Second Quarter 1998

We asked serveral vendors for their views on the Internet telephony industry.   Their responses appear below.

• Stuart Berkowitz, President, Array Telecom, Inc.
• Jim Machi, Director of Product Marketing, IP Telephony, Dialogic Corporation
• Joe Mele, President, elemedia
• Heidi Bersin, Vice President of Marketing, Clarent Corporation
• Jac Simensen, Vice President of Soliant Internet Systems, Bellcore’s Internet data communications business unit
• William E. Hamlin, Chief Technology Officer, Franklin Telecom
• Rick Weston, Director of Marketing and Product Management for Consumer Markets, Qwest
• James Shen, CEO, NeTrue Communications
• George Abou-Arrage, Vice President, Marketing, Nortel’s Micom division

Stuart Berkowitz, President, Array Telecom, Inc.
In the telecommunications industry, worldwide deregulation has recently opened the floodgates of change. But another contributing factor is technology, specifically Internet Protocol (IP) technology.

The active interest by successful telecommunications companies in IP telephony in many ways validates the new technology.

It also attracts a host of new players into the market, leaving traditional telecommunications companies with yet another challenge to surmount.

How will they react? Do they see it as an opportunity for growth, or an unfounded challenge that will be a minor irritant? There is every indication that they are taking IP telephony seriously. Large equipment manufacturers and carriers are getting involved. For instance, Nortel, Ericsson, and Lucent are all adding IP functionality to their switching devices. AT&T Japan and Deutsche Telekom have started offering IP-based services in countries where they do not have large market share, nor an embedded traditional infrastructure. The fact remains that packet- based technology, inherently lower in cost, will provide superior quality because it is digital. It’s a win/win situation: providing superior quality for customers, and lower cost for the carriers. By 2005, it is likely that IP telephony will carry 15 to 25 percent of voice traffic.

International Data Corporation (IDC) of Framingham, MA, estimates there may be as many as 16 million Internet telephony users worldwide by 1999. San Francisco-based Frost & Sullivan says the Internet gateway business alone was $4.6 million in 1996, but will grow at a compound annual rate of 229 percent over the next five years, and reach $1.81 billion by the end of 2001.

These may still be paltry numbers when stacked against the $90 billion international long-distance sector. But let’s not lose perspective: Vint Cerf, the father of the Internet and co-developer of the TCP/IP protocol himself recently described the Internet as a "three-year-old child." That child will develop, nurtured by compelling cost and quality benefits, into a powerful adult that could well change the face of telecommunications.

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Jim Machi, Director of Product Marketing, IP Telephony, Dialogic Corporation
In order for IP telephony to fully cross the chasm, two requirements must be met. First, standards such as H.323 need to be fully embraced and capable of interoperating with the existing PSTN standards. The communication platform of the future will be able to accept and deliver calls to both circuit and IP base stations, and it will need to route calls over one of the two networks based on quality of service needs and capabilities. Therefore, an application must be able to run on top of any telephony interface standard — be it analog, E1/T1, ISDN, cellular, or IP telephony.

Taking this to the next level, IP telephony applications need to be fully interoperable with the PSTN and vice versa.

Second, the management and administration of this "new" network is crucial. Since most of this network is PC-based, uptime must rival that of the existing PSTN, which is robust and works well. This means fail-over and fault tolerance solutions need to be available. The issue is currently being addressed with relatively simple SNMP solutions, but will need to encompass very complex clustering techniques to provide full fault tolerance. Connecting to the existing data network infrastructure is also crucial; this means interoperating with the management and administration in those networks, such as the LDAP directory service structure.

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Joe Mele, President, elemedia
Internet telephony is gaining acceptance as a viable means of communications. Quality issues are being addressed at every level, from speech coders to protocols to new network infrastructure. Major equipment manufacturers and service providers (e.g., telcos, cable operators, and ISPs) have announced plans for significant investments in large-scale offers. For new services to be readily accepted, service providers must deliver high quality, reliability, ease of use, and value. Typically, service providers have been able to offer such services over the PSTN by making large investments in infrastructure and support systems (network management, customer care, billing, etc.) By leveraging existing resources, service providers will be able to rapidly migrate to Internet telephony offerings.

