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Telecommunications Industry Awaits Internet Protocol Telephony Evolution

June 1999
By Michelle L. Hankins

Service providers, equipment vendors reposition as converged networks emerge.

Major advancements in Internet technologies are shaping the future of the telecommunications industry. The very real possibility of widespread use of voice over Internet protocol is affecting the market and the way service providers and equipment vendors are tooling for the future.

The industry is in limbo as telecommunications processes are evolving toward system convergence. As much as telecommunications experts believe the market will drive the technology, they are also aware that policies must be formulated to curb reckless technology development.

Products that support voice over Internet protocol are being developed even before standards bodies have resolved the issues related to interoperability between existing switched-circuit networks and Internet protocol networks.

As it is currently being promoted, voice over Internet protocol (IP) will cut the cost of long-distance telephone calls. By circumventing access fees charged by the owners of telecommunications infrastructure, voice over IP is offering a loophole through which customers hope to grasp inexpensive telephone services.

Meanwhile, major telecommunications companies are bracing for the revenue loss that the loophole could afford, speculating that it could drastically affect the way they do business. Their customers, many of whom currently operate parallel systems to support separate voice and data communications, are realizing that networks that support voice only could soon be considered stovepipe systems of the past.

Newer telecommunications companies and Internet service providers are better prepared for a future that includes the widespread use of Internet technology for voice and data communications. Many service providers are looking for a business boom by promising lower-cost services to customers. Emerging small businesses, particularly, stand to benefit when a single voice and data architecture replaces two separate systems. And, with the dawn of this technology, residential use of voice over IP appears to be just over the horizon.

Voice over IP involves the use of packet-switched technology to transfer voice communications over Internet protocol networks that are now primarily used to transfer data. One benefit of the packet-switched technology is its ability to use bandwidth more efficiently. A dynamically shared capacity allows users to employ the network as needed instead of monopolizing maximum available bandwidth at all times. Thus, more traffic is able to flow over a network that joins voice and data capabilities.

Other capabilities in addition to voice transmission such as facsimile or conferencing over IP are often grouped together into the broader definition of IP telephony. This umbrella term refers to the emerging trend of convergence of the telecommunications and Internet industry. As voice and data communications converge, the differences between the two will be less and less apparent. Whereas data has long traveled over voice systems, enabling voice to travel over data networks is the main focus of the convergence.

Voice over IP and IP telephony are not new concepts. Developers have been toying with IP telephony technology for about 25 years. A few years ago, however, IP telephony was not ready for prime time, according to Dr. Lee McKnight. A professor at Tufts University, Medford, Massachusetts, and a visiting scholar at the Massachusetts Institute of Technology (MIT), Cambridge, McKnight is the founder of the Internet and Telecoms Convergence Consortium at MIT. He observes that the technology is closer but still has a way to go before reaching maturity.

McKnight notes that in 1996 when the consortium was founded, many people within the industry did not take the possibility of voice over IP seriously. Now, with voice over IP as a real industry and product, McKnight points to the extremely fast growth and development of the technology.

A recent study conducted by the Telecommunications Industry Association (TIA) and the Multimedia Telecommunications Association (MMTA) also details the growth and changing nature of the multimedia telecommunications market. The 1999 MultiMedia Telecommunications Market Review and Forecast cites an 11 percent growth in the total telecommunications market in the United States in 1998. The analysis also pinpoints computer-telephone integration (CTI) hardware and software products as the fastest growing equipment category in 1998. Spending on CTI hardware and software totaled $949 million last year, representing a 39 percent growth from 1997. Since 1993, spending on associated CTI products has quadrupled, according to the report.

A separate MMTA survey, conducted with Miller Freeman, reports that CTI resellers predict voice over IP products will be among the easiest applications to sell this year. As interoperability issues are addressed, this market expansion will continue.

Al Bender, vice president and general manager of IP telephony solutions at Nortel Networks, Raleigh, North Carolina, notes that the world is facing a “technology discontinuity.” He explains that the telecommunications world is waiting to see exactly how the use of one technology will end and another will be adopted to provide the same or more services. “We are redefining the current infrastructure,” Bender says. “We continue to reinvent communications.” Bender predicts total changes in the way we communicate. How lifestyles will be altered in response to these changes is yet to be seen.

