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To: jacksoo who wrote (17232)	7/6/1998 7:27:00 PM
From: Secret_Agent_Man	Read Replies (1) \| Respond to of 50264

Internet Telephony Is Here To Stay (07/06/98; 11:56 a.m. ET) By Roderick S. Beck, TechInvestor It has become fashionable among pundits to proclaim the future of Internet telephony is imperiled by the likely loss of its exemption from the access fees local phone companies charge long distance providers for use of their networks. While forcing Internet telephony to pay these fees would clearly slow its development, commentators -- including Francis Gaskins, who was quoted in "Opinion: IP Telephony Profits Under Fire" -- have exaggerated the short-term threat while ignoring the powerful, long-term forces that are driving IP's adoption as the standard for telecommunications networks. Internet or IP telephony involves running voice over data networks using Internet technology, a key element of which is IP. Most IP calls travel over private networks to avoid the slow transmission speeds that plague the Internet and degrade sound quality. Both Qwest and AT&T are offering IP telephony over private networks for this very reason. Much of the interest in IP telephony is motivated by the fact that current regulations exempt long distance, IP-based phone calls from paying fees for use of the local phone networks. Given that long distance companies employing traditional technology pay 4.5 cents per minute in access fees, IP telephony offers much lower costs and prices. This exemption from access fees allows for domestic rates as low as 5 cents per minute. Clearly, the Federal Communications Commission is moving in the direction of imposing access charges on IP telephony, and, yes, this can only diminish domestic IP telephony's price advantage. But it is not obvious that the FCC will impose full access charges, which exceed the cost of providing access by as much as 900 percent. A more sensible solution is to levy on IP telephony access charges set equal to cost -- a half cent per minute. This would fully compensate the local phone networks without saddling a promising new technology with inflated fees. Even if the FCC does impose full access charges, such a ruling would not affect prospective IP providers that have their own local networks. Cable companies are developing an IP telephony standard, and competitive providers of local service are offering long distance calls over IP for as little at 6 cents a minute. Consumers can expect to see these providers offer very cheap IP long distance regardless of what the FCC does. Moreover, any FCC decision will not affect the cost advantage of IP telephony in two key areas: international and corporate calling. Phone calls using traditional technology pay termination fees to foreign phone companies that total as much as 50 cents per minute. IP telephony calls avoid these termination fees by using the Internet, private data networks, or by leasing transmission lines. These activities are extremely difficult to stop. For example, transmission lines are usually sealed end-to-end, rendering it impossible for governments to know what they are carrying. Access charges pose no threat to the impressive cost savings of using IP telephony to make intracompany calls over corporate intranets. Intranet phone calls cost as little as 1 cent per minute because they exploit the excess capacity common on these networks; by routing traffic around the local phone networks, intranets would not be subject to any access charges imposed by the FCC. Boeing, for example, is building an intranet to handle voice calls to save money and offer state-of-the-art multimedia services. However, the greatest long-term appeal of IP telephony is having a single IP data network to carry all communication traffic: voice, fax, video, Internet, and other kinds of data traffic. Not only are costs lowered by substituting one general network for many specialized networks with their associated managerial overheads, but also mixing different kinds of traffic is the natural way of providing multimedia services. Not surprisingly, traditional telecom networks with their expensive hard-wired solutions have become roadblocks. Upgrading is slow and discouraged because hardware investments must be written off. IP networks break these bottlenecks by replacing hardware solutions with much cheaper software solutions -- the intelligence is embedded in the software instead of the hardware and can be easily modified. In turn, software-centric solutions reduce hardware costs because hardware does not need to be intelligent; cheap, dumb generic hardware replaces smart, expensive proprietary hardware. While access charges will certainly slow the move to IP telephony, the long-run migration to IP telephony is probably irreversible. IP offers the ability to remove telecom networks as roadblocks to technological change and will unleash a host of new services integrating voice with data. Irrespective of what the FCC decides, the cost advantages of cheap corporate and international calling combined with the attractiveness of integrated networks able to offer sophisticated new services and rapidly innovate virtually guarantee that in the end, we're all IP. -- Roderick S. Beck is a telecom analyst at AT&T, in Basking Ridge, N.J. The opinions he has expressed are strictly his own.