NYTimes. Cisco Systems' Assault On the Telephone
March 24, 1999
MARKET PLACE
By SETH SCHIESEL
AN JOSE, Calif. -- When John T. Chambers, chief executive of
Cisco Systems Inc., walks into his windowless, cubicle-like office
here each morning, he sees a dinosaur on his desk that he is intent on
driving to extinction.
It sits to the left of his laptop computer's docking station: a standard
office telephone made by Lucent Technologies Inc., the former
equipment arm of the AT&T Corporation and North America's largest
maker of traditional telephone gear.
Chambers likes to think of
Cisco, the No. 1 maker of
equipment for data networks,
as the Anti-Lucent; his favorite
two expressions are "new
world" (read Cisco and the
Internet) and "old world" (read
Lucent and traditional communications). So just about every time he uses
that phone he bristles.
"The dinosaur on my desk, or at home, I want gone in the next 12
months," he says.
What he means is that by this time next year he wants Cisco to be
deploying phone systems based on Internet technology rather than on
traditional communications systems. If nothing else, he wants almost all of
Cisco's 17,000 employees using them.
While Chambers may exaggerate the gap for effect, there certainly are
new and old worlds in the communications equipment business, and they
are locked in a struggle to control the networks of the future and the tens,
perhaps hundreds, of billions of dollars that will be spent to build them.
No part of that battle is more intense than the fight to control how
standard voice telephone calls will be transmitted using the technology
known variously as Internet telephony or voice-over-I.P. The I.P. stands
for Internet protocol, the language of cyberspace.
The challenges of that battle are clearly evident right there on Chambers'
desk. After all, Internet phones do exist today -- Cisco makes them --
but for now, Chambers uses the dinosaur. It is a battle between the
reliable, pin-drop quality of today's telecommunications technology and
the largely experimental, often garbled but fantastically promising
Internet-based technology of tomorrow.
"This is about the hearts and minds of the network," said Howard
Anderson, managing director of the Yankee Group, a leading
high-technology consulting firm based in Boston. "For consumers, it's
probably going to mean cheaper costs. The consumer is going to be using
voice-over-I.P. without even knowing it."
Yet, for all of the promise, most of the communications industry agrees
that Internet phone calls are not quite ready for prime time. While I.P.
systems are selling well in niche phone markets, they are still too
unreliable, often deliver low sound quality and are perhaps even too
expensive to become the underlying network language for mainstream
phone calls.
"There's a lot of hype," said Howard
McNally, president of the AT&T unit
that includes the company's small
Internet telephony operation. "It's just
not there yet."
The Sprint Corporation and MCI
Worldcom Inc. are not offering
voice-over-I.P. calls at all.
That is not to suggest that the
long-distance giants are happily stuck
in the old world. Each of the major
carriers is getting set to upgrade the core of its network to use a
technology called asynchronous transfer mode, which, like Internet
protocol increases efficiency by breaking communications down into
small pieces. But while it sometimes may not be as efficient as I.P., it has
the advantage of being more reliable.
One strength of I.P., in addition to the allure of being the language of the
Internet, is that it is relatively simple to deploy. But what makes it even
more appealing is that it can be used on the millions of existing corporate
and institutional networks based on Internet protocol and with the tens of
millions of personal computers and other consumer devices for which
Internet protocol is already a lingua franca.
For all these reasons, the belief in many parts of the communications
industry that Internet phone calls are not ready for the mainstream right
now is matched by an equally strong conviction that if Internet phone
calls do not move to the mainstream, the mainstream will eventually come
to Internet phone calls.
Today, Internet phone calls often require the use of prepaid calling cards.
And generally their primary purpose is to avoid high international charges
for conventional phone calls as well as the fees imposed by local phone
companies for beginning and ending long-distance calls. But companies
are also starting to embrace Internet technology as a way to save money
by transmitting calls among branch offices using the computer networks
they already have.
