The original, industry-creating, killer application for IP telephony was
the phone call. It was an irresistible, and ultimately workable, premise. A
phone call made using the Internet was cheaper than other calls. Companies
could enjoy the rate arbitrage advantage of making a long distance call for
the price of a local call, plus the ability to use the Internet or some
other IP backbone as the long distance infrastructure.
In last monthï¿½s Industry Insight column, Analyzing The Shrink, we
turned a critical eye to past, present, and future IP telephony analyst
reports. As I researched that column, it struck me that even though
historically the entire IP telephony industry has been floating on hype,
this original killer app has become a boring story flying below the radar.
(I guess an expected compound annual growth rate of more than 125 percent
just isnï¿½t news anymore.)
I think one reason for the waning excitement is that many industry
pundits have said that if we donï¿½t find a ï¿½realï¿½ killer application,
IP telephony will eventually just disappear. Itï¿½s not too hard to imagine
telcos reducing their rates to be equal with IP telephony rates. Since the
quality of the traditional time division multiplex (TDM) phone call will, to
some people, always be perceived as ï¿½better,ï¿½ who would want to use IP
Bad IP telephony news has also caused some to wonder about the industryï¿½s
future. One cause for concern is that some of the ï¿½freeï¿½ PC-to-phone
offerings have been discontinued. Another is that some of the early
innovator companies have gone out of business. But I look at this as a
typical business cycle. When any innovative industry moves to adolescence,
it sees shake-ups and shake-outs. This only makes the industry stronger. And
thatï¿½s where we are now in the IP telephony industry.
Nevertheless, some have started to worry, and to search for the next big
thing ï¿½ the app that will strike fear into the hearts of traditional
telcos. Most of the talk (even in this column) has centered around
innovations and applications that are easier or more efficient using IP
telephony, and even some that are impossible using traditional TDM.
Applications like instant messaging, voice portals, contact centers, true
(really ï¿½ this time we mean it) unified messaging, and IP PBXs, plus
standards and call control issues, are all getting ink. And they probably
deserve it, since they show the full extent of convergence and change that
IP telephony promises.
But I think that without the resolve of the original killer app, the rate
arbitraged telephone call, the industry today would be limping along instead
of looking ahead to tremendous growth opportunities. So letï¿½s take a
closer look at that original IP telephony application. The debit card and
calling card companies first brought IP telephony to consumers. The growth
of the industry was fueled by the promise of making simple phone calls less
expensively. Typically, areas with less competition from traditional telcos
ï¿½ and thus higher rates ï¿½ were the prime markets segments for IP
telephony. This means weï¿½re not talking about U.S. domestic service.
Instead, weï¿½re talking about Asia and South America, with maybe someone
from the U.S. on one side of the phone. Since the world isnï¿½t yet fully
telecom deregulated, these rate arbitrage opportunities still exist.
The traditional telco now knows these new applications could mean
potential business loss, so they donï¿½t want to fully endorse them. Why
give up revenue stream if you donï¿½t have to? But what weï¿½re seeing is
some kind of dï¿½tente and coexistence ï¿½ and possibly even telco
participation with IP telephony providers.
The Call Is The Basis To It All
Also, in the beginning, IP telephony meant Internet telephony ï¿½ that is,
getting out to the true Internet (whatever that is). Now it also means using
a packet backbone. Additionally, an IP telephony call was originally made
with a computer on at least one end of the call. Today, the caller and the
called party donï¿½t even need to know that IP telephony is involved as a
transfer mechanism since theyï¿½re still using the same phones.
To learn more about this original application and how itï¿½s faring, I
visited a SuperPop of one of the biggest IP telephony wholesalers, ITXC.
Aside from seeing a showcase of open systems when I saw racks and racks of
gateways made from open system building blocks, I learned that the rate
arbitrage business is indeed alive and well. Mary Evslin, vice president of
Marketing and Customer Success, told me that as of the fourth quarter of
2001, ITXC was averaging about 6 million minutes of billable traffic over
its network per day on average, with a network that connects over 135
countries. Each is growing. And, as I suspected, the business has moved
beyond just calling cards to include relationships with traditional telcos
as well as multinational companies. Thatï¿½s certainly a big business ï¿½
and one that will continue to grow.
So I know that cool new applications will help drive the industry
forward. In fact, if someone finds an application that just isnï¿½t possible
without IP telephony, it will probably leave the mark that ensures the
industryï¿½s long-term success. Even so, itï¿½s comforting to know that that
the original application is still alive and well.
Jim Machi is director, product management, CT Server and IPT Products,
for Dialogic Corporation (an Intel company). Dialogic is a leading
manufacturer of high-performance, standards-based computer telephony
components. Dialogic products are used in fax, data, voice recognition,
speech synthesis, and call center management CT applications. For more
information, visit the Dialogic Web site at www.dialogic.com.
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