Internet telephony poised for next communications surge

Nov. 1, 1996

Internet telephony poised for next communications surge


Picture a nationwide network that delivers content using the most advanced technology available--a technology that creates new markets and products and gives local businesses a nationwide presence virtually over night. No, it is not the Internet. It was the railroads back in the 1860s. The nation`s first network was being constructed mile-by-mile across the United States using steel rails and wooden ties.

Businesses that were "online" in Chicago at that time experienced phenomenal growth. However, if the network technology passed companies by--as it did those in Tombstone, AZ--businesses withered and died. This history lesson should not be forgotten as the communications industry moves into a new millennium with the Internet.

As the Internet evolves from a curiosity into a valuable business application, Internet telephony, or "voice over net" (VON), has emerged as an intriguing technology that offers a new way to deliver products and services to the customer. VON involves the transmission of voice traffic over the Internet, as opposed to the traditional switched telephone network, and offers several advantages over traditional telephone, including lower prices and new services. Currently, in the United States, long-distance providers such as MCI must pay nearly 40% of revenues to the local phone companies to gain access to their customers` homes and businesses.

Internet telephony would free long- distance providers from paying these high access fees, enabling them to offer lower rates to customers. Just as the breakup of the telephone monopoly a decade ago brought lower prices and sparked a wave of innovation in telecommunications, lower prices will again fuel more demand for new services and products. Internet telephony won`t take away business from long- distance providers, but it will create complementary products, evolving as did cellular and paging technologies.

Demand for network capacity, once driven by the telephone, is now driven by the computer, as more and more companies figure out how to do business on the Internet and on their own intranets. To illustrate, traffic on MCI`s Internet backbone network is growing by 30% a month, and each month nearly 300 Tbytes of data are transmitted across the company`s fiber-optic Internet backbone.

Seamless communication

But that`s just the beginning. As the lines continue to blur between computers and telephones, broadcast and telephony, long distance and local calling, Internet-based telephony will play a key role, bringing us closer to the day when communication becomes seamless across all media and revolutionizing the way business is conducted. Soon, consumers and businesses will be able to communicate over the Internet with the same ease as they do today via the telephone network. Consumers will be able to communicate using computers, fax machines, traditional telephones or a combination of the three.

Will VON ever replace traditional telephony? No. But the variety of business applications available via Internet telephony will create different value-added services that will drive new business and new markets.

For example, VON could be used in a computer company`s customer service call center. A customer service representative would be able to talk to the customer while simultaneously interacting with the customer`s computer without the need for additional phone lines. The technology would be similarly useful in other business settings.

For other examples, a mortgage counselor could directly assist a customer in filling out a loan application; a video editor could splice tape for the evening news in full view of a producer located in a newsroom thousands of miles away; and a real estate agent in Dallas could take a prospective home buyer from Denver on a visual tour of properties. Multicasting, videoconfer encing and document sharing are other possibilities.

Continuous access to services

And just as the personal computer has moved from the business to the home, consumers will want access to these high-speed, broadband services 24 hours a day. Technologies such as asymmetric digital subscriber line will bring fiber closer to the customer and bring interactive services into the home at reasonable prices.

The good news for proponents of VON is that by the beginning of the next century, the Internet will be nearly ubiquitous in the United States. For most people, VON will be an extension of a technology that is already a familiar part of their daily life.

Clearly, though, major hurdles remain. Current technology doesn`t bring users the clear, crisp, readily available communication they enjoy via the switched telephone network. Internet "phone calls" still must take place via personal computers. Consequently, interoperability standards among vendors and service providers will play a key role in the success of this medium.

There are other issues that must be faced. How well will the current fiber-optics-based Internet backbones handle the new surge of traffic? The Internet`s demand for bandwidth is already beginning to rival that of the switched telephone network. It is clear that as traffic grows, backbone providers will have to boost capacity while using new technologies to expand the capacity of existing fiber. MCI has already begun taking such steps, recently upgrading its backbone to OC-12, or 622 Mbits/sec, as the company prepares for the next wave of Internet applications.

There are also many regulatory uncertainties. Will VON and the rest of the Internet enjoy freedom from governmental interference, or will the entrepreneurial spirit of the Internet ultimately be stifled by a harsh regulatory climate, as advocated by some in the industry?

VON is a global issue as well. Because of the lower costs of Internet transmission versus international telephony, VON is an attractive alternative for overseas calling. But it is still unclear how overseas telecommunications companies will react to this technological innovation, given their tendency to cling to tradition, particularly in foreign telecommunications markets where there is little or no competition. There is also the problem of bandwidth constraints that currently exist in Europe and Asia.

The choices that vendors, information technology managers, and businesses make as they enter the new millennium will be crucial. In the emerging global village, will they be operating in a Chicago or a Tombstone? q

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