And if Chambers is ever to feel that his entire office has migrated to the
new world, Cisco will have to come up with I.P.-based office phone
systems that offer conference calling, call waiting, voice mail, call
transferring and other features office workers take for granted.
But ultimately, Internet-based phone systems could offer services that no
one takes for granted today, like easy integration with personal computer
applications. Users could easily manage voice and e-mail messages or,
where legal, digitally record and transcribe phone conversations.
"We feel that I.P. telephony services, as they go develop multimedia and
other capabilities that I.P. enables, are going to be the clear winner in the
next two to three years," said David Greenblatt, chief operating officer of
Net2Phone, the Internet telephone subsidiary of the IDT Corporation,
one of the pioneers in Internet phone calls.
By no means alone in trying to develop Internet phone technology, Cisco
faces competition from three kinds of companies: traditional equipment
makers like Lucent, Ericsson A.B., Siemens A.G. and Northern
Telecom; data networking companies like the 3Com Corporation and
Ascend Communications Inc. (which has agreed to be acquired by
Lucent); and upstarts like Vocaltec Communications Ltd. and the Clarent
Corporation.
Lucent, Cisco's biggest and most important competitor, is also hard at
work developing Internet telephony products, but its executives naturally
have a different view of traditional phone systems.
"There isn't anything in the industry that provides the reliability, the
scalability and the feature functions" of the traditional office phone
system, said William T. O'Shea, who runs Lucent's office systems group.
"There plain isn't another answer today."
But right now the bigger carriers are appearing
to lean toward equipment made by the smaller
companies vying for Internet telephony
leadership.
While AT&T is testing Lucent's I.P.
enhancement for existing telephone switches, the
biggest carrier using Lucent's stand-alone
Internet phone system is probably Vocall
Communications, a private company based in
Philadelphia. Meanwhile, Cisco's biggest Internet telephony client is ICG
Communications Inc., a medium-sized communications carrier.
"The three that were considered actively were Lucent, Ascend and
Cisco," said J. Shelby Bryan, ICG's chief executive. "Cisco seemed to be
able to satisfy our needs more quickly."
Still, many carriers believe the traditional telephone equipment companies
will continue to have an advantage simply because they have more
experience designing reliability into their systems.
Among that group is Noam Bardin, chief technology officer for Delta 3,
the Internet telephone unit of RSL Communications, one of the world's
biggest Internet telephony carriers.
Cisco, he said, has "a huge hurdle to conquer when you think about how
people pick up the phone and expect to get a dial tone no matter what.
"The telecom companies," he added, "already have experience in those
challenges."
Delta 3 mostly uses equipment from Ericsson, while IDT, tellingly
perhaps, mostly designs its own equipment. IDT has also evaluated
equipment from Siemens, which in turn has also worked closely with a
small carrier called USA Global Link.
But the German giant Deutsche Telekom is among the international phone
companies that have used equipment from tiny Vocaltec, and when
Sprint wanted to evaluate an Internet phone system, it tried products
from Clarent, a private company based in Redwood City, Calif.
Sprint decided against introducing a voice-over-Internet product, but
Neil J. Grenfell, an engineering vice president at Sprint, said the decision
would not have been different if another company's technology had been
used.
AT&T has been perhaps the most eclectic carrier of all. The company
refused to discuss its suppliers, but senior data networking executives
and executives close to AT&T said the company initially used modems
from U.S. Robotics and other equipment from 3Com, the company that
acquired U.S. Robotics. AT&T has also, however, used significant
amounts of Internet telephony equipment from Clarent, the executives
said, adding that 3Com is attempting to negotiate a new Internet
telephony deal with AT&T.
Perhaps the biggest roadblock for Internet telephony is that different
companies' systems almost never work with one another. Each wants to
dictate the standard and is hoping the others will blink.
"In ideal conditions it's acceptable," Sprint's Grenfell said of I.P.
telephony. "But I think it's just going to be a novelty for a while. We're
really looking for a total integrated solution that is interoperable between
vendors and works with what we already have."
Perhaps even with dinosaurs.
Copyright 1999 The New York Times Company
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