Telcos to push IP telephony in 1999
Companies hope to entice more people to use telephone services over the Internet, but they must first overcome chronic problems that have plagued the technology since its inception.
IP telephony promises to simplify the delivery of voice, video, and data in a union of computer technology and telephone services. But the technology has been slow to catch on, as the lack of standards between IP networks and traditional phone networks has stymied industry growth.
"The whole industry can not take off without interoperability," said Vocaltec chief executive Elon Ganor.
Yet the industry may see some changes this year, as Internet telephony companies, including Delta Three, roll out new features to lure new customers, including unified messaging services--the ability to check voice mail, email, pages and faxes through a single device.
The standards game
Probe Research analyst Hilary Mine said the four-year-old technology still needs to resolve some problems before consumers switch to the technology en masse: service quality needs to be improved, and standards for the technology need to be established. Mine said she expects vendors to work on both issues during 1999, and hopefully resolve them by mid- to late-2000.
Up to now, vendors use proprietary networking technology. But some 10 companies, including Ascend, Cisco, Clarent, Lucent Technologies, and VocalTec have joined together to create an organization, called iNow, to work on forming industry standards.
One feature that has frustrated IP telephony users--having to dial special access numbers to make a Net phone call--may soon disappear. Mine said several service providers early this year plan to integrate SS7--technology that allows IP networks to access a public database of 1-800 phone numbers--so callers don't have to dial those additional numbers.
Analyst Bruce Kasrel, of Forrester Research, said telephony sound quality still varies from near perfect to absolutely miserable.
Vendors are taking steps to change that, Probe's Mine said. Some have built their own IP networks to ensure decent sound quality, usually on par with regular phone lines. New networking hardware technology is making transmission delays a thing of the past, Mine added.
Networking vendors have created technology that cuts down delays to 50 milliseconds, Mine said. Humans can't decipher delays that are under 150 milliseconds. "It's not the equipment. The big deal is traffic engineering on the Internet. Service providers need to engineer more efficiency," she said.
Two standards will help improve service quality as they are installed into routers, Mine said. The Reservation protocol (RSVP) allows a router to reserve bandwidth for audio and video transmission and eliminate skips. The Differentiated Services (Diff Serv) protocol will allow service providers to offer different levels of quality--top quality for voice and perhaps low quality for e-mail, Mine said.
"The phone companies set a standard and quality is a challenge," said David Greenblatt, chief operating officer of Net2Phone. "Our goal is to provide equal or better high quality products."
Price wars
Telecommunications companies will need to offer new services to get people to sign on to IP telephony, as traditional long distance phone rates are expected to one day plummet to current IP telephony levels, said Elie Wurtman, president and chief executive of Delta Three, based in Israel.
"As telecom pricing comes down, the big differentiating factor will be value-added services. Given the popularity of the Web, anything we can do to integrate communication tools to a Web interface is a sure-fire winner," Wurtman said.
IDT, owner of Net2Phone, for example, plans to launch a portal Web site in late January that will allow users to set up an account that lets them check email, news, and stock quotes through the phone, said IDT spokeswoman Sarah Hofstetter. The portal, tentatively named EZSurf, will also link to e-commerce Web sites, allowing users to call stores from their browser to buy products.
Kasrel said Internet telephony will lose its price advantage in the United States early in the next decade as traditional phone services drop prices to compete. Currently, U.S. Internet telephony users save about 60 percent on international calls and a few cents a minute on domestic calls, Kasrel said.
"Internationally, there's a lot of money to be made. Domestically, there's really no benefit," he said.
Forrester Research expects consumer spending on Internet telephony will reach $1 billion in 2002. Internationally, use of IP telephony will continue to grow beyond 2002, thanks to business travelers and residents of countries where phone service is expected to remain expensive.
Domestically, however, Kasrel believes the U.S. Federal Communications Commission will further erode Internet telephony's price advantage in 2001 by imposing long distance access charges to Internet calls. As a result, telecommunications companies will have to invent unique services to better compete and stave off a perpetual price war, he said.
Internet telephony vendors, including AT&T, currently offer a service that allows consumers to launch audio conference calls and participate in Web chats. IDT and Delta Three plan to offer audio conferencing for gamers at the end of the year. "Gaming is going to take off in a huge way," said Wurtman, of Delta Three.
But will new applications on the PC really drive widespread adoption of Internet telephony? Jim Kwock, general manager for AT&T's global IP telephony services, believes mass adoption will result from a "killer application" that hasn't been invented yet.
Mine said that Internet telephony has the potential to reach a mass audience within five to seven years as issues, such as bandwidth, get solved. With cable companies performing trials on IP telephony through cable later in 1999, and DSL service coming soon, Greenblatt believes the industry is two or three years away when people can have constant video and audio communication with TV.
"We're in the early generation of multimedia PCs. It's awkward to get on the Web. Not everyone is on it," Greenblatt said. "You can dream, and see this unfolding several years from now."