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To: The Street who wrote (28543)	10/7/1998 8:48:00 AM
From: The Street	Respond to of 50264

redherring.com BRIDGING THE GAP ITXC is creating the infrastructure to bring IP telephony service providers together. By Kendall Riding The Red Herring magazine October 1998 When VocalTec Communications released its first Internet telephony products in 1996, the software was downloaded from the Internet mostly by individual users looking for a new toy. But IP telephony has evolved into a legitimate business technology, primarily used in the international long-distance market. According to the International Data Corporation, worldwide IP telephony revenues are expected to grow from $0.4 billion in 1996 to $24.4 billion in 2002, and worldwide minutes of usage from 1.1 billion to 151.7 billion (see chart, below). Internet telephony service providers (ITSPs) are cropping up around the world. But unlike the traditional long-distance companies, which took years to set up international partnerships, ITSPs are working on Internet time. ITXC is stepping in to help. Going for broker Founded in 1997 by Tom Evslin, former head of AT&T's WorldNet service, ITXC (for Internet telephony exchange carrier) offers services like call routing and bill settlement to ITSPs. The company has begun establishing a network of service providers and gateway operators worldwide for which it acts as an IP telephony clearinghouse. ITXC collects revenues by reselling wholesale long-distance minutes to retail service providers. This group promises to expand in the next few years, now that deregulation and advances in communications technology have significantly reduced the barriers to entry for new companies. IDC analyst Mark Winther claims that for every merger in this industry, there are two or three startups. But not all of these ITSPs will survive, he adds. Companies using equipment with nothing more than the ability to send calls over the Internet will be ill prepared for the next stage in IP telephony. Analysts predict that in two years, competitive pressures will bring international long-distance rates down, and then "cheap calls will no longer be enough to attract customers," says Mr. Winther. "ITSPs will need more value-added services, like call routing to preferred partners, phone-enabled Web sites, and groupware." Mary Evslin, ITXC's vice president of marketing and Mr. Evslin's wife, says the company has already begun to explore fee-for-service ideas. But even as it gears up for growth, the prospect of regulation looms. The Federal Communications Commission decided in April to exempt ITSPs from the regulations covering traditional long-distance service providers but left the door open for future regulation. Deregulation begins at home Mr. Winther says such regulation is unlikely because "the industry would stop if ITSPs had to pay the same access charges as long-distance companies." The U.S. government may have a hard time selling the idea of free markets around the world if it continues to create new regulations at home, he says. For now, at least, ITXC is reveling in its position as the magnet that's drawing the IP telephony market together. And even as the regulatory issues work their way into the industry, Mr. Evslin says ITXC is ready for the changes. Such adaptability is an advantage in a market that has come a long way from its humble origins two years ago--and that promises to go even further. < ITXC AT A GLANCE CEO: Tom Evslin LOCATION: North Brunswick, New Jersey PHONE: 732/940-4333 WEB: www.itxc.com OWNERSHIP: Private FOUNDED: 1997 EMPLOYEES: 45 PRODUCT: IP telephony service PARTNERS: Delta Three, Lucent, TeleNova Comunicações, VIP Calling, VocalTec Communications COMPETITORS: AT&T, Delta Three, Deutsche Telekom, IDT, Sprint, VIP Calling FINANCING: $10 million INVESTORS; AT&T, Chase Capital Partners, Flatiron Partners, Intel, Polaris, Spectrum Equity Investors, VocalTec