“There’s going to have to be a transition period,” Greg Meyer contends. Meyer is chairman of the conferencing over IP activity group for the International Multimedia Teleconferencing Consortium (IMTC), a body that addresses many of the technical aspects of transmitting voice over IP. The conferencing over IP group was formed from the merger of the previous voice over IP forum and another related group. IMTC announced a partnership with the European Telecommunications and Standards Institute (see page 37) to promote cross-testing products to develop IP telephony standards and solutions.

Meyer believes that there will have to be a time when the technologies of today and tomorrow talk to each other. He offers that standards organizations are currently addressing this issue.

As head of the conferencing over IP group, Meyer notes the cooperation between major companies. Competition is put aside while work on the committee furthers development of specifications related to voice over IP. He believes this cooperation will bring the technology to the market faster.

Companies are already indicating their acceptance of IP telephony with projects that support development of the technology. Earlier this year, AT&T established its global IP telephony interoperability laboratory to serve as a testbed for consistent implementation of standards for global IP telephony. The company is partnering with service providers such as Delta Three Incorporated, GRIC Communications Incorporated and @Home as well as with equipment vendors such as Cisco Systems Incorporated, Clarent Corporation, Ericsson, Lucent Technologies, Siemens AG, 3Com Corporation and VocalTec Communications Limited as part of the project.

Although tariff arbitrage avoids tolls on long-distance calls through the use of Internet telephony and is the basis of marketing campaigns to entice customers, experts predict that this savings will not last forever. In 1996, McKnight warned that the easy money of voice over IP could be eliminated within two to five years.

Currently IP escapes a lot of regulation, but “that loophole will get closed,” Bender says. The cost of the networks is still present regardless of whether IP telephony is used, thus Bender contends that billing will most likely be adjusted to relate to the changing market. “There’s no free lunch in this world,” he maintains.

Bender describes the different focuses that equipment vendors have on product development. Some are concentrating on large-scale products to foster voice, data and video convergence networks, while others are primarily concerned with products that are geared to eliminate the access charges upon which telecommunications companies—their customers—depend.

McKnight suggests that there are already indications that the Federal Communications Commission and the European Commission are looking at regulating voice over IP. But, he argues, compared to data, voice over IP will not be easy to itemize and regulate.

Many experts agree, however, that the cost of international telecommunications will decline with the use of voice over IP. “The immediate opportunities for Internet telephony involve cost reductions relative to current telephone pricing,” David D. Clark, senior research scientist, MIT Laboratory for Computer Science, states in a paper on how the technology’s applications will impact the industry in the future. “The long-term trajectory for Internet telephony is to become a new mode of computer-mediated human communications, which will have profound consequences for the telephone industry,” he maintains.

In planning for and building their network infrastructures, businesses will be able to economize on bandwidth by relying on shared network resources. Fewer T-1 lines will be needed to provide necessary service to users, for example. This reduction in costs should benefit small businesses, which often face the daunting task of financing two parallel networks for voice and data.

“The convergence of multiple services will drive the market,” Bender says. He adds that new businesses are entering the telephony industry, while older service providers want to ensure that they remain ahead in the market. This will cause an influx of many new services, Bender asserts.

Quality of service is also a major issue in voice over IP. With the use of packet technology, the potential exists for loss of packets, which could hinder voice transmission. Latency, or delay, is often associated with the packet technology because of coding and decoding of voice packets. Currently, voice over IP technology offers latency rates that are often more than double the delay of voice networks, but technologies such as resource reservation protocol are being explored to reduce delays in voice traffic. This protocol decreases the delay by assigning voice packets a higher priority than data packets.

Standards organizations are looking at handling the quality of service issue by delineating a selection of service levels, which would allow the user to choose the quality level desired.

The TIA-MMTA report suggests that voice over IP will mainly be used over private networks as opposed to the Internet, since the public Internet allows little control over congestion and packet delivery. Meyer believes that once quality of service issues are dealt with, voice over IP could enjoy widespread residential acceptance.

Industry analysts assert that the convergence of the Internet and telephone industries will dramatically affect the way traditional telecommunications carriers conduct business, and it offers the potential for new companies that enter the telecommunications industry to make major gains. According to Bender, transferring voice over IP networks is “the Holy Grail the world has been seeking for the past 25 years.”