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July 1999

As We Round The Mid-1999 Turn Towards The Year 2000, What Are Your Views On The State Of The Internet Telephony Industry?

We asked several industry-leading vendors for their views on the Internet Telephony industry. Their responses appear below.

James Q. Crowe, CEO,
Level 3 Communications, Inc.

In the last year, the communications industry acknowledged that the game has changed. Internet technology, based on Internet Protocol or IP, has clearly emerged as the new standard for moving information because it is much more efficient. IP is able to move large amounts of information at much lower cost today, but more importantly, it is improving much faster than traditional telephone technology. IP represents the kind of technological and economic change that occurs once a century or so in the industry. As the newly acknowledged communications standard, IP is where entrepreneurs, engineers and investors worldwide are pouring their energy and capital.

Today, virtually all major telecommunications companies are either developing or planning some form of IP-based networks for at least part of their communications systems. The challenge before them is massive. They have enormous investments in older, less efficient legacy technologies that have been in use for close to a century. They have large employee bases that are trained and steeped in the older technologies. They have stockholders who are accustomed to receiving dividends and not accustomed to absorbing the losses required to write off legacy systems and to reinvest in new network technology.

In the face of such fundamental technological change and such economic discontinuity, it is extraordinarily difficult for an established, dominant company to remain dominant. IBM, the dominant mainframe computer supplier, faced such a challenge when the personal computer (PC) was introduced. IBM tried to balance its dominance in mainframe computers in the face of more efficient and more cost effective PCs. With a virtual monopoly in the industry, IBM was confident that its scale, technical expertise, and marketing and sales organization would ensure its continued dominance in both mainframes and PCs. But they didn?t. IBM didn?t disappear, of course. They sell more mainframe computers today than they did twenty years ago. But it was the new competitors who created immense value for their investors - companies like Microsoft and Intel. They became the dominant companies in particular segments of the market, previously dominated by IBM.

We believe we will witness the same dynamic in the communications industry. The established players will struggle to move, over time, to the newer IP technology. However, we believe the real value creation will belong to the new competitors who can move aggressively, unencumbered by legacy networks and mindset, to deploy the new and superior IP technology on a broad scale.

To succeed, the new competitors will need billions of dollars of capital, entrepreneurial employees with different expertise, and a management team that is equally entrepreneurial, and seasoned.

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Heidi Bersin, Vice President Marketing,
Clarent Corporation

The IP telephony industry has progressed at a very fast rate. The true measure of this success of adoption is minutes of use. In some countries, almost 10 percent of international phone traffic is going over IP networks. Clarent's estimate, based on our own carrier customers traffic, is that almost 2 percent of worldwide phone traffic is now traveling over IP.

The early adopters have been consumers using phone to phone offerings for lower priced long-distance services. As IP telephony is implemented in wholesale long-distance networks now and, via SS7 in single-stage dial applications, we are seeing the consumer market, in certain countries, move into the majority phase of adoption. Enterprises are just starting to use the technology. We expect the industry to experience a greater surge of growth as enterprise and consumer networks are connected together. As we head into the millennium, two important keys to helping the industry continue with this successful growth rate are:

  • Provide IP telephony services to the market that are easy and friendly for consumers and enterprises to adopt; and
  • Make sure that these services do not create islands of communication- that they allow end users to communicate with anyone in the world over this technology.

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Sean Parham, Director,
Motorola Internet and Networking Group

The telecommunications industry is embarking on a massive conversion from circuit-switched networks to packet-based (IP) technology. The global bandwidth devoted to data has surpassed voice bandwidth in 1998; it makes sense to look at putting voice and other multimedia traffic on the data networks.
Transporting packetized voice has several advantages:

  • Digital voice can be compressed, which along with silence suppression results in (10x) less bandwidth required to carry a voice conversation.
  • Data networking equipment is generally less expensive than traditional telco systems.
  • There are considerable economies of scale, administration, and management associated with converging all traffic on a single network infrastructure.
  • The conversion of voice/multimedia traffic to a common IP data format provides the foundation for the development/integration of new applications such as collaboration, Video on Demand, and Web-based call centers.

We are at the beginning of an even greater revolution in telecommunications than the one that changed the computer industry in the previous decade. Before the standards-based PC, information systems were proprietary, vertically integrated software/mainframe-minicomputer/communication protocol/terminal monoliths. The vertically integrated wireline, cellular, cable, paging, and satellite telecommunications of today aren't much different.

