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To: djane who wrote (52150)8/14/1998 5:41:00 PM
From: djane  Read Replies (1) | Respond to of 61433
 
WSJ. PC Makers Decide to Hunt For Gold in Internet Hookups

interactive.wsj.com

August 12, 1998

By EVAN RAMSTAD
Staff Reporter of THE WALL STREET JOURNAL

Faced with sinking prices and slowing demand, the makers of personal
computers are preparing to do something radical: make money from
Internet services.

Compaq Computer Corp., the biggest maker of consumer PCs, has
reached separate agreements with a range of on-line service providers,
including America Online Inc. and GTE Corp., and electronic retailers
including Amazon.com Inc. Hewlett-Packard Co. has cut its own deal with
GTE. In each case, the Internet company has agreed to share with the
hardware maker a slice of the revenue on-line customers generate using
Compaq or Hewlett machines.

In exchange, the PC makers have redesigned
their keyboards to add "quick-access"
Internet features -- and, naturally, give
prominent placement to the Web sites and
services of their partners. Compaq's 1998
consumer desktop PCs, for example, have
four new Internet buttons -- for connecting,
searching, electronic mail and shopping -- with
automatic links to America Online, GTE.net, Amazon.com and Walt
Disney Co.'s on-line store. Every time a customer orders, say, a book
from Amazon.com using his Compaq Presario, Compaq gets a portion of
the sale. The companies won't disclose how much.

The companies' quick-access features could make the Internet easier to
use. They also would shift some of the control over how consumers use
the Internet into the hands of PC makers and their on-line partners. The
PC industry is hoping the new features also could reinvigorate the
economics of making and selling computers.

'Dramatic New World'

"These are the first steps to a dramatic new world for the PC and
companies like us," contends Rod Schrock, chief of Compaq's consumer
division. Three other hardware concerns -- Packard Bell NEC Inc.,
International Business Machines Corp. and Gateway Inc. -- have forged
similar on-line pacts, while also trying to tap Internet revenue by creating
their own services.

If the on-line service business becomes as lucrative as expected, then the
entire economic model of PCs could someday move in the direction of
pagers and cellular phones: Customers would pay a minimal amount for the
hardware but would agree to pay for the service over a fixed period.

Selling PCs that way isn't all that far-fetched. In France, people have
accessed the Minitel on-line service via "free" computer terminals for 15
years. The cost of the hardware is hidden in the monthly fee.

"You could envision something like
the cellular-phone business model
here," says Phil Hester, chief
technology officer for IBM's
personal-systems division. "With
prices coming down and margins
coming down, that day is probably
not too far ahead of us."

It may take more than a simple point
and click to get customers to accept
the new Internet features. Compaq
has already found out how easy it is to annoy users by herding them into
preselected Internet sites. In response to early complaints from testers, the
company had to modify its software to make it easier to reprogram settings
on the Net buttons.

Then there are all the problems and uncertainties of the Internet itself. Even
though they are called "quick-access" buttons, the new Internet features
don't shave any time off the long wait endured while most home PCs get
on the Net. And over the long term, the PC may still be supplanted by the
television set as the way most households go on-line.

Improving Margins

Still, PC makers are salivating at the thought that the Internet could restore
their battered profit margins. If they can cut the right deals, PC executives
think, Internet and related services could provide 15% to 25% of their
consumer revenue in just a few years.

Today, hardware provides about 95% of that revenue. Compaq, with
1997 consumer PC sales of $3.8 billion, is aiming to have consumer PCs
generate $1 billion in Internet-related revenue by 2001. Mr. Schrock says
he believes one million Compaq buyers will have tried either GTE's or
AOL's services by next July.

On-line executives say they hope the new agreements with hardware
makers can help keep customers signed up to Internet services. "There's
skin in the game for both parties," says Alex Coleman, a vice president at
GTE Internetworking Services.

Barry Schuler, president of America
Online's interactive-services unit,
says PC prices are nearing the point
where a monthly Internet service
could conceivably come with a
"free" PC. The critical point, he says,
may be when the price of a PC and
monitor falls below $500 -- down
from a low of about $800 today.

"If we could put the service out for
something like $35 a month and you
got the hardware with it, we think that's a great price," Mr. Schuler says.
AOL, the nation's largest on-line service, currently charges $21.95 a
month for unlimited access.

