Phone Over IP

When it comes to long distance phone service, corporate America has long put its money where its mouth is. U.S. companies spent $83 billion on long distance calls last year, according to the FCC, while Fortune 500 companies spent an averaged of $37 million for telecom services. So the prospect of digitized voice technologies over ATM and frame relay have long held businesses’ interest. Now, the hype of voice over IP holds out even greater promise of standardization and it has businesses buzzing.

Like voice over frame relay and ATM, voice over IP could fulfill the promises of computer telephony integration (CTI)-videoconferencing, document-sharing and Web-based call center applications-at lower prices. What’s special about Internet-based IP is its ability to deliver great features, plus long distance, for the price of a call to a local Internet service provider or telco, says Craig Blakeley, a Washington, D.C.-based partner of telecommunications law firm Gordon & Glickson.

“The existence of voice over IP is important, like all technologies capable of digitizing voice, because it signals the beginning of the end of expensive long distance call prices,” Blakeley says. “When you combine the telecommunications deregulation worldwide and the phone companies’ move to digitize calls, then you see how IP will drive long distance prices down at least 20 percent over the next two years-once the voice over IP capability is installed in telco infrastructures.”

Because IP is ubiquitously accessible, running voice over IP would be technically more compatible with other applications running on an intranet, says Rebecca Wetzel, director of Internet consulting for TeleChoice Inc., a Verona, N.J.-based consultancy that advises ISPs and telcos on which services to offer. And telcos hold the key right now.

Telco Hang-Ups

IP-based solutions are still beyond the grasp of most IT departments primarily because AT&T, Sprint and MCI-expected to be the primary purveyors of voice over IP-aren’t talking about their plans. Moreover, they aren’t likely to offer widespread service for two more years. “Computer telephony, especially voice over IP, is going to come directly from the telcos in all forms, but not for a while yet,” says a spokesman at Middleton, N.J.-based Lucent Technologies Inc., the AT&T spin-off. “When it does, though, one example will be simple calling card-like numbers for users, where they dial a number and enter an ID and their long distance call is routed over the Internet. Another service will be gateways especially designed and priced for businesses to use on the enterprise.”

The calling card idea is emerging already, albeit slowly. Sprint and Toronto-based telco AlphaNet have shown the first prototype, a service that lets users dial from the United States to the United Kingdom over Sprint’s IP-over-frame relay Global Network. But pricing is still being determined and use is limited.

“I’m excited about digitized voice, but I have business considerations to think of today, not just in the future, so my excitement is tempered for now,” says Fernando Cruz, vice president of information technology enterprise, Infrastructure Group, at San Francisco-based Charles Schwab, the mega-discount brokerage house with $1.85 billion in 1996 annual revenue. “There is no substantial cost benefit today for voice over IP, so I have to say ‘No thanks,’ though I know it’s coming and will be great.”

The Innovators

In the meantime, a handful of vendors-NetSpeak, NetPhone, Vocaltec, Vienna Systems, Lucent Technologies and Northern Telecom’s Micom subsidiary-have stepped up to the plate with prototypes for voice over IP that can easily be ported to the Internet down the road. The solutions that companies can install today are mostly gateway servers that network managers hang on the PBX at each site where they want long distance calls to travel over the intranet. But the connections must be point-to-point. So, linking an office in Chicago and one in Los Angeles means attaching a $4,000 gateway server on the PBX at each end.

Although the voice over IP pioneers are producing similar prototypes, they’re not all on the same page in terms of progress. At Marlborough, Mass.-based NetPhone Inc., IP voice is just a promise, although John Clayton, chairman and chief technology officer, says, “We’re working to interconnect the H.323 protocol standard for voice and video over IP in NetPhone.”

Vocaltec Inc., Northvale, N.J., is further ahead, with an IP-based system called Internet Telephony Gateway that has become the blueprint for other voice-over-IP gateways-such as Vienna, Va.-based Vienna Systems Corp.’s Vienna.way gateway, and the voice over-IP solution from Lucent Technologies.

For the time being, there may be more products than customers, although Boca Raton, Fla.-based NetSpeak, which recently went public, claims Federal Express as a client.