The convergence to a common IP framework will enable rapid conversion to a much lower-cost telecommunication infrastructure while opening up the interfaces to competition. The second half of 1999 will provide the springboard for accelerated rollout of packet-based multimedia technologies and services.

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Ajit Pendse, President and CEO,
eFusion, Inc.

The Internet telephony industry will finally begin to deliver on the promise of the New Public Network. IP-telephony technology has matured significantly, but consumers, businesses, and service providers have been slow to embrace the technology and actual large-scale deployments have lagged. Now, however, consumers and businesses are beginning to demand applications made possible through IP telephony and we?ll see more widespread deployments of IP-based enhanced services as we head into the year 2000. Increased deployments will be driven by three factors: consumer demand for well-designed, compelling applications; easier deployment strategies; and increased financial incentives for telcos and other network operators.

More and more consumers and businesses are equipped to take advantage of IP-based telephony. As they become more familiar with the technology, users are discovering IP telephony applications that address real communications issues. They are creating a growing demand for applications that make e-commerce more efficient and point-to-point communication more effective. Faced with increased demand, service providers are working with vendors to resolve the issues that have slowed market acceptance: Proprietary clients, switch dependent solutions, unmet user expectations, and restrictive scalability. Finally, as data traffic expands and IP telephony drives down the traditional PSTN pricing structures, network service providers are looking to enhanced services to replace the revenue they are losing. This will motivate them to more actively deploy IP-based enhanced services. The bottom line is we?ll see more and larger IP-telephony deployments and much more evidence that the market and industry are working together to fulfill the promise of IP telephony.

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Casimir S. Skrzypczak, Group Vice President, Professional Services,
Telcordia Technologies, Inc. (formerly Bellcore)

Numerous standards bodies and forums are developing service, signaling, operations, and architecture specifications related to Internet telephony and (more generically) to voice over packet (VoP). These include multiple working groups in the Internet Engineering Task Force (IETF), International Telecommunication Union (ITU), European Telecommunications Standards Institute (ETSI), and the ATM Forum. In addition, interoperability is being worked through industry groups like iNOW! The activities of these organizations serve as an excellent first step in the development of requirements to ensure interoperability between equipment and networks. However, requirements produced by these organizations have not been sufficient by themselves to guide the development and operation of public networks and services.

These requirements will have to be refined and expanded before they can be used as a detailed blueprint that carriers can use to plan migration of all their services to a multiservice packet infrastructure. This infrastructure must provide reliability, availability, and performance characteristics that are equivalent to those in the PSTN today. Additionally, support for operations and for interworking with existing services is essential.

To fill in the gaps in the requirements produced by ITU and other organizations, Telcordia Technologies, Inc. (formerly Bellcore) has launched a VoP requirements program. Efforts like this are needed to integrate multiple standards applicable to network elements in a VoP architecture, specify functionality not addressed in standards, and address both network and operations functionality of VoP technology. The flurry of activity in the various standards bodies is good and reflects a dynamic and emerging industry. However, convergence toward a common set of detailed and comprehensive specifications is needed for full interoperability between disparate systems and existing infrastructure.

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Jim Lakin, Vice President,
Arris Interactive

In my view, hybrid-fiber/coax (HFC) telephony is the vehicle of choice for local loop competition. Domestically, Cox, Time Warner, and AT&T (to name a few) are validating this belief and offering consumers a choice for local phone service. Cable telephony has emerged as a proven, robust, and reliable technology, which delivers premium-quality service. This means instant dial tone without delay, jitter, or echo, as well as all the narrow-band services that consumers have come to expect, including call waiting, three-way calling, caller ID, enhanced 911, and operational features such as inter-carrier billing. And, because cable telephony brings a digital signal to the side of the home or small business, it effectively improves the performance over twisted pair in the areas of voice quality and analog modem throughput.

As a result, the success of the cable telephony industry in the year 2000 is not going to hinge on technical challenges, but rather on how well service providers formulate their operations for explosive growth. The year 2000 will bring with it mass deployments of circuit-switched HFC telephony, as well as the early adaptation of HFC Internet Protocol (IP) telephony. Broadband operators must prepare to scale their operations from installing tens of thousands of lines, to installing hundreds of thousands and millions of lines per year. This requires a whole new set of processes, which must be in place and manageable by the time the demand accelerates in order to ensure a high level of customer satisfaction and retention.