Compaq's Internet plans emerged last year. Executives were reviewing a
deal with America Online that was about to expire. In it, AOL, like other
on-line service companies, was paying Compaq a fee for installing AOL
access software on consumer PCs. Compaq had just conducted research
showing that on-line services were now consumers' No. 1 reason for
buying PCs. Compaq decided to help encourage Internet use and push for
speedier connections by investing in a cable-TV venture and joining a
consortium of phone companies working on fast phone-line technology.

Mr. Schrock set out to shift Compaq's Internet strategy into even higher
gear. He directed engineers to make it simpler to connect to the Internet
from Compaq PCs. In addition, Compaq decided to offer GTE's Internet
service in addition to AOL and negotiated with both services to share
revenue from customers' monthly fees.

Money Back

It also offered a $100 rebate to customers who signed up for GTE's
service Compaq made signing up for an on-line service one of the steps in
the start-up program that runs the first time users turn on their computers.
Previously, several on-line services appeared as logos on the PC desktop
every time. Now, once users make their initial on-line selections, they are
connected via preset links directly to the services and home pages of
Compaq's partners -- with just one push of a Net button.

Other companies have similar on-line arrangements in the works. AOL
says it is sharing revenue with IBM and Packard Bell NEC as well as with
Compaq. Meanwhile, GTE is working with Compaq and
Hewlett-Packard, which countered Compaq's rebate offer with its own
offer of 50 hours of free Internet access and maintenance of a personal
Web site.

Gateway is taking a different route. Since May, it says, the number of
subscribers to its on-line service, Gateway.net, has surged, following the
start of a financing program called "YourWare." Customers choose a
computer, software and Internet service and pay for all three in 48 monthly
payments starting at $29, for a total of $1,392. The computer alone would
cost about $1,000.

Partly because of the bundling and financing effort, Gateway's gross profit
margin jumped to 20.6% in the second quarter from 19.5% in the first
quarter. Gateway says the number of subscribers is approaching 100,000.
"I'll think you'll see more of this from the industry," says Bart Brown,
Gateway's marketing chief.

Return to top of page | Format for printing
Copyright c 1998 Dow Jones & Company, Inc. All Rights Reserved.




To: djane who wrote (52150)8/14/1998 5:45:00 PM
From: djane  Respond to of 61433
 
Can Carriers Make Money on IP Telephony?

bcr.com

Volume 28, Number 8
August 1998, pp. 39-44

By Bart Stuck (bartstuck@aol.com), president of Business Strategies LLC
(Westport CT), a network computing and telecommunications consultancy,
and Michael Weingarten (michael_weingarten@monitor.com), a
telecommunications consultant with Monitor Company (Cambridge MA).

The following is an abstract of the printed article:

There are two diametrically opposed views on public-network Internet
Protocol (IP) telephony. Some people, such as James Crowe, president and
CEO of Level 3, and Joe Nacchio, president and CEO of Qwest, have an almost
messianic belief in IP as an inherently low-cost vehicle for both data and voice
transmission. Crowe has been quoted as saying that voice-over-IP calls cost
1/27th what circuit-switched calls do.

In the same vein, Sprint recently announced its ATM-based Integrated
On-Demand Network (ION), which will provide multiple services and phone
conversations over the same wire. Press reports claimed ION's packet
telephony would increase the IXC's call-handling capacity to 17 times its
current level, while promising rate reductions of 70 percent for voice calls and
data-connect speeds 100 times faster than today's modems.

On the other hand, some people believe IP telephony's cost advantages are
due mostly to the Enhanced Service Provider (ESP) status enjoyed by Internet
service providers (ISPs). This regulatory classification exempts ISPs from
paying the local access fees assessed on IXCs, and if it is removed, argues
Jack Grubman of Salomon Smith Barney, there won't be a significant cost
difference between IP and circuit-switched telephony (interesting, given that
Salomon Smith Barney is Qwest's lead investment banker).

What is the reality in the battle over packet-versus-circuit telephony, and
what is hype?

Looking at the potential savings by cost element, it is clear that in 1998,
access arbitrage is the major economic driver behind VOIP. By 2003, we
anticipate that switched-access arbitrage will diminish in importance, as the
ESP exemption disappears and/or access rates drop to true underlying cost.

