November 1998

BY PAM THOMPSON

If you've been reading about the future of Internet telephony, you may have noticed that prophecy is a function of profit. Companies often base their predictions on where they think they -- and not their competitors -- can make the most money, often resulting in contradictory assessments. But the explosive growth of the Internet telephony marketplace has taught us one thing that nearly all companies can agree on: there is telco time, and there is Net time. In Net time, change is the only constant, and only those companies nimble enough to deploy rapidly, scale massively, and customize quickly will emerge as key players.

So how does a company stay nimble and quick in the IP-telephony enhanced services marketplace? One method is to invest in enhanced services solutions that not only promote innovation but also ensure reliability. Until recently, this combination of innovation and reliability has eluded enhanced services vendors. For example, systems provided dial tone reliability, but moved in telco time since they were proprietary, inflexible and costly to change. And computer telephony systems designed for business installations boasted the latest innovations, but were not designed to scale or to meet the high availability demands of a carrier environment. Telcos and service providers can no longer afford to choose between innovation and reliability as they deliver enhanced services to the large potential consumer market for IP telephony.

Before exploring the specifics of innovation and reliability for enhanced services, we should make three statements about the direction of the emerging IP-telephony marketplace:

• Voice, fax, data, and video communications are converging toward a single, packet-switched network.
• Packet-switched networks offer significant economic advantages over circuit-switched networks.
• Multimedia, open communications infrastructures are enabling a rich new generation of enhanced services that could become as ubiquitous as the telephone is today.

Enhanced service providers that can bring innovation and reliability to Internet telephony will be numbered among those who are able to keep up.

BETTER ENHANCED SERVICES
Over the next several years, millions of consumers will demand a customizable virtual home or virtual office. They will want to customize their mailboxes and manage their voice, fax, and e-mail messages using any device connected to the Internet. And they will want to present their callers with a variety of greetings, languages, and voices. Then there are other telephony features - call screening, wake-up calls, reminder messages, extra mailboxes, calling cards, paging - as well as secure personal address books that allow users to speed-dial their contacts at any time.

Service providers should invest in a system that gives them the flexibility to bring these new services to market quickly. They will want to customize mailboxes to appeal to specific demographic groups and tap new customer segments. They will want to bundle unified messaging and Web access with other network services such as wireless and long distance. Since messaging repeatedly pulls users to the same point, service providers should also generate new sources of revenue when they integrate personalized content and commerce services.

Above all, service providers need to offer messaging services targeted to each of their end user segments. The old regulated model of "one size fits all," like the Ford Model T, is finally a thing of the past. This is not to suggest that innovation means overloading applications with features and complexity. Innovation in the enhanced services space will simply need to come in the form of compelling end user value.

It is important that new voice, fax, or e-mail messaging systems be as intuitive and personalized in the telephone interface as they have recently become in the Web interface. Enhanced services that can be targeted to fit specific segments will provide service providers with the most compelling form of differentiation - personalization and value - which will increase penetration and create new markets.

OPEN SYSTEMS
Enhanced services solutions comprised of open systems that integrate applications and hardware from multiple vendors can provide significant benefits to telcos and service providers. Ideally, service providers will be able to make the transition to new solutions rapidly, leveraging continuous innovation, then pass along the cost savings. Also, with the right design, open systems can provide additional benefits: rapid customization, adoption of standards, scalability, high availability, and an architecture that can be distributed. Each is briefly considered below:

Rapid Customization. Carriers will need to rapidly customize enhanced services or modify major facets of telephony applications such as telephone and Web user interfaces, database, and phrase management - all in Net time. These changes have historically been difficult or costly to incorporate on proprietary platforms. With open systems, it is much easier to develop new applications, as well as to integrate exciting new applications from third party developers. Enhanced services providers will be smart to build rapid application creation environments into their platforms.

In addition, service providers are beginning to embrace enhanced services platforms built on the Windows NT operating system as they see obvious price-performance benefits and the groundswell of exciting new applications emerging around NT. Microsoft designed NT, its development tools, and their component architecture (COM and DCOM) to make it fast and easy to develop and integrate applications. For instance, an open systems developer might use COM to interface unified messaging with the latest in personal information managers (PIM) or voice activated dialing (VAD).

Standards. H.323 details interoperability between terminals, gateways, and multipoint control units, and it has quickly developed into the IP-telephony standard, so enhanced application platforms need to be H.323 compliant. Systems must also interface with standard messaging e-mail protocols like SMTP, POP3, IMAP4, and VPIM for voice mail or fax messaging over the Internet. Following standards is critical for interoperability with other IP-telephony solutions.

Modular Architecture. Designers are choosing component-based hardware and software architectures to ensure rapid deployment of new applications and functionality. This modular approach enables developers to roll out new applications, new protocols, and new hardware and software components easily and rapidly.

Distributed Architecture. Since the cost of hauling calls over an IP network is low, there may no longer be an economic advantage for geographically dispersed service equipment. Telcos and ISPs can centralize or regionalize their enhanced service platforms to reduce personnel costs and minimize transport costs.

RELIABILITY ISSUES
Note that user demands must be accommodated or the service provider will be overwhelmed. The system will crash - the antithesis of reliability.

Scalability. In addition to standard requirements for scalability involving company growth and the changing marketplace, higher levels of adoption and usage translate to a higher requirement for scalability. With the cost advantages of a centralized solution, the scalability requirements will be even higher. Providers must be able to meet these demands when they arise in order to stay competitive.