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Michelle Blank, Vice President of Global Marketing,
RADVision. Ltd.

The rapid adoption of IP telephony and the growth of this market segment owes itself primarily to the availability of the H.323 standards and the resulting facilitation of interoperability. Organizations like the IMTC have facilitated interoperability testing and openness between products from different H.323 vendors. This “coopetition” has benefited everyone from manufacturers to end users to the industry in general. While achieving vendor-to-vendor interoperability is important, what needs to happen next is a shift in focus from product-to-product interoperability to network-to-network interoperability.

The current activity and “hype” we are witnessing on the interoperability front is focused on carving out and securing market share for particular vendor alliances. Providing real solutions for network-to-network interoperability is what is needed to propel widespread deployment of IP telephony. Many complex interoperability issues relating to encryption, authentication, safety and security, and regulation need to be solved; we need processes for verifiable certification; perhaps vendors will need to make their APIs available in the public domain.

To date, we’ve made great strides in providing interoperable, industry standard technology that has made IP telephony possible. The next challenge is to provide the technology tools needed to create compelling, useful applications for converged voice and data networks. This means multi-protocol support (for MGCP, MEGACO, SIP, SSY...) and innovative IP service creation environments. That’s what it will take to achieve a seamless global network that supports compelling new converged voice, video, and data applications.

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Elon Ganor, Chairman,
VocalTec Communications Ltd

On the verge of the year 2000, we see a number of global economic trends fueling demand for IP telephony networks. These packet-based networks are more cost-effective, faster to deploy, and more open to the addition of new communications services than circuit-based networks. As a result of deregulation, toll charges for phone-to-phone service continue to drop, pressuring established carriers to abandon the safety of protected markets and deploy basic and enhanced communications services that target socially and economically defined market segments that tend to transcend national or state borders.

IP telephony also enables new carriers to take advantage of the marketing opportunities that deregulation is creating. By lowering the barrier for entry both in terms of time and cost and supporting basic and multimedia applications, IP telephony allows newer carriers to leverage their advantage to act swiftly over their more conservative telco competitors in order to be first to market with new services.

IP telephony also provides an ideal medium for carriers in emerging markets that are focused on modernizing infrastructure to support growing globally oriented economies. China Telecom provides an excellent example of carriers in this category. China is, without a doubt, the fastest-growing telecom market in the world. At its current high rate of growth, the Chinese will soon have more phones than any other country. Unburdened with ubiquitous legacy networks, China is already beginning to leapfrog old technology with new IP telephony networks that can meet the market’s immediate infrastructure demands and support new services that will provide a competitive edge in a global economy.

We expect to see more vendors entering the field and increased specialization. Growing opportunity and competition will accelerate the tremendous progress already being made in the development of carrier-grade products, lower per-port pricing, and industry standards and interoperable products. For these reasons, we’re maintaining our bullish forecast for IP telephony in the coming millennium.

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Steve Breese, Senior Manager,
Internet Telephony Marketing,
Nortel Networks

Internet telephony is happening now and, like the Internet itself, will ultimately change the way we communicate and do business. Leveraging packet technology, Internet telephony brings with it the promise of “any service, any where, any time.”
Currently, the focus is on building an IP-based infrastructure that enables the delivery of telephony services with the equivalent feature-set, quality, reliability, and scalability of the existing circuit-switched networks. Even though the primary focus of Internet telephony is on new multimedia services, any serious offering must first provide equivalence with the existing telephony environment, as well as the ability to seamlessly interoperate with it. The PSTN will be a factor for many years, and without the ability to connect users to it transparently there will be no mass-market Internet telephony offerings.

Advanced multimedia services signal the direction of what is to come. Enterprise-centric unified messaging applications, interactive e-commerce, and virtual “malls,” virtual second line services, multimedia conferencing and collaborative applications, and streaming broadcast audio and video are just a few examples of applications in their infancy that have incredible potential.

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Dan MacDonald, Vice President Marketing,
Nokia IP Telephony

1999 has been a pivotal year for the IP telephony industry. IP telephony as a technology, has in many ways been legitimized by the emphasis placed on it by giants from both the voice and data networking industries. Perhaps an unfortunate result of this coming of age has been the marginalization of the vendors who created the market.