However, we believe that the convergence between voice and data via
packetized networks will offset the disappearance of a gap in switched access
costs. As a result, VOIP will continue to enjoy a substantial advantage over
circuit-switched voice. Indeed, as voice/data convergence occurs, we see
standalone circuit-switched voice becoming economically nonviable.
[Uh, very controversial...]

c1995-1998 BCR Enterprises, Inc. All Rights Reserved
This page was last modified on 08/10/98 Please direct comments, suggestions and problems to webmaster@bcr.com.




To: djane who wrote (52150)8/14/1998 5:49:00 PM
From: djane  Respond to of 61433
 
NETWORK CROSSROADS. Demarc Intelligence: More, But Where?

bcr.com

Volume 28, Number 8
August 1998, pp. 8-10

By Tom Nolle (tnolle@cimicorp.com), president of CIMI Corp., a
consulting firm that specializes in advanced computer and communications
networks. He is a member of the BCR Board of Contributors.

The following is the full text of the printed article:

For decades, leased-line customers have used DSU/CSUs to terminate digital
carrier service connections. These devices translate between a data
connection like V.35 and a digital line.

But once frame relay, SMDS and ATM services started to appear, vendors
like Digital Link and ADC/Kentrox began to augment their DSU/CSUs to deal
with "smarter" carrier services--i.e., services with their own low-level
protocols. Today even "smarter" service-based features are appearing,
including statistics-gathering to enforce Service Level Agreements,
packet-shaping to optimize transport performance and traffic prioritization.

Demarc devices, while still delivering classical DSU/CSU functions, have
considerably broader capabilities. The term "Customer-Located Equipment"
refers to a device located at the demarc but connected to ever-smarter
services--for example, to carrier-provided virtual private networks.

So a whole new series of questions has emerged. Whose purposes does the
box at the demarc really serve--the user's or the service provider's? Is the
demarc device an integral part of the service or an added feature that comes at
extra cost? Will familiar demarc devices like routers and FRADs (frame relay
access devices) be able to cope with the more complex virtual network
services expected over the next decade?

The Virtual Service Agent Concept
With most private networks, the carrier provides a low-level service and
customer's CPE converts it to an application network. Because the OSI model
mandates strict segregation of functions among protocol layers, a single
device can support leased lines, ATM, frame relay, SMDS and more. Each is
simply a different "port interface" option on a Layer 3 device like a router.

When network services are presented at Layer 3, however, things get more
complicated. Instead of "partnering" with similar products at other demarcs,
the demarc device partners with devices that the carrier supports and installs
inside the network. Users of the Internet, for example, must adhere to
addressing rules, and support the topology management protocols--e.g., RIP,
OSPF or BGP4--dictated by the internal nodes.

Everyone agrees that more VPN services will be offered at Layer 3, and that
more features will be added for security, quality of service, etc. The question
is how these new services will become available to applications, and how
networks that rely on old-fashioned leased lines or virtual circuits will migrate
to the services.

IP has clearly won the battle of the application interfaces; indeed, by 2010, all
the other types of applications will probably generate less than 20 percent of
the data traffic. As a result, one side of the demarc device of the future will
have to present an IP interface to the premises, while the other side will have
to adapt to every combination of Layer 2 and Layer 3 service options the
carrier marketplace makes available.

What is needed is a Virtual Service Point (VSP), a device that presents a
consistent IP interface to applications, and a set of service-specific carrier
interfaces--both low-level (leased-line, frame and cell) and high-level (Internet,
IP VPN, etc.).

A VSP can be viewed as an application-level interface, a carrier service
interface and a service mapper that connects those two interfaces. This simple
structure hides a problem of almost bewildering complexity when all the
service options are considered.

An IP VPN is a good example. The "private" IP addresses that many
companies use cannot be used on the Internet because multiple users would
adopt each, causing routing confusion and a loss of security. So if a company
has an IP service representing both Internet access and access to its VPN,
how are the VPN addresses to be firewalled from the Internet? And how will
Internet users be prevented from accessing company VPN data?

