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Net phone calls could soon catch on

Technological innovations and public offerings sparked heavy interest in Internet telephony this year. But even as its popularity begins to grow, making phone calls over the Net is still a novelty for most people.

Technological innovations and public offerings sparked heavy interest in Internet telephony this year. But even as its popularity begins to grow, making phone calls over the Net is still a novelty for most people.

Phone calls routed 1999: The year in technologyover the Internet jumped from 200 million total minutes in 1998 to 2.5 billion minutes this year, according to analysts.

Although that number is small compared with the 7 trillion total minutes people spent on traditional phone networks in 1999, it's a sign that consumers and businesses are starting to warm up to Web-based phone calls, said Probe Research analyst Hilary Mine.

"It's still a tiny drip in the bucket, but the market is absolutely exploding," she said.

Like data on Internet-based networks, voice-over-Internet protocol (IP) takes a voice call, breaks it into "packets" of information, then reassembles those packets at its final destination. The technology allows for cheaper rates than those charged for traditional long-distance calls; it also allows for telephony services that combine voice and data.

Traditional voice calls require a dedicated "circuit" between the two parties.

In 1999, Internet telephony companies came out with technology that improved voice quality and offered voice features not available from regular phone service. One such feature was unified messaging, which offers the ability to check voice mail, email, pages and faxes through a single source.

New communications companies like Deltathree.com, Net2Phone and ITXC already are offering voice services over the Net. On the network side, telecommunications carriers--from established players like AT&T and Sprint to upstarts like Level 3 Communications--are diving into the emerging market. They're all in various stages of offering the technology, but many are in trial mode.

Although sound quality still varies from almost perfect to awful, producers of Internet telephony equipment--from newer companies like Clarent, VocalTec and NetSpeak to established companies like Nortel Networks--made great strides this year in building devices that help service providers improve voice quality, analysts said.

Loud and clear Equipment makers such as Cisco Systems and 3Com also released Internet telephony products aimed at small and medium-sized businesses that want to save money on long-distance calls.

"It's still in the early adopter stage," said Tom Jenkins, a senior consultant with telecommunications consulting firm TeleChoice. "But over the next year, you'll see more businesses deploying it as they get high-speed Internet access, whether it's cable or DSL [digital subscriber line]."

In the consumer market, Net telephony companies came out with long-promised voice services--such as unified messaging and signed partnerships with Web portal sites, computer makers and others--in a move to market the technology to the masses.

Deltathree began offering software that lets people call brick-and-mortar stores from the Web to buy products. It also began offering unified messaging services, which include a feature that allows people to have their email read over the telephone.

Net2Phone integrated its voice software into America Online's popular ICQ instant messaging software, allowing people with their computer microphones to talk online for free. Net2Phone's latest software also allows users to send faxes over the Internet.

The two rivals, which had successful public offerings this year, make money off computer-to-phone services and calling cards that use traditional phone-to-phone service run over private Internet-based networks.

The companies faced new competition this fall, however, when a Silicon Valley start-up called Dialpad.com began offering free domestic long-distance calls. The company, whose service is available for PC-to-phone calls, makes its money by placing advertising on its software.

Net2Phone made some of the biggest headlines this year with several high-profile deals. In addition to its AOL deal, the company partnered with Compaq Computer, which installed its voice software onto its Presario PCs. Sprint also inked a deal to try Net2Phone's service in Asia.

Analysts said 1999 will be known as the year investors poured millions of dollars into Internet telephony firms. About half a dozen firms had stock offerings this year. Net2Phone raised $81 million in its IPO in July and saw its shares soar as high as 69 before dropping to around 50. The company has a market value of $2.6 billion.

Deltathree, whose market value is $524.7 million, has seen its stock nearly double to 26 since its public offering in November.

Equipment maker Clarent, which raised $60 million in its IPO this summer, reached a high of 110 before dipping to its current price of 66. The company has a market value of $1.9 billion. Carrier iBasis has a market value of $1 billion.

Internet telephony carrier ITXC, which also went public this year, has a market capitalization of $1.2 billion, and equipment maker Gric Communications has a value of $409.8 million.

Venture capital firms, too, pumped millions of dollars into Internet telephony start-ups. Multitude, which makes software that allows people to chat over PCs, announced recently that it has secured $35 million worth of funding.

Analysts expect Internet telephony to continue to explode in year 2000 and beyond. Probe Research analyst Mine predicts Net telephony calls will reach 4 billion minutes in 2000. Consulting and market research firm Frost & Sullivan predicts the market will grow to 634.5 billion minutes by the year 2006.