Mini-revolution? Free voice phone calls
BY DAN GILLMOR
Mercury News Technology Columnist
Posted at 8:04 p.m. PDT Thursday, May 21, 1998
mercurycenter.com
John T. Chambers, president and chief executive officer at Cisco
Systems Inc., is suggesting a mini-revolution: All voice phone calls
could be free -- relatively trivial bits of information piggybacking on
the denser, higher-value data streaming through the world's
information pipes.
Chambers' fascinating notion, which popped up in a recent
conversation about his increasingly important company, rests on an
inevitability -- and, almost certainly, so does Cisco's future growth.
Voice, video and data communications are all converging into zeroes
and ones, the fundamental particles of the emerging Information Age.
Cisco is already a data-networking giant. But as tomorrow's
combatants -- telephone and cable-TV giants, Internet service
providers, wireless companies and more -- gear up to win customers,
Chambers and his colleagues are maneuvering to make the company
a top arms merchant in the much wider theater of war.
To see why Cisco expects to pull this off, let's first understand how
your monthly communications bill might include unlimited calls to your
neighbor's house -- and your friends in Tokyo and London.
In speculating about free phone calls, Chambers is advancing a
prediction from the great, prescient science-fiction writer, Arthur C.
Clarke, who once forecast that all phone calls would be local. This
always made some sense, since the overwhelmingly major cost in
providing phone service is the dial tone, not the actual call, and that
costs barely vary with distance.
Of course, ''free'' is a fuzzy word; the ketchup you put on the
hamburger at McDonald's isn't free, although you don't pay extra for
it. Similarly, we'll make free phone calls only because we'll pay for
something else.
The traditional voice line that typically comes to your house or office
transfers data at a rate of 64 kilobits per second. That's a small
fraction of the slowest data-network speed inside most companies,
10 megabits per second. It's also small relative to the kinds of data
connections we eventually will see in our homes, when the cable and
telephone companies truly start competing for this business.
The difference between today's phone and data-network systems,
however, is enormous. The traditional phone system uses a method
called ''circuit switching,'' which essentially provides a guaranteed,
uninterrupted connection between you and the person on the other
end of the call. We send data on the Internet through ''packet
switching,'' a system that breaks up your message into small
packages, each of which gets routed to the destination and then
reassembled with the rest.
If you turn voice messages into zeroes and ones, you can also send
them in little packages. But the public Internet works in a way that
can't guarantee the data will move quickly enough to give you clear
voice conversations in real time. Private networks are springing up,
using Internet standards and guaranteeing quality of service, and
public Internet standards eventually will have this capability.
Borders and distance are fundamentally irrelevant in the economics of
packet-switching networks. The relatively primitive ''Internet phone''
consumer products of recent years have big-business counterparts
that are sure to eat into the traditional phone companies' markets.
Naturally, the incumbent carriers are responding with lower rates of
their own, although in some cases they have less flexibility.
Assuming the ubiquity of fast data transmission, the economics of
phone calls change. When hugely data-intensive video and graphics
files hold the bulk of data being zipped around the globe, voice
communications becomes a trivial add-on. So Chambers guesses that
your data-service provider will toss in the voice calls as part of the
overall cost of your connection, just as McDonald's tosses in the
ketchup.
I'll leave it to sociologists and futurists to predict how that would
change our society. But it's a sensible guess that Cisco will be a big
part of the process. The company isn't only one of the most important
in Silicon Valley. It's one of America's great but least-known
enterprises.
Through a focused and, so far, highly effective strategy combining
in-house growth with a spate of tactical acquisitions, Cisco has
amassed a market value well above General Motors. Born at
Stanford University a decade and a half ago, Cisco has emerged in
recent years alongside Intel Corp. and Microsoft Corp. as part of a
new kind of Big Three in the early years of the Digital Age.
The company sees itself as an indispensable link in an
ever-lengthening chain, the connection of all sorts of electronic
devices to the Internet and other data networks. Many of today's data
networks already rely on Cisco equipment -- routers, switches and
more.
And Chambers, who speaks in rapid-fire paragraphs, has become a
fervent evangelist for a data-driven future. He sums it up this way:
''The Internet changes everything'' -- a message Chambers takes to
corporate executives, reporters and just about anyone who'll listen.
Most important for the moment is how it's changing the way
businesses work. Cisco is a poster child for Internet commerce, even
more so than Dell Computer and the Amazon online bookstore, the
most widely touted examples. Cisco is doing more than half its
business on the Net today -- some $4 billion in online sales, or about
a third of all Web commerce last year, by Chambers' estimates.
But that's only part of the company's pathbreaking use of the
technology. Chambers brags that the company is getting annualized
savings of about $360 million in expenses by using the Web for all
sorts of internal and external communications such as sales, customer
service and more. Those kinds of numbers will catch anyone's
attention, but they're just a hint of what's to come, Chambers says.
And what's coming could broaden dramatically Cisco's already
impressive reach. Chambers displays a chart showing his company's
dominant market share over data-networking rivals such as 3Com,
Bay Networks and Ascend.[Hello?]
Raise the subject of antitrust, and suddenly the marketplace swells.
Now it includes the likes of Lucent, Northern Telecom, Ericsson --
seriously huge players in the business of providing telephone
networking equipment, the gear enterprises use to connect themselves
mostly via expensive leased phone lines. But the convergence of data,
video and voice means they're moving onto the data-networking
industry's turf, and vice versa. Chambers says Cisco and Lucent
discussed a partnership, but ultimately decided not to pursue a linkup.
Convergence might seem to favor the much larger, established phone
networking companies, which have a reputation for reliability and
quality of service Internet-based networks haven't mastered. But it's a
dead certainty that voice (and video) will move onto data networks
once those issues are resolved, because it'll be much cheaper to move
the information that way. And Cisco is the current master of the data
networking business.
So when you ask whether Cisco intends to come out on top of this
new chart, Chambers' answer is predictable: ''Absolutely.''
Dan Gillmor's column appears each Sunday, Tuesday and
Friday. Visit Dan's Web page
(http://www.mercurycenter.com/columnists/gillmor). Or write
him at the Mercury News, 750 Ridder Park Drive, San Jose,
Calif. 95190; e-mail: dgillmor@sjmercury.com; phone (408)
920-5016; fax (408) 920-5917. |