The answer depends in part on how the IP VPN gets created--by tunneling,
through independent virtual circuits or through the new Multi-Protocol Label
Switching (MPLS) architecture. That implementation strategy, however, could
change as fast as VPN services change.

Coping with QOS-specific services also is a challenge. If the IETF's concept of
"Differentiated Services" or DiffServ is used, applications needing a special
QOS will have to set Type-of-Service (TOS) bits in their IP header. If
QOS-specific services are built using a "tunnel" or virtual circuit, data will
have to be "steered"--almost like routing--into the service. In either case,
since today's applications don't specify QOS requirements, a set of policy
management rules will be needed to separate the applications by QOS.

Some of these problems have been recognized for years, and vendors like
Bay, Cisco and 3Com have produced product architectures or features that
enable IP and other services in a private network application. Most, however,
require special features throughout the network's devices, something that can
pose a major cost and service disruption problem to network users.

A better strategy would be to encapsulate all these features in the virtual
service point. If on-premises networks migrate to cheap LAN switching over
the next several years, congestion within the premises should be largely
eliminated. A single device could then exercise QOS policy control at the
point where congestion is still a problem--at the boundary between the LAN
and WAN. That same device could resolve address problems and insulate the
user from changes in the carrier service interface that will inevitably
accompany the expansion of IP VPNs.

The features that VSPs might be called on to provide range far beyond basic
connection--firewall capabilities, address translation, encryption, tunneling,
traffic shaping and even protocol conversion. It's clear, for example, that VSPs
will have to offer IP access and flexible service portals, and will be modular
devices that can easily integrate software/hardware add-ons into the basic
product. However it's too soon to say much more about the specific
architecture and features that the market will endorse.

Virtual Service Point Hardware
Today's integrated access devices (IADs), already being offered by numerous
vendors, including Cisco, 3Com and Lucent, could serve as a foundation for
the virtual service point. Most offer LAN and local data interfaces, as well as
voice connectivity, but their data features tend to be limited to traditional
LAN bridging and routing. They have no special facilities to support
QOS-specific services, policy management or IP VPNs.

ADC/Kentrox (www.kentrox.com) recently took a step to provide virtual
service point features in its "WANTop Box" product. It separates the
application and service interfaces, which is characteristic of a VSP
architecture, and also offers policy management control over the traffic
mapping between the two interfaces.

Some of the WANTop Box's features result from ADC/Kentrox partnering
with firms like Packeteer (www.packeteer.com) and IDI (www.idinet.com), but
details on critical features like MPLS capability are not yet available. In
addition, since Kentrox has not released pricing information about the
product, it's not clear whether a flexible, full-service device like this can be
made cheap and supportable enough to place at the estimated 8 million
business demarcs worldwide.

The support issue is major. Demarc devices are located on the customer's
premises, where access by carrier personnel is expensive, and accidental
manipulation by customer personnel is easy. Kentrox provides a
policy-controlled management interface to segregate carrier and enterprise
management functions and to ease the provisioning of new services, but
other vendors are looking for ways to centralize the more expensive VSP
functions inside the cloud, so their cost can be shared among multiple users
and their operation more easily supported by carrier craft personnel.

Ennovate Networks (www.ennovatenetworks.com) has announced an
architecture for providing IP VPN services that centralizes functions in this
way, even providing access to frame relay and IP VPNs on the same access
connection. The company will support a variety of edge devices but will add
most of the service intelligence features inside the cloud. Details on
Ennovate's products--and prices--are scheduled to become available this fall.

Another approach, not yet identified with any specific vendor or product but
making the rounds in the rumor mill, is to add VSP features to premises-based
core switches. The rationale is cost-based--since the cost of the switching
platforms is partially borne by LAN applications requirements, the incremental
cost to add new virtual service point features might become low enough to
attract customers.

Conclusion
We're likely to see vendors split into two camps. The traditional vendors of
access devices will add VSP features to their existing product lines, which will
probably be less radical than those offered by startups and new players.

But access devices really should change radically to deliver the full benefit of
VPN services. IP VPNs, in particular, differ from traditional carrier services in
that they are better suited to ad hoc applications with short project life cycles
and require less skill to adopt and administer. It makes no sense to
compromise these benefits by locking users into complex and expensive
access devices.