This year will see the emergence of support systems for Internet telephony with the appearance of H.323 Gatekeepers. These Gatekeepers will provide overall control, administration, and intelligence for IP networks. More importantly, service providers will be able to link IP networks with existing PSTN networks through SS7 interfaces from the Gatekeeper. This will enable a seamless migration path from the PSTN to the IP network as well as provide the capability to deliver advanced IP services. Service providers will be able to transparently support both types of network offerings. Customers will benefit from having more services available to them at attractive prices, and over time, will be unaware of the network transport. They will simply pick up the phone and dial to get high-quality, reliable communications.

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Heidi Bersin, Vice President of Marketing, Clarent Corporation
Many of the mainstream telcos have dramatically reversed their position of just one year ago, and are beginning to take Internet telephony seriously. Their initial interest was from a competitive perspective — they do not want to lose their high-margin, long-distance customers to new long-distance companies who are very aggressively entering this market. The telcos who have entered this market now see benefits beyond keeping their current customers. These benefits include the ability to enter new geographic markets quickly, the ability to offer services that have a lower cost structure, and the opportunity to build a more flexible network that easily accommodates new features.

In order for Internet telephony to mature in the telco environment, the technology and the implementation of that technology must provide a friendly, high-quality, easy to use service for the telco’s consumer and business customers. Without this, the telco’s customers will place many expensive customer service calls to the telco, thereby eliminating the margin associated with these new Internet telephony offerings.

Here are some of the ways to overcome current hurdles in the industry:

1. The product must work well and be easy to use. This must include PSTN voice quality; single-step dialing over time (not requiring PIN and password before using the service); and making it easy for the user to get directly billed for the service without having to go in and purchase a new debit card when they have used up the money in their account.
2. Carriers should be able to offer services to their consumers and enterprise customers. The ability to take advantage of the benefits of Internet telephony without the risk of ownership will spur enterprise customers in particular to start using this new technology.
3. The product should fit into the telco infrastructure. The product must be easily ordered, administered, and billed for.

The carrier should be able to monitor and maintain the technology in their sophisticated network-monitoring environment. If it does not easily fit into their environment, it will hinder the carriers’ ability to quickly and effectively service their customers.

Consumers and enterprises will greatly benefit by the telcos entering these markets. The product will quickly rival the PSTN in quality and will be available at a lower price, thereby driving increased use of the phone network. Also, these users should have many new features available to them quickly, because of the ease of implementing these features using a flexible Internet telephony architecture.

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Jac Simensen, Vice President of Soliant Internet Systems, Bellcore’s Internet data communications business unit
For the Internet telephony market to mature, the biggest hurdles that must be overcome are consistent PSTN-like transparency and QoS, network and operations scalability, and PSTN-like features and functionality. Current IP telephony problems, such as double dialing, voice dropouts, and delays are unacceptable, and will need to be removed from future services. Scalability is also an issue.

Today’s services work because they are small, but tomorrow’s services will require complex networks and operations support.

For Internet telephony to succeed, it will be critical to make both the network and operations components integrate with existing IP data components as well as be capable of scalable growth that allows for per unit cost decreases as size increases.

Finally, IP telephony will have to be capable of providing features that meet the expectations of today’s telephony users.

All the services that we currently expect must still work, such as E-911, credit cards, operator services, custom calling features, and class features. Also, the service must meet government expectations regarding issues like wiretapping, call tracing, and post dial delays.

Soliant Internet Systems, from Bellcore, is actively working with large carriers to deploy IP telephony at scale, to make it a viable POTS service alternative to switching technology, so that both businesses and consumers will notice no difference in voice quality or feature/service interactions. Our goal is to make the use of voice over IP-based networks transparent to the end user. By providing carriers and enterprises with an alternative to circuit switching technology, they can then provide the same or better service to end users at a greatly reduced price.

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William E. Hamlin, Chief Technology Officer, Franklin Telecom
Education and molding mindsets are clearly our most important challenges ahead, moving beyond the limited model of traditional telephony to the limitless potential of Internet telephony.

In terms of ease of use, Internet telephony is already as simple as using a long-distance calling card, and — with emerging technologies such as voice recognition — it will soon be even simpler. Quality of service will be something the end user can specify, with pricing options ranging from guaranteed highest quality to guaranteed lowest cost. Comparing POTS to Internet telephony is a bit like comparing the Model T to a Ferrari, the major differences being Internet telephony’s programmability, flexibility, and efficiency.

