April 2000

BY RICH TEHRANI

Last month I reviewed the fact that Internet telephony, a field that many said would never be a serious threat to traditional telephony, is taking Wall Street by storm. Internet telephony service providers are enjoying incredible valuations in the billions of dollars as it becomes evident that the reign of traditional telephony is rapidly coming to an end.

Of course, disruptive technologies are not unique to communications -- the media has been saying that mainframes are dead and PCs are the future for over a decade, but in reality, the mainframe market is still alive. In fact, it's growing. The analogy here-- and it is an accurate one -- is that the bulk of innovation and the future of computing lies in the PC platform, not the mainframe. So too with Internet telephony. Traditional telephony has a limited future but with trillions of dollars invested in infrastructure, it will take a while for the circuit-switched world to whither away.

ANALYZE THIS
While it may be obvious today that converged networks are the future, I recall being laughed at by more than one telecom company president when we announced Internet Telephony magazine a few short years ago. People thought that TMC had lost its mind in those days when we were preaching the convergence of voice and data over IP networks. This is probably why no one is more excited than our parent company -- TMC-- when analysts predict the future of telephony is Internet Protocol Telephony.

The most recent analyst forecast regarding IP telephony comes from Cahners In-Stat Group who predict that LAN telephony will be the dominant enterprise architecture by 2004. In fact In-Stat concludes:

• The features, applications, and ultimately decreased pricing of LAN telephony will result in the demise of PBX systems.
• IP packets will rise over Ethernet technology due to its openness and ubiquity.
• Benefits will include: Complete handset and extension portability to remote locations, integration with contact management software, and worldwide IP-based contact centers.
• Following interoperability among vendors, eventual retail of packet handsets to consumers will occur causing the industry to ignite.
• The U.S. LAN telephony market will grow to nearly $1.5 billion by 2004.

TALKING THE TALK & WALKING THE WALK
But why talk about predictions and stock prices when these products are selling so well and we can cite actual sales figures? According to 3Com, they have already sold close to 2,500 NBX phone systems through their network of close to 500 independent resellers in 50 states! As you may recall, 3Com purchased NBX (one of the first IP-PBX vendors on the market) and has used the 3Com brand recognition to sell IP-PBXs into corporate America.

A recent conversation with 3Com was a real eye-opener; I feel 3Com has the potential to dominate the corporate IP telephony market if they play their cards right.

For years prior to being a publisher I was an MIS director, and during my tenure as such, I would regularly purchase 3Com hubs for our corporate LAN. 3Com was the hands-down leader in this area and although they cost more, you couldn't go wrong buying 3Com hubs and NICs. They now tell me that they are entitled to the lion's share of the LAN telephony market, and you know what? I agree.

There are so many small offices out there that recognize 3Com as a networking leader, especially in hubs and NICs. It is in these locations where 3Com IP-PBXs should be a no-brainer. This is especially true in light of the fact that 3Com will make sure that all your 3Com datacom and telecom equipment will work together seamlessly.

By leveraging their strength and good name in the SMB market they have been very successful in selling phone systems to modest size companies. 3Com now plans to expand into the large enterprise and call center markets where they will battle Nortel Networks and Lucent Technologies. Cisco of course is a dominant player in the large enterprise market with aspirations to dominate call centers as well.

However, 3Com is committed to becoming a major player in the IP telephony market and they will leverage their data networking products and Palm platforms to help them sell telephony products. The first step in this strategy is to voice enable all 3Com platforms. (This, by the way, is what all of their competitors will have to do as well. We can soon expect almost all datacom equipment to have the ability to seamlessly be telephony enabled.) And, not only does 3Com have a head start in selling IP-PBXs, they are beginning to release lists of satisfied customers and other important partnerships that will help keep them on the forefront of corporate IP telephony.

Home Shopping Network
3Com is not shy when it comes to sharing their customer wins. For example, one of their installs is at Home Shopping Network (HSN), where an NBX 100 Communications System is being used in their shipping and storage facility. The IP telephony phone system is deployed over the company's existing Ethernet LAN where the phones act as ordinary IP devices on the network. The phone system has saved HSN nearly 60 percent of the costs of a traditional phone system and in addition, allows them to manage the phone system remotely from their headquarters, which of course results in additional savings. The deployment was so successful that HSN plans to deploy 3Com NBX systems in other locations as well.

New Mexico State University
We could go on and on talking about customer installs for any number of IP telephony PBX vendors and each sale is one step closer to a packet-switched telephony world. Where we can expect exponential growth however, is where we train entire classrooms of students about the benefits of this burgeoning technology. That is why it is important to support educational initiatives in the convergence space. One such example is New Mexico State University (NMSU), the first I am aware of to offer a course where students get to deploy converged voice/data networks as part of their coursework. A grant from the FBI's national security technology program in conjunction with Sandia Labs makes it possible for NMSU to afford NBX systems.

By successfully deploying NBX phone systems at NMSU, 3Com has ensured generations of graduates will be comfortable deploying and working with NBX systems in the field. Having educated graduates who understand how to install PBXs will help grow our market even further by increasing awareness of converged platforms.

CONCLUSION
If you are trying to pick a long-term winner in this market, I don't envy you. The market is so vibrant with acquisitions that you are likely to always have product support and a migration path, regardless of which platform you choose. Certainly 3Com wants to be number one in LAN telephony, and they will be at war with Cisco, Nortel, and Lucent in doing so. Each of these companies will try to leverage their core strengths to grow their packet switched business. But 3Com has two arrows in its quiver that will help it fight:

1. They are known for rock-solid LAN products in small to medium enterprises.
2. They are the only vendor among their competitors to offer a handheld computing platform (Palm) and that platform is the defacto standard. If they can leverage the Palm as a seamless wireless access device in the enterprise and beyond, they will be difficult to compete with.

Of course the IP telephony market is moving so quickly that it is difficult to predict what will happen next week, much less in the long term. Besides the plethora of traditional datacom and telecom players, a host of independent companies are producing truly leading-edge LAN telephony products. One thing is for certain, the number of new technologies and acquisitions will only increase, meaning that we will be faced with even more choices as time progresses.

Rich Tehrani is President, Group Publisher, and Group Editor-in-Chief for TMC publications. He welcomes your comments at rtehrani@tmcnet.com