December 1998

The Fax-Over-IP Market: Ripe With Possibilities

BY LAURENCE J. FROMM

Low-hanging fruit: That's the emerging opportunity for fax-over-IP products and services. Fax is a natural for Internet telephony, for two simple reasons. First, corporations spend an enormous amount on fax transmission each year. Also, fax is immune to the moderate latency that can plague Internet telephony service. Despite its promise, fax over IP has yet to make any sizable impact in the market. But that picture is about to change. Three key factors -- awareness, technology, and standards -- are all converging to bring the true potential for sending fax over IP tantalizingly within reach.

THE OPPORTUNITY
In 1998, about $83 billion is being spent on sending faxes, according to Pete Davidson, president of Davidson Consulting. Contrary to popular perception about the demise of fax machines, the use of fax is actually increasing. Despite ever-lower transmission costs, fax service expenditure is actually growing at around 6 percent a year. Moreover, 40 percent of the average company's phone bill is spent on sending faxes. (While many companies use internal tie lines for voice traffic between corporate sites, most companies still send fax over regular long-distance circuits.) By using the untaxed Internet instead of the heavily taxed phone network, corporations can save tremendous amounts off their fax phone bill - including 50 percent or more off international rates.

Moreover, the quality of a fax transmission is not affected by moderate latency. While real-time voice communications begin to degrade with more than 150 milliseconds of one-way latency, a fax arriving 2 seconds, or 5 seconds, or 8 seconds after it was sent is just as a good as a real-time fax.

Despite the natural opportunity for fax over IP, its impact has so far been almost negligible. In 1998, Davidson estimates fax over IP will account for only 0.04 percent of total fax transmissions. Why? A lack of awareness, standards, and technology have all contributed to the technology's poor showing. But this is all about to change.

AWARENESS
The reason the average Fortune 500 company is willing to spend $15 million per year sending faxes is that they do not know they are doing it. No one manages and tracks fax machine telephone bills. They get swallowed into corporate or department telephone budgets, rarely itemized or examined.

Sometimes perception does create reality. While the average CIO was unaware of any kind of Internet telephony two years ago, not only are CIOs aware of it today, but most are planning to implement it. A recent survey by the Yankee Group shows 73 percent of companies are moving or considering moving some of their telephony traffic over an alternative network. All the attention Internet telephony has received in the press, at conferences, and by the financial community is increasing awareness. The low-hanging fruit will get picked first.

TECHNOLOGY
Almost all current fax-over-IP services use store-and-forward technology. A gateway at the origination side receives the fax and sends it over an IP network to a gateway on the receiving side, which then sends it on to the destination fax machine. Two separate, asynchronous T.30 protocol sessions occur, one between the originating fax machine and the originating gateway, and another between the receiving gateway and receiving fax machine. These T.30 sessions can be offset by a few seconds, a few hours, or even a few days. And there's the rub.

It is hard to get users to change their habits merely to save the corporation money. Users like knowing that when they see the paper go into their fax machine, it is coming out on the other side. Store-and-forward fax technology changes the user's experience. Now the user only knows the fax made it to the originating gateway. If the communication breaks down between the originating gateway and the receiving fax machine -- if, for example, the user enters the recipient's phone number instead of fax number -- the fax-over-IP service provider must find some way to notify the user that the fax did not get through. There are several ways to solve this problem, but each requires a change in the way users interact with their fax machines.

We are just beginning to see gateways that can deliver fax over IP in real time. When the paper goes into the originating fax machine, it really is coming out the destination fax machine. When the receiving fax machine confirms a page, it really got it. When it does not confirm a page, it really did not get it. Real-time fax over IP provides the same user experience as normal fax transmissions.

STANDARDS
Until recently, every implementation of fax over IP was vendor specific. Products from Vendor A could not speak to products from Vendor B. Besides making networks unable to interoperate with other networks, this lack of standards has inhibited capital investment. After all, who wants to risk cornering the market on Betamax VCRs?

The standards have arrived. In June 1998, the International Telecommunications Union approved the T.38 and T.37 Internet fax standards. T.38 enables real-time delivery of fax over IP, allowing the huge installed base (70 million and growing) of existing fax machines to take advantage of Internet telephony without changing the user's experience. The coincidence of technology, market awareness, and industry standards converging at the same time will expand and finally launch IP fax product and services.

INTO THE FUTURE
Fax transmission will always exist to fill the need for image communication. Existing Class 3 fax machines, however, are destined to fade away (albeit, over a long period of time). It is wasteful to indefinitely use real-time delivery services for an inherently near-real-time or store-and-forward communication. Gradually, the market will transition from circuit-switched fax to packet-switched fax as enhancements as the T.37 standard enables end-to-end confirmation and IP fax machines become available. T.37 enables more efficient packetization and allows fax traffic to be prioritized -- and ultimately priced -- at a lower rate than real-time voice and video traffic.

So for now, real-time fax is where it's at. But keep watching, because the low-hanging fruit won't stay on the branches for long.

Laurence J. Fromm is vice president, new business development for Dialogic Corporation. Dialogic is a leading manufacturer of high-performance, standards-based computer telephony components. Dialogic products are used in voice, fax, data, voice recognition, speech synthesis, and call center management CT applications. The company is headquartered in Parsippany, New Jersey, with regional headquarters in Tokyo and Brussels, and sales offices worldwide. For more information, visit the Dialogic Web site at www.dialogic.com.