Internet telephony is fundamentally different. The standards are open for the world to see and add value to. Any programmer can develop a new voice mail or conference call feature, put it on a Web site, and make it available for the world to download and implement. With Internet telephony, the potential for innovation is truly without limits. The POTS network, on the other hand, is a very limited, remote, closed, and proprietary system.

The telcos are accustomed to — and to some degree dependent upon — closed systems. It is no wonder that their entry into this market has lacked enthusiasm. However, recent strategic alliances seem to indicate increased commitment on their part.

The power of merging voice and data networks, and the resulting possibilities, are so tremendous, that they cannot be ignored.

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Rick Weston, Director of Marketing and Product Management for Consumer Markets, Qwest
A greater presence in the market is increasing consumer awareness that IP telephony is real, of high quality, and affordable.

Changing pricing structure to "per packet pricing" is not something consumers could relate to. The key is pricing that is simple to understand. The implementation of the H.323 standards in late summer by equipment manufacturers will be a big step forward. When interoperability is enabled, the breadth of services and locations that can be called will expand, enticing consumers.

From a reliability standpoint, the effort centers on acquiring "telco quality" network elements with the full suite of surveillance and redundancy components rather than a fallback to POTS telephony. There, products are emerging rapidly.

Telephone companies are experimenting with the technology.

Three things will drive them to embrace the technology:

1. Consumer acceptance.
2. Implementation of standards.
3. "Telco clan" equipment with competitive cost-per-port pricing.

As far as consumer use is concerned, dial 1 type service will be some time away. We expect the dial 1 strings to be shortened significantly by mid-year with current technology. Also, look for telephone sets or dialers to be used prominently to simplify the customer interface.

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James Shen, CEO, NeTrue Communications
Over the last year or so, the industry has kept their focus on issues such as latency, vocoders, and echo cancellation, which are primarily related to "single phone call quality." When those trial IP telephony boxes are ready to be run as production systems, the grade of service of the network will be the biggest challenge.

RSVP will not be ready in the next 12 months; and RSVP cannot resolve the entire QoS problem even when it does become available.

Recently, several IP telephony companies, including NeTrue Communications, have developed technologies, which address the issue of overall quality of the IP telephony network.

Internet Telephony Network Management (ITNM) technology (developed by NeTrue) is designed to serve the purpose of improving the quality and reliability of the network. It offers a number of important functions:

Traffic Control — The available bandwidth will be monitored in a real-time mode. The call traffic will be controlled according to the available bandwidth.

Routing Management — Nodes can be backed up by each other. Other alternative routes can also backup links.

Transmission can be completed by the combined links of IP and PSTN. Least cost routing can be accomplished.

PSTN Backup — If the network is congested or failed, PSTN can be used as a backup.

Messaging Systems as Backup — If the network is congested or failed, the real-time phone system will be immediately cut over to voice store-and-forward messaging system.

The Grade of IP Telephony Links — According to the bandwidth pattern, node configuration, and PSTN carrier quality, each link in the IP telephony network can be graded.

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George Abou-Arrage, Vice President, Marketing, Nortel’s Micom division
Each of the three primary voice over IP applications — enterprise, Virtual Private Network (VPN), and Internet — have their own parameters, and for each, voice quality is subjective depending on the location within the world, if the user is the one paying for the service, and the like.

In Nortel’s 10-plus years of integrating voice/data networks, we have found that most companies don’t utilize traffic protocol analyzers (sniffers) enough and therefore are not as aware of their traffic profile as they could be. There are some fundamental data network parameters that require proper management in support of real-time voice/fax traffic.

Corporate environs will have both local-area network (LAN) and wide-area network (WAN) voice over IP traffic.

(Internet telephony applications are traditionally over Internet and have slightly different requirements.) Here are some practical bits of information that a company needs to consider before taking the corporate voice over IP plunge:

• Make sure the LAN is adequately segmented and follows LAN topology rules so that you don’t experience LAN overloads (30 percent utilization), broadcast storms (40 broadcasts in a given second), or excessive physical errors.
• Make sure that WAN routers are not overloaded and frame relay switches are not congested.
• Make sure you size your WAN links to allow enough bandwidth for the maximum number of simultaneous voice channels plus room for time-sensitive data.
• On WAN links below 256K, packet sizes (Maximum Transport Units, or MTU) should be reduced so that real-time voice is not delayed by large data packets.

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