Many organizations such as carriers, incumbents, CLECs, MSOs, who have up until now wanted to become familiar with the technology in order to understand the opportunity (or in some cases the threat), are now looking to determine the feasibility of commercial deployments. This phase of the process has moved the IP telephony market from “How does it sound?” to an era of “How does it integrate with the intelligent network?” and “Can you guarantee 99.999 reliability?”

IP telephony is alive and well. It will, over the next 12 to 18 months, move beyond its present role in toll bypass applications, to a more sustainable, higher value role in applications such as IP Centrex. These more client-centric applications, will further challenge IP telephony vendors to not only meet, but to exceed the existing circuit-switch telephony offering benefits for the provider, the corporate, and the user.

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Robert Veschi, CEO,

Most forecasters typically need two strong hands to make any type of prediction: “on the one hand this… and on the other hand that.” As we approach the year 2000 and beyond, all of us can hopefully agree on an encouraging forecast for Internet telephony for one simple reason: Collectively, we have begun to focus on the customer.

Until recently, solution developers in the industry have been in a tug of war over technology, standards, and service models without having definitive input from the group that matters most: the market. Now, all types of service providers — long-distance companies, next-gen telcos, cable companies, and others — are building seamless solutions that are transparent to the user and at a compelling price point.

Case in point is our industry’s recent debate over interoperability standards. Many companies were trumpeting H.323. Now, the industry is migrating to MGCP and SGCP. Why? Because it is the very platform that assures the cost-efficiency and low maintenance qualities that the consumer demands. Ergo, the customer is always right.

Now, this strategy is already paying dividends. Tech journals to primetime network TV ads preach the value of convergence. The gospel of Internet telephony is everywhere. It is precisely this new and intensified customer focus that I predict will enable our industry to turn mind share into market share.

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Dennis Specht, Co-CEO,

The Internet telephony industry is gaining incredible momentum. Today, we see many traditional service providers converging voice and data networks, resulting in an explosion of voice traffic over IP networks. Since Voice over Internet Protocol (VoIP) is an ‘open’ standard, these converged networks create a rich environment in which to deploy applications — applications that deliver a host of new, enhanced services. It is these services that will differentiate service providers in the marketplace.

dynamicsoft anticipates the new services and applications that are likely to emerge in the converged environment will fall in either of two categories. Traditional enhanced services from the circuit-switched world will be reimplemented in the IP world, such as Call Forwarding and Internet Call Waiting. Click-To-Dial and Web Response System are examples of the second category, IP applications, which also includes applications yet to be conceived.

As VoIP traffic dramatically increases, we believe the emergence of new standards will quickly evolve, in response to the industry’s desire to have a scalable and flexible platform on which to build these applications. SIP and MGCP are recent examples of the changing standards paradigm. In the initial development of VoIP, gateway manufacturers and service providers discovered that existing proprietary and legacy standards required large amounts of bandwidth and could not scale to the transmission requirements of VoIP networks. In response to this limitation, early this year an Internet industry standards body, the Internet Engineering Task Force (IETF), endorsed new standards for IP-Telephony protocols, namely SIP and MGCP.

dynamicsoft is confident that SIP and the MGCP successor, (the protocol being developed by the MEGACO working group), will become tomorrow’s industry standards. Together, these protocols provide an open, lightweight, and scalable platform on which applications can be delivered. Interoperability is also a critical factor, as manufacturers and service providers look to build custom applications that easily integrate into their existing infrastructure. Just this past April at the Columbia University SIP bake-off, fifteen companies tested SIP interoperability with great success. We also believe that the Java development environment will play a significant role in the implementation of applications. Applications written in Java, provide not only scalability but platform independent solutions.

As we look towards the year 2000 and beyond, increased competition will necessitate a shift in focus and direction — from an emphasis on decreasing long-distance charges, to a growing world of new services and applications. SIP and MGCP, scalable and modular by design, are the emerging standards which will meet the demands of this quickly, evolving industry.

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Peter Alexander, Vice President,
Enterprise Marketing,
Cisco Systems, Inc.

As we head into year 2000, Internet telephony is moving into a new phase of maturity. Indeed the Y2K effect itself is helping. In the enterprise, Y2K issues are souring the relationship between traditional PBX vendors and their customers, as Y2K upgrades have been cumbersome and expensive. This, in turn, reminds the user of the benefits of open systems, and the benefits of the emerging alternative: The IP telephony system. More than ever, and with increasing objectivity, the enterprise is turning to Internet telephony.

