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Networking giants push Net phone systems

Networking companies continue to hawk Internet-based phone systems, but so far the market demand hasn't met the hype.

LAS VEGAS--Networking companies continue to hawk Internet-based phone systems, but so far the market demand hasn't met the hype.

Cisco Systems, Nortel Networks and 3Com this week unveiled Net-based phone systems aimed at businesses. Using these systems, employees can make Internet-based phone calls within a corporate network or to a traditional phone system if the calls are outside the company.

For more than a year, networking and telecommunications equipment companies, including Lucent Technologies and Cabletron Systems, have preached the concept of "convergence," or having all network data and voice traffic run through a single connection based on Internet Protocol (IP).

The companies say Net-based phone systems are cheaper alternatives to traditional technology, dubbed PBX systems, which is used to send and receive voice calls. They argue that marrying voice and data services will make corporate networks easier to maintain.

The networking companies are tackling Internet telephony in an effort to sell more equipment to the corporate market, where revenue growth has declined in recent years.

Most analysts, however, are skeptical of the market, which is expected to grow to $5 billion by 2003 from $300 million in 1999, according to market research firm Cahners In-Stat Group.

Despite the heavy marketing pitch from networking companies, few businesses are buying the new equipment because their existing phone systems work well, said Forrester Research analyst Charles Rutstein.

"They've been saying for three years that this whole voice and data integration will take off," Rutstein said. "And it's gone nowhere."

Nevertheless, at the Networld+Interop conference here, networking executives said they believe the nascent market will soon explode as businesses warm to the idea of Web-based phone services. The services include unified messaging, or the ability to check email and voice mail on your computer, and Web-based customer service, which allows online buyers to click a link on a Web site and call a customer service representative.

Cisco and 3Com say they each have more than 1,000 customers for the new systems, but they admit the market is still young and initial customers are those willing to take chances on emerging technology.

"There will be demand for the new-world capabilities, but it will be like the Palm, where it took time" for the market to take off, said Bruce Laird, a Cisco senior marketing director, referring to the popular personal digital assistants.

Nortel this week unveiled its first Net-based phone system for businesses of all sizes and announced that two companies--antivirus software maker Symantec and Internet consulting firm Gestalt Technology--are testing the equipment.

Cisco and 3Com this week updated their products for the small and midsize markets. Cisco consolidated four technologies into one box to make it easier for businesses to use the products, while 3Com added support for 911 emergency services and support for ISDN connections.

Forrester's Rutstein said it's smart for the networking companies to target smaller firms, which have to decide between a Net-phone system and a costly traditional phone system.

It also makes sense for companies that have offices overseas, he said. The Net-based phone calls between offices could lower long-distance bills.

But the cheaper costs aren't going to save companies a whole lot of money, Rutstein said. "Long-distance calls are now a nickel a minute or less. What companies need to realize is that to get potential savings, the trade off is reliability."

Overall, analysts said most businesses are reluctant to buy the systems until the technology is proven reliable.

"Large companies now have an unbelievably reliable phone system, so it's not compelling to replace it with new technology that is not nearly as reliable," Rutstein said.