So far, the biggest takers for gateway servers are telcos.

Vocaltec has sold the Internet Telephony Gateway to Telecom Finland, Dacom (an ISP in Korea) and New Zealand Telecom. Motorola will resell it as well, but Les Schroyer, Motorola corporate vice president and general manager for the Internet products division, could come up with only one corporate user: Motorola. The company hooked the product up in its Austin, Chicago and Phoenix offices.

It might be that Lucent, with its former ties to AT&T, is the voice over IP player to watch, says TeleChoice’s Wetzel. The company already is concentrating its voice over IP efforts on a solution for AT&T, Lucent officials say.

It’s a dicey game. Voice-over-IP inventors like Clayton and Vocaltec CEO Elon Ganor may see their hopes for massive product resale dashed once the telcos enter the market for real. The big carriers are implementing other digitizing technologies, such as ATM. “They’re also developing their own,” explains Blakeley. “Vocaltec may have created the prototype that others are now copying and fine-tuning, but this is one case where the big-gun telcos see the inevitability of digitized voice and are hard at work.”

ISPs will certainly offer voice services, but mostly through the telcos. True, America Online recently announced an IP voice service, but it’s far from business-quality and it’s targeted squarely at consumers.

“Consumer ISPs and AOL may offer some low-end version, but for business, the technology isn’t there yet,” says Dave Hudson, vice president of business development at Herndon, Va.-based PSINet. “And when the infrastructure is built, the first to offer it will be the telcos,” he says. ISPs will only have a piece of the pie via license and service agreements.

It is cheaper long distance that will drive the need for IP voice, Blakeley says. The way he-and telco executives-see it is that a couple of years from now a company will negotiate and then receive a long distance service rate and special CTI features with a telco. End of story. The company won’t necessarily know how the long distance call is traveling and won’t care. It will just buy service and features and let the telcos decide the plumbing for each call.

“Computer telephony holds such service and price promise that corporate America soon won’t stand for less,” says Greg Jacobsen, executive vice president of MCI/SHL Systems House, the data network development company MCI bought a year-and-a-half ago to work on convergence services requiring both voice and data, such as call centers.

And, he says, telcos aren’t going to relinquish control of a service that’s so integral to their business.

Market Strategies

AT&T and others aren’t going to let another kind of company-software, hardware, whatever-take the digitized long distance market, Lucent’s spokesman says. “And they’re not going to be the ones who pay for all this new infrastructure, either. So, while prices may lower over the next few years, installation fees may be high.”

Steve Sobolevitch, AT&T’s manager of data strategic pricing, would only say: “User demand can drive prices up or down, depending on a lot of factors. Our intent right now is to meet the specific needs of our customers.”

Although smaller vendors like Vocaltec that deliver real products deserve kudos for developing the prototype, corporate America will buy the entire capability from the phone company by the time workers pick up office phones and dial out on an IP-based network, says Bart Stanco, vice president of networking technologies with Stamford, Conn.-based Gartner Group. Stanco believes that most of the little guys will disappear over time.

“The telcos-the only ones really buying Internet phone gateway products so far-want to build the capability now to sell it later. They see it as the standard to grow with, so it’s getting hyped,” Gordon & Glickson’s Blakeley adds. “The phone companies get the picture and will deliver digitized voice-mainly over IP but probably in other forms of CTI as well.”

On Hold

Until the telcos join the march toward voice over IP-sending the services potential up and bringing the price down-even the most technologically adventurous network managers are left in a holding pattern.

Says TeleChoice’s Wetzel: “Voice over IP will never be the killer app that gets people to install an IP-based intranet. They’ll have other reasons to move to IP, such as Internet access. If there’s no IP network in place, but some compelling reason to run digitized voice, then voice over frame or ATM is comparable.”

And Schwab’s hesitance is strong evidence that voice over IP is not yet compelling enough. In the financial services industry, Schwab led the pack by making a bold move into Web-based stock trading and online brokerage last winter.

A CTI technology that could suit the needs of the company’s 10,000 phone-toting employees could be standard operating procedure for corporate long distance-sprawled over 240 offices nationwide. “Long distance phone calls are a price-only issue, once you assume the technology is stable; and right now the regular old phone is still cheaper,” Schwab’s Cruz says.

