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Networks find voice

Backbone data players are salivating at the revenue opportunities created as the worlds of voice and data merge into one.

As the worlds of voice and data communications merge into one, it has become a high-stakes war to win converts. And as their equipment becomes a competitive weapon, backbone players take on the role of arms dealers who will increasingly hold sway.

Everyone is lining up for a piece of the action: From one direction, traditional data carriers such as Cisco Systems, 3Com, and Ascend Communications are making forays into voice. From another, traditional equipment providers such as Lucent Technologies and Nortel Networks, formerly Northern Telecom, have targeted voice and data convergence to expand their base of equipment for traditional telephone networks.

The result: Overburdened circuit switches deployed by carriers for voice communications increasingly will be replaced by more versatile devices that can treat voice and video as just another form of "packetized" data over a high-bandwidth connection. Data already challenges voice traffic as the primary bandwidth hog on many carrier networks.

Network equipment providers, noting the upsurge in new service provider entrants and the evolution of older circuit-based systems, are salivating at the revenue opportunities and riding an enormously hyped trend. In fact, with other parts of their businesses commoditizing at startling rates, industrial-strength equipment to handle all types of data could be the profit machine networking companies are looking for to drive them into the new millennium.

"Growth in data networking is consuming the capacity of public networks around the world," noted John Roth, chairman and chief executive of Nortel. "We're in a situation today where 50 percent of network capacity is consumed by data."

Roth has bet big on convergence, merging with data player Bay Networks earlier this year. "One thing is clear: We should be building packet networks to carry packets," he said.

Packet-based switching--a key within far-flung data networks--takes voice and data transmissions and chops them up into small segments, each with a destination address. Thus, a series of packets can be routed across whatever link is least congested, only to reconnect at the proper address at the other end.

Driving the industry to this point is the miraculous emergence of a worldwide standard for delivering information to businesses and consumers. That standard is the Internet protocol or IP, the dominant means to transmit data on the Internet.

With no industry quarrels over how various transmissions--voice, data, or video--are sent, there is nothing to prohibit a single pipe from delivering such services as a corporate video presentation or IP telephony.

Growth in data networking is consuming the capacity of public networks around the world.  We're in a situation today where 50 percent of network
capacity is consumed by data. Even those infused with a religious zeal for alternatives, such as asynchronous transfer mode (ATM) technology, soon will have methods that allow IP and ATM to coexist on the same network, providing investment protection for service providers that have built large-scale ATM networks.

All this activity is certain to forever change the communications arena as we know it, according to industry executives.

"This is the one deepest and broadest trend that will transform the way we build networks," said Eric Benhamou, chairman and chief executive of 3Com, in a recent interview. "At this point, it's irreversible."

One has to look no further than data networking king Cisco to see a company that has found the convergence religion. Cisco is betting that service providers and carriers will make wholesale equipment upgrades that will give them benefits over voice-based competitors such as Nortel or Lucent, driving growth for the company well into the new century.

"As the majority of load on the network becomes data and video, voice will become free. First, it will commoditize, then, literally, it will become free," said John Chambers, president and chief executive at Cisco, during a recent presentation to the Congressional Internet Caucus in Washington.

"IP telephony is going to bring down costs dramatically," Chambers said, waxing futuristic. "More and more companies, as well as more and more of the telcos, will build out an infrastructure that allows them to do IP that does voice, video, and data combined."

A recent study pegs the opportunity for IP-based voice service at $20.5 billion by 2002. But with a series of issues affecting the fiscal health of various networking companies, some believe it could be a while before users--particularly businesses that are the primary target for voice-over-IP services--reap the benefits that Chambers has espoused.

"If you look at the players out there, Cisco is the one banging on the table," noted Craig Johnson, principal with market watcher the Pita Group, based in Portland, Oregon. "They have the most to win and the most to lose."

Taking their cue from Cisco and the emerging data strategy of Lucent, a slew of upstarts promising high-speed IP-based devices for even the largest service provider network tasks also have their sights trained on convergence gold. But some view the promise of convergence as so large--from a market perspective--that there will be plenty of room for all.

Lucent executives have predicted that another 1,000 service providers will pop up in the next two years, adding to a current glut that continues to try and quench a business and consumer thirst for Net access, high-speed bandwidth, and advanced services. Emerging IP telephony markets will only feed more contenders, Lucent executives said.

"This so-called battle that has been characterized by observers of the industry has not been helpful. It is an oversimplification to say there will be winners and there will be losers," said Carly Fiorina, president of Lucent's global service provider business. "This is a huge revenue and industry opportunity going forward. There will be lots of winners."

Others, however, view the stampede toward a converged network world as pure hype driven by the need to sell new visions to customers. "It's going to come very pragmatically," Pita's Johnson said.

This is the one deepest and broadest trend that will transform the way we build networks. At this point, it's irreversible. "I don't think it's all hype," added Ray Keneipp, analyst with market watcher Current Analysis. "I don't think we're anywhere near as far along as the hype would make you believe, however."

One significant issue remains for these arms dealers. Data-based networks classically have not been nearly as reliable as the no-downtime voice-based systems. Most are only now addressing the need to get their networks to "five nines"--that is, 99.999 percent--uptime, a requirement if voice traffic is going to be carried across data-based fabrics.

Other issues include how data companies will approach the complex process of billing customers and providing the value-added services such as call waiting and voice mail that have contributed significantly to the bottom lines of carriers in recent years. "I tend to believe the voice players [such as Lucent and Nortel] are better positioned," Keneipp said.

A study recently completed by industry consultants Forrester Research found that of the Fortune 1000 companies surveyed, 56 percent said they would migrate voice traffic onto their wide area network links while 40 percent said they had no plans to do so. Only 5 percent of those surveyed are currently sending voice traffic over their wide area link.

The same survey found that 86 percent of the 50 Fortune 1000 companies surveyed said they had no plans to add voice traffic to their local department network. The primary reason? More than 50 percent of those surveyed said they were concerned about network reliability when voice traffic is transported over data links.

"Although carriers will build networks to deliver integrated voice and data services to users, explosive growth of data-only services and a lack of economic incentive to rip out existing networks mean that integration will proceed at a crawl," the report said.  

Go to: High-speed gold rush