If, as most believe, integrated access is inevitable, it also follows that demarc
devices will become complex. In order to restore some semblance of order, an
architecture is needed to simplify the most complicated part of multi-service
networking--data.

ISPs; new carriers like Level 3, Qwest and Williams; and facilities-based
carriers like Sprint and Bell Atlantic seem to be taking slightly different paths
toward this multiservice infrastructure, We've talked to users who, while
aware of the issues of the virtual service point, are frustrated by the absence
of detail on how these issues will be resolved. That frustration won't be
alleviated any time soon, and until there are more specifics available on how
IP VPN features will be provisioned, and the core debate is settled, the demarc
is not going to be a very stable place.

c1995-1998 BCR Enterprises, Inc. All Rights Reserved
This page was last modified on 08/10/98 Please direct comments, suggestions and problems to webmaster@bcr.com.




To: djane who wrote (52150)8/14/1998 5:53:00 PM
From: djane  Respond to of 61433
 
Must-read. Shifts in the Power Structure [in networking]

bcr.com

Volume 28, Number 8
August 1998, p. 2

By Fred Knight (fknight@bcr.com), editor/publisher of Business
Communications Review.

The following is the full text of the printed article:

Well, it's been quite a summer. AT&T bought TCI, Nortel acquired Bay,
Cisco's market capitalization reached $100 billion and the Chicago Cubs have
finally figured out how to do a first-rate impression of a professional baseball
team. The Cubs will probably soon be unmasked, but the changes in our
industry promise to be long-lasting.

In the AT&T-TCI deal, the respective chairmen--AT&T's Armstrong and
TCI's Malone--have each been trying to make the best of a bad situation. Mr.
Malone, who came out of semiretirement about a year ago to rejuvenate TCI's
stagnant share price, was running a company with horrific customer relations
and an infrastructure badly in need of expensive renovation. Now those
problems become Mr. Armstrong's.

The good news for AT&T boosters is that in addition to being the market
leader in long distance and in cellular (via the acquisition of McCaw), it just
became number one in cable TV. On paper at least, Armstrong can pull the
strings in three businesses--long distance, wireless and cable--that will be
critical to communications in the 21st century. But whether AT&T can
harness them into coherent, integrated business offerings remains to be seen,
and time is running out: Margins in the long distance business that fuel the
AT&T engine continue to shrink, with nothing on the horizon to turn that
around.

There's a lot more reason for optimism about the Nortel-Bay deal. Here each
had something the other needed: Nortel offered Bay shelter from the
Cisco-induced storm. Ever since Wellfleet and Synoptics combined to create
Bay Networks, the gap between it and Cisco has grown wider and wider. Now
with Nortel as Bay's protector, Dave House can stop worrying about having
to please Wall Street analysts and shareholders, and concentrate on pleasing
existing customers and finding new ones. Bay had recognized the PSTN as a
key market, and now, backed by Nortel's ample resources and reputation, it
has the means to attack it big time.

And what does Nortel get in return? Access into data networking, a market it
has been almost shut out of during the past decade. Even though it sold
plenty of X.25 switches, Nortel has been a TDM- and, more recently, an
ATM-centric company, while the market has moved to IP. Bay gives Nortel
credibility and connections within the IP community at a critical time: Demand
for truly industrial-strength data networking has never been higher, and
Nortel knows how to build networks that don't break. If Bay's and Nortel's
people can get along, this could be a blockbuster deal.


Meanwhile, the Cisco locomotive keeps on chuggin'. It has bought or
quashed all the opposition it's faced in the past 10 years, but now with the
Internet and PSTN about to be rebuilt, it faces a new type of foe: In going up
against the likes of Lucent, Nortel, Siemens and Ericsson, it isn't competing
against companies so much as institutions. However, the demographics seem
to be in Cisco's favor: Increasingly, the decision-makers it needs to convince
speak IP and, in many cases, have built their professional careers on Cisco
routers and switches rather than 5ESSs or DMSs.

In short, if you have to bet whether Cisco will hit a market cap of $150 billion
before the Cubs make it to the World Series, let history be your guide. Don't
bet on the Cubs.


c1995-1998 BCR Enterprises, Inc. All Rights Reserved
This page was last modified on 08/10/98 Please direct comments, suggestions and problems to webmaster@bcr.com.