IP telephony growth provides opportunities for all participants

Aug. 1, 1998

IP telephony growth provides opportunities for all participants

Internet voice combines the explosive growth of the Internet with the huge size of the telephony markets, providing a hybrid that offers opportunities in both markets. According to Internet Protocol Telephony: New Markets for Systems and Service Providers, a new study by Killen & Associates (Palo Alto, CA), each market participant must decide what to do about this opportunity.

For users, Internet voice can be a money-saver, providing strong motivation for buying into it. The first consideration that must be addressed is quality. Killen suggests all Internet voice is not equal. It`s dependent on gateways and conversion software, basic network bandwidth, and whether the company uses an intranet or public Internet. The quality needed depends on the application. Internet voice may not satisfy a firm intending to provide "high-value" conversations. Yet, for intranet purposes, less quality may be acceptable when considering dollars saved. Telecommunications managers should consider how to use this new technology to find new ways to do business, not just to save on telephone calls.

According to the Killen report, the Internet service providers (isps) have "a tiger by the tail." Although they have a lot of new business, they also have a lot of new competition. They must enter the Internet voice market on as many levels as possible. If they don`t, the local exchange carriers (lecs) and interexchange carriers will deliver it to the customers, leaving isps at a market disadvantage. This means isps need to obtain gateways for use on their premises and accept analog voice traffic from lecs, which already carry Internet traffic. They should also offer PC-to-analog phone and analog phone-to-analog phone Internet voice services. Partnership agreements may be advantageous for offering turnkey networks, including Internet voice.

Internet voice is a whole new world for traditional telephone companies that are used to analog voice and the approach of "adding new features to it." These companies should embrace Internet voice and develop it with a separate market organization structure, says the Killen report. It should become a separate product line with direct access to field sales, product development, and research. Telephone companies should use their resources to ensure their services are of the best quality possible. Using their internal capabilities, they should deliver turnkey systems, including Internet voice from analog phone to analog phone. Many companies are large enough to buy isps, as gte did.

Equipment and software manufacturers of products for both user and carrier premises will serve a market of $7.5 billion, with double-digit growth rates by 2002. New products are being developed and new accounts installed at high speeds. New entrants have many opportunities and established suppliers face new challenges from them. The market moves quickly, and the first companies to introduce superior products can become market leaders. Companies with the technology to provide quality but not international reach or large sales revenues should consider licensing or partnerships. Companies with international sales reach but no products should do whatever it takes to acquire the rights to such products.

Lastly, the Killen report indicates that system integrators do best when there is a large, rapidly changing market, and users do not understand how to use the new products. If the market moves so quickly that vendors cannot provide turnkey systems to users, so much the better. These are the characteristics of intranets and voice Internet applications.

Systems integrators have a large opportunity in this market. They should move quickly to gain experience and have showcase accounts. They also should develop partnerships with equipment and service vendors who have the products and customer contacts, but cannot design and manage as many turnkey systems as their customer base requires.

For more information or to purchase a complete study, call Karl Duffy at Killen & Associates, (650) 617-6130, or visit their Web site at www.killen.com. u

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