Availability. Higher levels of scalability translate to higher requirements for availability. Therefore, as more service providers offer IP-telephony, they will have to invest to ensure their networks and open-system enhanced service platforms operate with the same Quality of Service (QoS) and availability as a PSTN operation.

THE FUTURE
Until now, enhanced service solutions were proprietary. But today companies are building carrier grade, open-system, Internet-ready enhanced application platforms and applications - combining innovation with reliability. In addition, new solutions bring all of the elements that IP-telephony service providers will specifically need: rapid customization, an architecture which is modular or which can be distributed, and the ability to redefine scalability with availability. These elements are designed to facilitate the ongoing changes necessary to promote innovation and ensure reliability in an IP environment.

Pam Thompson is the vice president of marketing for PulsePoint Communications. PulsePoint Communications develops carrier-grade solutions for progressive and competitive telecommunication service providers. PulsePoint Communications is headquartered near Santa Barbara, California, with service and support offices in Europe and Asia. For more information, contact them at 805-566-2000, or visit their Web site at www.plpt.com.

BY SARAH HOFSTETTER

Since its introduction three years ago, Internet telephony has grown from a hobbyist's toy into a full-service, multipurpose alternative to domestic and international telecommunications. Phone companies, Internet providers, and even cable companies worldwide are rushing to get a piece of this pie, which is now estimated to grow to a $10 billion industry in less than four years.

Whereas many businesses are looking to capitalize on the enterprise market, a handful of companies have been marketing directly to consumers with great results. The initial appeal is lower rates. Long-term, however, the success of IP telephony depends on service proliferation and operational efficiency.

HOW THE RATES RATE
Taking advantage of rates as low as 5 cents per minute, users worldwide are quickly dropping the Big Three, and saving more than 50 percent off their phone bills. But how low can the rates go? Originally, companies were offering low rates to encourage usage. Now that low rates are becoming mainstream, more and more companies - even AT&T and Sprint - are selling services ranging from 5 to 9 cents per minute. As more companies compete on rate, the amount of savings to be had from IP telephony appears less significant.

Take AT&T, for instance. They've been steadily dropping their rates from 25 cents to 15 cents, and now they can be as low as 10 cents per minute. And, if you sign up online, you get that down to 9 cents per minute. On the IP side, AT&T is selling IP telephony service in Atlanta at 8.5 cents per minute. For the half-penny difference, is it really worth it to go IP?

IP TELEPHONY'S REAL MERITS
Although price is the primary cause for the IP telephony hype, most telcos aren't entering the marketplace to save money. Market analysts speculate that IP will replace traditional telecom networks within five years, and they also project that one IP line into a resident's home will be equipped to handle phone, fax, Internet, cable television, and other services within two years. IP is more flexible, and it allows for more multitasking than traditional networks.

SO WHO'S PROVIDING IP TELEPHONY?
About 30 companies now offer IP telephony services, and even more are building gateways to bridge the Internet with the PSTN. Telcos are looking to partner with ISPs, equipment manufacturers are trying to hook up with service providers, and larger companies are looking to swallow the small fries.

Now that the big telco manufacturers are in the game, concerns about reliability and scalability have been alleviated. The big drawbacks to IP telephony are quality concerns and network connectivity. If calls are routed over the public Internet, there is little if any guarantee that the call will be toll quality. As a result, IP providers resort to building their own IP network or partnering with companies that do, such as Qwest or Frontier.

Although this solves quality and network issues on the domestic front, the international market is not to be ignored. About 90 percent of the Internet telephony market is expected to be in the international arena, where the cost savings are that much greater. But how can you get connectivity up in these areas quickly, especially if you're not AT&T, MCI, or Sprint?

The answer is to partner with an ISP or other telco. The best way for IP telephony providers to get their worldwide networks up quickly is by working closely with an established ISP or telco. The established companies have a solid network and a somewhat tech-savvy customer base, and they can connect to your network. You can start selling service directly to their customers and start routing minutes quickly.

The idea is catching on, although at present many of the big guys would rather do it themselves. "They are very much into the 'Not invented here - not good enough' policy," said Bruce Kasrel, senior analyst at Forrester Research. "They'd rather do it themselves and own the network rather than partner. It's not in their game plan."

Other communications companies, however, are less concerned with proprietary issues. Instead, these companies emphasize speed to market. They choose to get in quick by partnering instead of waiting for the gold rush to calm down.

THE IMPORTANCE OF MARKET SHARE
Whether or not the telcos get in, capturing market share is integral to the success and survival of IP telephony, not to mention its perception in the marketplace. Considering that less than 1 percent of voice traffic is over the Internet today, the small but growing industry is certainly getting its weight in PR. If an IP telephony provider can emerge as an industry leader now by routing more minutes than other IP providers, then partnerships and continued success are inevitable.

Sarah Hofstetter is the vice president of Corporate Communications for IDT Corporation. IDT is a leading emerging multinational carrier that combines its position as an international telecommunications operator, its experience as an Internet service provider and its leading position in Internet telephony to provide a broad range of telecommunications services to its wholesale and retail customers worldwide. The company provides its customers with integrated and competitively priced international and domestic long distance, pre-paid calling cards, Internet access and, through its Net2Phone product offerings, Internet telephony services including Net2Phone Direct, Net2Fax, and Click2Talk. For more information, visit www.net2phone.com.