starting with a blank technological slate, unburdened by lots of musty old telephone lines and transport systems, it can "leapfrog" to the newest technologies. Asia's richest cities are building a 21st-century infrastructure from scratch while the rest of the world tries gamely to graft it on to the crumbling stuff it already has. That is the idea behind Singapore's "wired island" project, and Malaysia's Multimedia Super Corridor.
High-tech companies use this infrastructure and techno-hungry environment to test their latest gizmos; and the governments welcome them. They offer miles of fibre-optic networks, lots of financial incentives and constant techno-evangelism. "It is our gift to the world," crows Mahathir Mohamad, Malaysia's prime minister. If a gizmo takes off in Asia, the companies reckon, they can sell it elsewhere too.
Based on its Hong Kong experience,Cable & Wireless, the owner of Hong Kong Telecom, is hoping to roll out the interactive television technology service elsewhere in Asia and then the rest of the world. James Martin, a high-tech consultancy, and its smart-card partners in Hong Kong's popular new transport-payment system are hosting a stream of delegations from Europe and America which have come to see the system in action. Nortel, a Canadian telecoms equipment firm, is doing the same with its location-based information technology for mobile telephones. And Mondex has dispensed with its usual limited trials to do a full commercial rollout in Hong Kong; from this launching pad it expects Asia to become its biggest market.
The use of Asia as a technology testbed is based on the assumption that Asia's consumers are pretty much like those everywhere else, just a bit keener on new technology. But how true is this? Surprisingly little research has been done to answer the question. Some Asian precedents-for example, the enormous popularity of cheap and reliable mobile telephones-have been repeated elsewhere. But others, such as the appeal of ostentatiously displayed technology-the twin-holstered belt-phone and pager, for instance-seem to be distinctly Asian. The fact that Hong Kong couch potatoes are willing to pay for karaoke-on-demand via interactive television may say nothing about how that technology will go down in Paris. Nor does the success of digital-cash smart cards in cash-loving Asian markets say much about how they will compete with credit cards in America.
Ditching the pitchie
Asia, it turns out, is not a reliable place to test products for the West. For every Walkman and Playstation, which were hits in Asia first and then later in the West, there are products that, for any number of reasons, fail to take off outside Asia. Sony's MiniDisc technology, unveiled to the public in 1992, has sold 5m players in Japan-but fewer than 1m outside Asia. The same goes for digital audio tape and the Advanced Photo System (a joint development of several Japanese firms and Kodak, which has had little success with the camera in the American market). Video CD players are ubiquitous in China, Hong Kong and Taiwan (thanks to cheap pirate CDs), but are virtually unknown in the West.
One lesson from the failures is that the Asians' enthusiasm for gadgets does not just mean that they buy them before everybody else; they also buy stuff that others never buy at all. This was what happened to the CT2, a mobile-telephone standard in Hong Kong. By the early 1990s CT2 networks-pioneered mostly by European and Japanese firms-had become a booming market in Hong Kong. Three operators pitched CT2 as the must-have accessory for the young professional, and by 1994 claimed nearly 200,000 subscribers.
Compared with the conventional mobile telephones of the day, CT2 handsets were small, cheap and colourful: "the poor man's cellular". However, subscribers could only make calls, not receive them, so they had to also carry a pager if they wanted to be reachable. The handsets had a range of only a few blocks, so keen callers could often be seen clustering around the buildings known to have base stations. And for the same reason, operators had to deploy at least 10,000 base stations in the city to claim a decent level of coverage.
Even so, Hong Kong's CT2 operators said they were making money. The world was impressed. In 1995, a report by the American Chamber of Commerce said the technology had "succeeded spectacularly in Hong Kong" and noted that experts predicted 500,000 CT2 subscribers by the end of 1998. CT2 operators in France, Britain and a few other countries soldiered on, even though consumers there had rejected the technology and they were losing a fortune. Then digital GSM mobile phones-an altogether better technology-got smaller and cheaper, and were quickly followed by PCS telephones, which were smaller and cheaper still. By 1996, a few months after the last European CT2 operator had shut down, Hong Kong's CT2 companies closed their doors, too.
Now pagers seem to be following the same path. For most of the 1990s they have been a booming business in Hong Kong, reaching nearly 1.4m subscribers (nearly a quarter of the population) in 1995 and prompting rosy predictions from the likes of Motorola about the potential of China's pager market. But the spread of cheap PCS mobile services put a lid on that, too, and in 1996 pager subscriptions dropped for the first time.
The fate of the pager may have more to do with social status than technology. The Cantonese name for mobiles is tai kor tai, or "big brother big", an envious reference to the triad gang members who first sported them. By contrast the translation of the word for pager is the dull "call machine". Motorola's executives should have brushed up on their Cantonese: Hong Kong pager subscriptions are now below 1m and tumbling; predictions for China are being scaled back by the day.
Japan's Personal Handy Phone system (PHS) teaches a different lesson: that markets with little price competition can prop up technologies that would fail elsewhere. Three years ago, PHS, a cross between a cordless telephone for use around the house and a fully developed mobile, was going to be the latest Japanese gadget to take the world by storm. It had a range of little more than a mile compared with a cellular phone's 15 miles, but it scored because it had a long-lasting battery and, most of all, because it was cheap. Within two years, the "pitchie", as people took to calling it, had found its way into one household in five.
Telecoms authorities in Hong Kong, Thailand, Singapore and Australia were said to be lining up for PHS licences. But then Japan's cellular phone companies responded, by cutting prices sharply. Within a year their combined subscriber numbers doubled to 10m. Meanwhile, the number of PHS subscribers peaked six months ago. It is currently below 7m and falling fast. Any day now, one of the leading PHS operators, NTT Personal, is expected to pull out of the business. Once competition started, there was no room for PHS's deficiencies.
So what to make of, say, the massive take-up of wireless communications in Hong Kong? The thing is not to jump to conclusions. A team from Hong Kong Baptist University produced a long report linking the popularity of pagers with Chinese values and the importance of constant social connections to the fabric of Asian society. Perhaps, but then how to explain the even higher penetration of mobile telephones in countries such as Finland and Austria? There is a more down-to-earth message: everybody wants good, cheap, communications; and as Asia goes wired (and wireless), so, one way or another, does the rest of the world. Just don't count on their taking the same path. >>>>> |