In the remainder of 1999 we will see the first production deployments of IP telephony systems up to 500 users in what would have been PBX applications. 2000 will bring multi-thousand user deployments and the mainstream emergence of personal telephony services, with unified messaging and virtual call center. The key benefits will be better leverage of the total communications budget onto a common communications infrastructure, and improvements in communications productivity through new applications.

What’s the state of the Internet telephony industry? In my opinion, much stronger than the traditional telephony industry.

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Sarah Hofstetter, Vice President,
Corporate Communications,

Americans are known around the world as a nation of bargain hunters, and that couldn’t be truer than in the telecom industry. Even with the millions of dollars spent on advertising by the “Big Three,” consumers are clever enough to find the deep discount bargains when it comes to long-distance, and they are certainly finding a gold mine in Internet telephony. Users are less skeptical about Internet telephony than they were just a couple of years ago, and are more interested in saving money than dialing a couple of extra digits. We find that people are talking longer and that we can effectively eliminate the telecom distance barrier.

But price alone is not going to propel these services into the 21st century. It’s the value-added features, like unified messaging, faxing, video conferencing, and follow-me services that will really get consumers going. As telecommuting grows, and as travel gets cheaper, the need for such services will arise, and Internet telephony will enable users to consolidate all their communications needs under one roof, which can be accessed via telephone or the Web. Consumers like having the world at their fingertips, and providing voice, data, video, and fax — all under one umbrella — will certainly be of tremendous value to them.

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Hong Chen, Chairman & CEO, GRIC
Communications, Inc

In the rapidly evolving telecommunications market, there are several factors driving significant changes — emergence of the Internet as a widespread platform for communications, rapid deregulation of the multi-billion dollar global telecommunications industry, and acceptance of Internet Protocol as the leading technology for future converged communications services. As a result, traditional telecommunications companies and scores of newly created Internet and next generation service providers are increasing their investment in data networks expansion and intelligent systems for creating IP-based value added services so that they can compete and differentiate themselves.

In my view, in the year 2000, to maintain leadership in this globally deregulated environment, leading service providers will be investing heavily to build a global IP infrastructure so that they can offer their customers seamless IP-based communications services over a single intelligent platform.

Newly emerging global providers will be seeking alternatives to widespread infrastructure development investment to provide global IP services in order to compete for valuable customers. These providers will be successful if they can plug into a global alliance of service providers which allows them, by sharing facilities, to expand their global footprint and offer their customers multiple IP services including IP telephony.

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Joe Mele, President,

As we approach the year 2000, widespread deployment of carrier-grade IP telephony systems will accelerate, and interoperability will increase in importance. Although most of the deployed IP telephony applications will utilize H.323, other protocols like MGCP, IPDC, MDCP, and SIP will be deployed where their attributes optimize a specific application. For example, some cable providers will use MGCP, which is designed and optimized specifically for voice, for their voice-over-cable applications. This model will be prevalent in the near term. As a result, multiple protocols will continue to proliferate, unfortunately leaving many IP telephony networks operating as individual islands.

Another developing trend, however, will be H.323 profiling. Thanks to many years of engineering and market experience, H.323 has evolved to support a broad range of features equivalent to those available on the traditional PSTN. It also offers interoperable solutions over all types of IP networks. By targeting a profile (a subset of the H.323 umbrella standard) for a specific application, developers can customize the H.323 feature set to meet their precise needs. In this way, low overhead and operational efficiency can be achieved. As we approach the year 2000, H.323 profiling will become widespread, and it will help drive ubiquity and mass adoption of Internet telephony.

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Fara Hain, Director, Marketing Communications,
Delta Three, Inc.

Let’s face it, consumers of telecommunications services are not loyal. Big carriers, competing on the basis of price alone, give them no reason to be loyal. Customers who find a better price — or more mileage points, or cash back — switch phone companies. This has allowed IP telephony to “get in the door” as a low-cost alternative for international calls. IP telephony has gained consumer acceptance only because it saves customers as much as 80 percent. It has gained wide acceptance in markets that are price sensitive.

Until now. Today, customers who sign up for IP telephony services are not just penny pinchers. Consumers who sign up for IP telephony services now and in the future are getting the “red carpet treatment.” They’re being pampered. Customers have one account number that is a calling card, PC-to-phone account, global roaming card, and unified messaging account. They can access their accounts online or from a regular phone. With packaged services, IP telephony companies will not only win consumer acceptance, they will win the holy grail of the telecom industry — customer loyalty.

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