Points Of Presence

By Laura Guevin
Editorial Director, Communications ASP

Things are tough all over. The U.S. economy has taken a beating over the last year, particularly in the technology sector, and the Internet telephony industry has been no exception. With VoIP stalwarts like Net2Phone announcing major layoffs (the company said it was cutting 43 percent of its workforce last week to reach profitability) things are looking rather bleak. Equipment makers like Nortel Networks, Alcatel, and Lucent have all instituted layoffs this year, and convergence player Nx Networks filed for bankruptcy earlier this month. I won't go on, although I could continue for days.

Rumors are flying that Dialpad Communications, a longtime provider of free PC-to-phone calls, is going to file for bankruptcy any day now. This is sad news, since I've used their service many times to call family out of state, and they are another household name in the Internet telephony industry. Plus, they had switched from a free, advertising-based business model to a monthly charge not long ago, in the hopes of boosting revenues. The change in their pricing structure and gradual shift in emphasis toward enterprise solutions and away from free consumer services highlights a trend I've been seeing in the industry, and one that I believe will propel its growth down the road.

Despite today's economic hardships, I'm an optimist, and I've always believed there is a bright and fruitful future for Internet telephony. I think that the current economic climate is forcing the industry and its players to focus. The market is finally getting rid of its training wheels -- the consumer/hobbyist services that have fueled its mainstream popularity and acceptance up to this point. Those of us covering the industry have known for years that the true value of this technology lies in the ability of service providers to offer converged solutions to enterprise (and consumer) customers. But let's face it -- infrastructure build out and enterprise services are where the money's at.

If you don't believe me, just look at the announcement from Sprint and Nortel last week. Sprint has announced its Local Telecommunications Division will begin a transition of its entire network to packetized voice. The first step in that transition is a $1.1 billion agreement to use Nortel softswitches and gateways to packetize voice traffic, enabling services like desktop video conferencing. And then there's Microsoft, which bundled VoIP capability into Windows XP via its Windows Messenger communications client. Cisco, as well, has been very active in the IP telephony space recently with several product and service announcements.

It's not that I think Internet telephony will go away on the home desktop anytime soon. Free PC-to-PC calling has its place, and it's possible using virtually any instant messaging client today. But we all know that the network instability of making calls over the public Internet is a huge barrier to widespread adoption, as is the usability factor of talking into a headset attached to your PC. Widespread service provider rollouts will address the quality and latency issues, and enable calling over a regular telephone. End users, after all, don't care how their calls are routed, they just want dial tone and the same quality and functionality they receive now over the PSTN. And if service providers can throw in additional features and services, well, there's the value add and the opportunity.

No one can predict with any accuracy how quickly we will come out of this economic slump. And more companies will issue layoffs or even file for bankruptcy before all is said and done. One thing players in the Internet telephony industry can do is take their cue: The days of free consumer-oriented services have gone the way of the dot-bomb. The Internet telephony market has grown up, and companies need to realize where the true opportunities lie if they hope to succeed.

Laura Guevin welcomes your comments at lguevin@tmcnet.com.