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Technology Stocks : Voice-on-the-net (VON), VoIP, Internet (IP) Telephony -- Ignore unavailable to you. Want to Upgrade?

To: Stephen B. Temple who wrote (1484)	10/14/1998 7:59:00 PM
From: Stephen B. Temple	Respond to of 3178

Is there reality behind the hype? October 14, 1998 Network World via NewsEdge Corporation : IP telephony is the "in" thing these days. It seems as though most pundits, other than the dyed-in-the-wool "the telephone companies are the answer, whatever your question might be" pundits, are now predicting an inexorable movement to running all possible telecom munication services over IP. As with many pundit predictions in the network area, this one has been made questionable by the mixture of frequent hand waving and an occasional clear misunderstanding of technology. The two areas in which the most hand waving has been done are the ability to provide a quality telephone product over the best-effor t Internet and the possibility that providing telephone service over IP might be economically feasible. Technologies that let an IP-based telecommunications provider offer IP telephony services commensurate in quality to the traditional switched circuit providers, or at least as good a quality as cell phone providers can offer, are now getting close to being finaliz ed by the Internet Engineering Task Force. These technologies still face a number of significant challenges before they will be read y for prime time, but the direction seems clear. Finding a concrete, believable economic analysis that shows that an IP-based telephony company might have lower costs than a traditi onal telephone company has been very hard indeed. Most investigations of the issue seem to bog down when they start talking about th e effect of existing telecommunications regulations and fees. In an article in the August issue of Business Communications Review, Bart Stuck and Michael Weingarten undertake to provide a differ ent type of analysis. They assume a future in which all regulatory differences between IP-based and traditional circuit-switched pho ne services have been eliminated. They also assume the costs for sales and general administration would not change just because the transmission technology was different. They then analyze how the remaining major cost components, switching and transmission for bot h types of networks and interconnecting with the switched circuit network for the IP-based networks, change with the change in techn ology. Their conclusion is that the switching and transmission costs for IP-based telephone networks are much lower than for switched circu it telephone networks. So much so that the extra cost of the gateways that will be needed between the two telecommunications worlds do not bring the costs up to the same level as the costs for switched circuit telephone networks. I assumed IP-based phone providers would provide spirited competition to traditional telephone providers - mostly based on the curre nt baroque regulatory environment and the lethargy with which traditional telephone providers react to technology changes. But this analysis means there may be some degree of economic pressure as well. Predicting the future of traditional telephone companies is ge tting harder every day. Disclaimer: Harvard understands the concept of baroque regulatory environments, but the above is my own understanding. Bradner is a consultant with Harvard University's University Information Systems. He can be reached at sob@harvard.edu.