The Broomfield, Colo.-based telecommunications firm this week announced it will offer voice service over its Internet-based networks. The move is the culmination of Level 3's original plans to build a network based on Internet technologies that could handle voice and data at low costs.
Similar to data on Internet-based networks, voice-over-Internet protocol (VoIP) technology takes a voice call, splits it into a number of information "packets," and reassembles it at its final destination. Technology like voice-over-IP is expected to make networks more efficient and less expensive to run.
The main strategy of upstart telecommunications carriers such as Level 3, Qwest Communications International and Global Crossing is to offer voice and data services at a lower cost, to undercut entrenched competitors like the Baby Bells.
Analysts say that Level 3's decision to offer voice services is a vote of confidence for IP-based networks, which have been plagued with technology problems in the past.
"I think the announcement proves [VoIP] is a viable commercial service," said Roger Wery, vice president of communications research for Renaissance Worldwide, a technology management consulting firm.
The new packet-based networks are expected to operate more efficiently than older circuit-switched systems, giving operators a cost advantage in the increasingly competitive communications market. To be sure, long-distance profit margins have fallen quickly in recent years, and carriers are looking for cost savings wherever possible.
Packet-switched networks also are better suited for data and Internet traffic, which most analysts expect will dwarf voice in terms of network traffic and revenue in only a few years.
Level 3 and its next-generation competitors are not alone in their quest for cheap and efficient networks. Companies including AT&T, Sprint and MCI WorldCom are all working on various plans to implement some sort of network strategy that integrates Net-based technologies. Upstart Williams Communications also announced plans this week to buy equipment for Internet telephony.
As technology for Internet-based networks improve, analysts and company executives believe a number of new voice-based IP services will emerge, including conferencing, voice mail and all-in-one messaging services.
"Early on voice-over-IP was about cheap voice," said Hilary Mine, executive vice president at Probe Research, a telecommunications research firm. "But longer term this is about an honest-to-God converged network that can provide converged services."
Level 3's VoIP service, called (3)Voice, is now available in 10 major markets, and as many as 25 markets will be offering the service by early next year, executives said. The firm is targeting smaller telecommunications carriers, Internet service providers (ISPs), and local phone and wireless companies for its wholesale services.
Level 3 executives said they plan to announce new services next year.
"[(3)Voice] is the first step in what is likely to be a long process of rolling out additional applications, which will have people looking at voice as just one application," Level 3 chief operating officer Kevin O'Hara said.
In addition to building out its 16,000-mile domestic fiber optic network, Level 3 also is quickly building local metropolitan networks and dozens of data hosting centers, giving it the ability to offer new services.
Yet even before advanced services are introduced, analysts and other critics have questioned the ability of Internet protocol (IP) technology to handle simple voice traffic. Early VoIP technology was plagued by technical problems that affected the quality of calls, analysts have said.
"The equipment hasn't been ready. I don't think Level 3 was late as much as they were waiting to be right to market," Mine said. "Qwest went out too early. The quality stank."
Level 3 executives said they waited for the technology to improve before offering service.
"Fundamentally the architecture and the product are indeed ready for prime time," O'Hara said. "When you're selling to carriers we didn't think you could offer an inferior service or a dial-around scheme, so we took our time to offer a carrier-class product."
Although most analysts say voice profits are falling and expect the new voice service to only account for about 5 percent of Level 3's communications revenue next year, executives believe a voice offering is important.
"It represents a large portion of the available revenue in communications today," O'Hara said.
Separately, Williams Communications announced it would buy IP-based telephone gear from Sonus Networks in a deal that could be worth as much as $100 million over three years. Williams will use the equipment to deliver voice services using asynchronous transfer mode (ATM)