February 2001

BY GREG GALITZINE

The answers that follow address that key question, as well as several other matters that reflect the global state of Internet telephony. Other questions that some of the vendors addressed included whether or not they were currently doing business internationally; the difficulties facing U.S.-based companies when attempting to enter international markets; obstacles regarding standards and interoperability in the international market; and the state of deregulation internationally, and how that affects someone attempting to do business overseas.

I hope that this feature sheds some light on what vendors who are "in the trenches" see as notable themes in the international market for Internet telephony.

Dialogic (An Intel Company)
Much of the early success of Internet telephony was due to international arbitrage opportunities. The U.S. enjoys relatively low long-distance telephony rates because of deregulation and widely available competition. However, this is not always the case in other countries. The rate arbitrage opportunities offered by Internet telephony were, and still are, an easy sell for certain population segments in these countries. So being able to affordably call the U.S. from country A, or to call from country A to country B, has always been a driver for this technology.

Having just returned from Telecom Asia in Hong Kong, I can say with certainty that internationally, Internet telephony has a bright future. Customers there understand there is more to IP telephony than creating a gateway and rolling out a gatekeeper. Customers are also asking good interoperability questions -- questions that will continue to drive vendors to tighter standards and, just as importantly, open standards that will help the entire industry grow.

Also, one change I've seen in the past two years is that governments around the world are becoming more educated about Internet telephony. They understand the pros and cons much better now, which can only help our industry. I am confident the next-generation network and the new application promise offered by IP telephony will drive the next wave of deployments worldwide.

-- Jim Machi, Director of Product Management, Converged Communication Server Products

VirtualCom, Inc.
Yes, we are doing business Internationally, especially between the U.S. and Latin America. For us, as Collaborative Communication Solutions Providers (CCSP), there are four major issues confronting us as we deploy into Latin America:

• Vendors (and their lack of international support);
• IP telephony (Varying standards, local signaling issues, IP issues);
• Business Issues (taxation, invoicing, and regulatory); and
• Differences in the appreciation of the VALUE in Value Added Services.

From the first three categories or points of view, there is no doubt it is easier to do it in the U.S., for the U.S., than anywhere in Latin America. As for the fourth, it is different to bring 'value' to an enterprise doing business in Latin America than it is in the U.S.

It is a matter of the 'customer's problem' being different in both cases, and their perceptions of the 'value' of the service thereof being different. It is 'Regional across Countries' solutions as opposed to 'U.S. National' solutions that affect the design of the software or the service to be delivered to them.

Clearly, a combination of factors currently evolving such as deregulation, consolidation, wireless, Web Portals, and standards such as XSL/XML, SIP, and others, will make things a lot easier and quicker than they were before for the companies that learn how to combine all that. It obviously depends on the business you are in -- from simple to complex: wholesale IP, calling cards, enhanced services (directories, messaging, conferencing, etc.). That is why VirtualCom's objective is to be an enhanced Services 'global' Collaborative Solution Provider between the U.S. and Latin America in a multicultural world of regional players that offer only local services, with very few exceptions.
-- Eric Schummer, Chief Strategic Officer

ITXC
Is your company doing business internationally?

ITXC is a provider of voice on the Internet worldwide. With over 309 points of presence (PoPs) in 74 countries, ITXC routes voice calls via ITXC.net -- the largest global network for voice on the Internet.

What are some of the difficulties facing U.S.-based companies when attempting to enter international markets?

Before providing Internet telephony services on a global basis, U.S.-based companies must understand the markets they are addressing. Two ways to achieve this are to:

• Develop an in-country sales force that understands market dynamics and relates to customers on a local level.
• Understand regulatory and legal obstacles.

Are there tangible difficulties as regard standards and interoperability in the international market?

Standards and interoperability issues are the same worldwide. The IMTC iNOW! Initiative (founded by ITXC, Lucent, and VocalTec) is working toward interoperability to enable service providers to serve customers using equipment from multiple vendors.

What is the state of deregulation internationally, and how does that affect someone attempting to do business overseas?

While most of Western Europe is deregulated with mature competitive markets, South America is in the early stages of deregulation, and India and most African countries are still regulated. Therefore, the value propositions in each country are very different. For instance, in a fully competitive market, most carriers send some of their traffic via Internet telephony networks and reap better margins. They often differentiate themselves by offering e-calling services like Web or PC-to-phone services, and voice enabling e-commerce services, which can't be offered on the PSTN.
-- Eric Weiss, Executive Vice President, WWeXchange

Alliance Systems, Inc.
Is your company doing business internationally?

Yes. Over 17 percent of Alliance Systems' business comes internationally, at a higher growth rate than our domestic business. The EU market area is particularly relevant to the future growth potential of Alliance.

What are some of the difficulties facing U.S.-based companies when attempting to enter international markets?

Perhaps one of the most pressing issues is knowledge of each country's business practices. The European Union is not a "United States" and a manufacturer needs to learn the intricacies of the market, country by country. The ability to partner, or extend relationships from the United States into the EU market, is key to an economical business development strategy. Obviously the language, time zone difficulties, and the currency exchange risks involved make the management of foreign subsidiaries difficult, and ultimately add to the risk of moving into those markets.

Are there tangible difficulties as regard standards and interoperability in the international market?

In the telecommunications world, the standards are well documented. The inherent problems involved with telecom provisioning to the local carrier remain difficult both overseas and in the United States. Europe is better understood in this provisioning process than other areas of the world. The translation of infrastructure requirements into the regulatory world in the European Union is already an issue for telecommunications companies. The regulations regarding commerce in the European Union is another matter, and requires technical assessment and assistance by partners in the target countries. Ultimately, the team assigned to conducting business in the European Union must be experienced, understand the language, and preferably, be native to that country.