The company, for example, has a huge phone bill between its San Francisco and New York offices. To reduce costs, it could select voice over its IP intranet or buy tie-lines, the incumbent solution from the phone company.

“Tie-lines are lines I lease from the phone company, where I pay a fee per line instead of paying on a usage basis,” Cruz explains. “They’re leased lines, but still my dedicated source. And they’re still analog, but each tie-line offers 24 parallel channels (24 simultaneous calls) for between $2,000 and $3,000 per month. When I present any new digitized phone call solution to the execs here, that’s the price point I have to beat for them to say yes.”

Voice over IP would require Schwab to hang two Vocaltec Internet Telephony Gateway boxes-one on the PBX in New York and one on the PBX in San Francisco-for about twice the price of the tie-in lines, Cruz estimates.

Price breaks aren’t the only factor keeping Schwab in a holding pattern. Cruz says he wants the telephone companies to sell solutions-quickly-because he has some creative ideas for IP-based voice that go beyond hooking two satellite offices together. And he needs the reach and scope of a phone company to make his idea work.

“Forget about the internal communications. I’m more interested in an application for the Web with trading customers,” he says. Cruz also says he covets a Web-based voice over IP system that would streamline customer service for Schwab personnel responsible for fielding phone calls from their 800,000 online trader clients.

“A little button on a customer’s screen in the E-Schwab trading applications says ‘call me back.’ The customer hits it, and a customer service rep gets the message to call back, E-mail back, go to live chat, whatever we want to install over IP. It’s a local call to the customers, gives them immediate satisfaction, and saves us from constant use of our 800-number by working over IP,” says Cruz. “Web traders are sitting at their browser-loaded, multimedia-capable PCs anyway, because that’s how they’re trading. So the assumption that all our customers could participate is a given.”

Others, too, would jump at the chance to implement a customer service application such as Cruz describes, if they could simply sign up for the service in the same way they activate an 800-number: that is, no network infrastructure overhaul or major hardware purchases.

Small-to-midsized businesses, which must offer 800 numbers or risk appearing completely unprofessional, would like to get out from under the cost burden of such services. Keith Marvelle, president and owner of RE/MAX New Horizons Real Estate, Providence, R.I., opened his business a year-and-a-half ago and has 12 employees. From the beginning, he says he knew RE/MAX would need three things: a data network, a phone system and a voicemail system-standard fare for any office.

The entrepreneur immediately thought, ” ‘Hey, why don’t I try and buy them all together? I have a lot of friends with businesses who spent $15,000 on computers, then another $15,000 on the phone and then another $5,000 on voicemail.’ I thought that if I could do it all at once, maybe I could save some money, be better integrated, and be ready to use standard future technologies.”

Marvelle ended up buying the $4,300 CTI-based NetPhone call center system. “It appealed because it’s a single PBX board that fits right into one of the slots in my file server,” says Marvelle. “I spent $30,000 total-for the phone system, voicemail, Acer file server, six Pentiums, Internet access, E-mail and NetWare 4.1. AT&T told me that, just for the phone features I have now, it would cost $20,000 and I’d need high-end, $200 phones. I’m talking on a $30 phone right now.”

RE/MAX has six trunk lines (18 extensions); voicemail; client-CTI screen pops, which alert agents to incoming calls; call-forwarding; on-screen address books-the works.

What Marvelle wants is the ability for customers to interact with his system doing voice over IP. “The 800-number substitute would be great. I’d buy it right away,” he says. “The satellite office hookup obviously doesn’t interest me because I’m the headquarters and that’s it, but I’m now developing a real estate Web site for Providence for people who are relocating here. A customer-service application, where people all over the country can speak to me over the Internet or privately dial-in into my intranet, would be great.”

But visionaries like Cruz and new business owners like Marvelle have to play the waiting game a while longer. In the absence of broad-based telco participation and any compelling business motivation, voice over IP, despite the hoopla, remains another two to three years in the future. Then, maybe talk will be cheap.


To see more info about phone over IP, see the articles by Cisco, Nortel, GRIC, and Lucent.