What is the state of deregulation internationally, and how does that affect someone attempting to do business overseas?

In the telecommunications world the standards are well published, and deregulation is eliminating many of the market's boundaries. Particularly in the European Union, the breakdown of regulatory barriers is making it easier for U.S. manufacturers to gain access in the market.

The European Union is a significant market opportunity for Alliance Systems. It is also strategic because technology is developed and deployed in the United States, then moves to the European Union as companies expand globally. By becoming an adept international player, Alliance is able to service global clients by modifying technology to fit specific category requirements. The EU market is also hungry for technology solutions, and the Europeans are more accepting of foreign products and ideas. These solutions, however, must be delivered by native businesses. That is why Alliance's preferred model for international work is partnership with one or more native companies. To compete today and drive the growth rates that are attractive to the market, one must become not only multinational, but global.
-- Rusty Cone, President

VIPSwitch
Bypass carriers have traditionally used International Internet telephony to reduce long-distance toll charges. For the most part, voice traffic was transported via private networks and so the bypass carrier tightly controlled the Quality of Service (QoS). The domestic VoIP market has exploded due to three major factors: The deregulation of the telephone industry; the availability of high-capacity fiber and bandwidth; and the willingness of the "market" to fund these companies. Unless all three factors exist internationally, the international deployment of VoIP will not grow at the same pace enjoyed within the U.S.

Telecommunication deregulation means two different things. The opening up of the market allowing foreign investors to participate in country with the existing government authorities, or the outright sale or outsourcing of the telecommunications infrastructure to foreign investors (partnered with local companies). The problem highlighted by deregulation is the poor state of the international telecommunication infrastructure within these countries and the large amounts of investment needed to bring them up to speed. With notable exceptions, this process is occurring, albeit at a very slow rate. Also, the fiber and bandwidth necessary to provide full VoIP is usually not as readily available as it is within North America. This implies that the international Internet telephony market can grow only as fast as the infrastructure investment within those countries and, again, only upon the market's willingness to support such investments.

Aside, from the above, the greatest technical difficultly in fielding VoIP internationally is the required support for local signaling variants. In North America, the telecommunications infrastructure has settled on SS7 to provide the signaling for voice and cellular services. VoIP call controls -- be it H.323, Softswitches, MGCP and/or SIP -- must eventually terminate the signaling (at least for the immediate future) within the existing telephony infrastructure. Internationally, this becomes more difficult due to the many signaling variants supported worldwide. For example, there are over 80 different variants for R2 worldwide, with other countries having developed their own SS7 variants (e.g., Brazil, Mexico, Spain, etc.), while yet others use ISDN. These issues are only beginning to be recognized but I am confident that the VoIP industry will be quick to address these issues and any others that may crop out.
-- Beverly Wilks, Director, Marketing Communications

VegaStream
VegaStream, producing VoIP gateways, is originally a UK company, which set up a U.S. office -- VegaStream, Inc. -- in San Francisco in Fall 2000.

For VegaStream, the "international" market has essentially been our "home" market until the opening of our office in the U.S. Our key market has traditionally included the UK and Western Europe, particularly the Scandinavian countries. In the past year, we have also seen increased VoIP activity in more southern European markets such as Spain and Italy. We have seen other markets worldwide becoming more involved such as Australasia and Asia although we feel it is still early times for these regions. Within these markets we sell our VoIP products to several distinct target groups: Large telecoms companies with Virtual Private Networks (VPNs); infrastructure manufacturers who are currently swapping their traditional telephony hardware over to VoIP software; CLECs with Centrex applications (primarily in Europe); niche enterprises requiring VoIP; and ISPs.

At VegaStream we decided to set up a U.S. office for several reasons, the principal one being that the VoIP markets are still very different and separate, moving with their own individual momentums, and in which VegaStream, a major producer of VoIP products needed to be equally present in both.

We have found that there are many fundamental differences between the U.S. market and the international market:

• Market Growth Rate. The U.S. market is perhaps growing at a faster rate currently than Europe. Whether this is because of deregulation (which is scheduled to take place in the UK in summer 2001), increased usage of the Internet in the U.S., or other reasons, is still unclear. It may be a combination of all these factors.
• Product Standards. European product standards are not transferable across the Atlantic. European VoIP products need to conform to published, defined standards and our products are lab tested and the results are documented -- only then can any level of production commence. In the U.S., we have found that the standard testing is much more informal and carried out at open bakeoffs, taking place simultaneously with production and feature refinement -- normally making the U.S. pattern a faster route to market.
• SIP vs. H.323. SIP is the most common standard used in the U.S. We have found that the SIP approach is a much more immediate solution and a more informal approach. H.323 is the general standard in Europe and all products must conform to decreed standards from the ITU (International Telegraph Union).
• Opportunity. Smaller VoIP companies perhaps have more opportunities in the USA. The European VoIP market tends to be currently dominated by the larger companies.
• Cultural differences. It cannot be underestimated that cultural and linguistic differences, and time zone and geographic differences make the U.S. and the international markets two very distinct and separate markets for VoIP.

We have found that in order to survive both in the U.S. and international Internet telephony markets, you need to have products and personnel who can handle these essential differences and yet which can competently compete and satisfy the market demands in both at the highest level. At VegaStream, being aware of these differences between the U.S. and the international markets has meant that the only difficulties we have experienced are those of being able to keep up with demand for VoIP products.
-- Helen Taylor, Marketing Services Manager 

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