IP: brief Internet Telephony market analysis

[Dave Farber <farber () central cis upenn edu>]

sent with permission of author


from <http://www.cir-inc.com/commentary/netphone.html>:


The State of Internet Telephony
by Lawrence Gasman (ldg () cir-inc com)


> From the perspective of certain long-distance carriers, the only debate
over the potential for carrying telephony traffic on the Internet is over
whether this new technology is merely a minor menace or is a killer app in
the nastiest sense of the word "killer." Meanwhile, in the pages of Wired
the digerati and cyberpunks continue to push Internet Telephony, as if it
is was a real world alternative to today's telephone system.


But the truth is that it is not. The quality of Internet telephony leaves
much to be desired, to put it mildly. Even with today's widely available
28.8 Kbps Internet connections, it is not enough for high fidelity sound.
Other problems, such as the actual data transfer rate and delays cause a
conversation to be very poor to incomprehensible. Internet software
attempts to solve this problem using various methods, trading off sound
quality against the cost of compression.


And, of course, Internet telephony takes an Internet connection. The
Internet may have penetrated American homes and offices at phenomenal
speed, but its penetration is insignificant compared to the telephone.
Advantage Bell!


Free At Last


The real issue here is the cost of Internet telephony. Where Internet
access is already available, the marginal cost of making an Internet phone
call is effectively zero. This is what worries some long-distance telephone
companies and thrills the cyberpunks It also may, in the long run be almost
irrelevant to how Internet telephony develops for two reasons:


1.) Internet telephony is currently a bargain basement service. Nobody is
going to pay much money for the kind of quality that Internet telephony
offers today. Back in the early 1980s, MCI offered residential telephone
service at a discount of about 50 percent on what AT&T charged. But its
service was abysmal -- blocked switches and noisy lines when you did get
through. MCI had to charge next to nothing to get any customers at all. Now
that MCI offers a service that is as good or better than AT&T's it charges
more or less the same as AT&T. Expect to see something like this happen
with Internet telephony. When Internet telephony offers voice quality and
connectivity that compares with what the telcos can offer, it will probably
cost much the same as the telcos charge.


2.) The Internet as a free resource may be doomed. Today, we are living in
a fool's paradise in which the pricing for Internet access does not seem to
take account of the need to build the infrastructure to support it. As I
write this article one of CIR's telephone lines is providing me with access
to the Internet and has been doing this for hours now. The CO switch to
which it is attached was never designed for traffic patterns that included
multi-hour calls. The imminent collapse that is now being predicted for the
Internet is probably an exaggeration, but someday -- and someday soon --
the Internet customer is going to have to pay for the infrastructure that
supports him. When that day comes, no more free Internet and no more free
telephony.


Technology is All


What nobody knows is, when the dust has settled, whether Internet telephony
will continue to be less expensive than conventional telephony. The
argument for the proposition is that the cost of bandwidth is declining
rapidly so that building the backbone and access infrastructure for an
Internet that will carry data along with video, image and voice will not be
outrageously expensive. The argument against is that packetized data
networks are just not made for voice.


Who will win this argument remains to be seen. However, more than just
infrastructure technology is at stake here. For Internet telephony to
succeed, the technology will have to be marketed to as mass market. A good
start has been made with Netscape's move to incorporate Internet telephony
into its browser, although, of course, this has brought on the usual
griping from the cyberpunk community that Netscape is trying to be a
"monopolist," just like Microsoft.


The general public's awareness of Internet telephony will also be enhanced
by the recent agreement between Packard Bell Electronics Inc., one of the
leaders in the home computer business, and Internet telephony specialist,
VocalTec Ltd.. Under this agreement, VocalTec's Internet Phone software
will be included with each of Packard Bell's new Platinum series of
multimedia personal computers. Almost every major consumer electronics and
office supply chain carries Packard Bell, so it is likely that many newbies
will learn about Internet telephony for the first time from this deal. For
the unconvinced, Packard Bell is bundling Internet Phone version 3.2 with
the Platinum series computers. This lets users experience the benefits of
Internet Phone software in time limited conversations before they decide to
upgrade to the unlimited version or to the audio quality and multimedia
communications features of Internet Phone Release 4.


Other companies are focussing on improving the quality of Internet
telephony. Camelot Corporation's DigiPhone for Mac has features such as
encryption, Direct Dial Technology, and the Global DigiPhone Directory.
These features are in addition to full duplex sound, caller identification,
call screening, E-mail messaging, call mute, personal phone book, and
adjustable sound quality. It is LAN/WAN compatible and is able to serve as
a secured company phone system across private area networks. Most
importantly, it is also cross platform compatible so that Macintosh users
can talk to PC users, and vice versa. Camelot has also done a great job
with its product by introducing adjustable sound quality to make up for
limited bandwidth.


Camelot is not the only company to be adding such features, NetSpeak Corp.,
has released WebPhone 2.0., which delivers a realtime, full duplex,
encrypted, communication system with point-to-point (not Internet Relay
Chat) connectivity. WebPhone 2.0 may be downloaded from NetSpeak's World
Wide Web site at http://www.netspeak.com. Off-line voice mail allows
callers to leave messages for WebPhone users who are not logged onto the
Internet. Conference calls and call transfers can be setup between PC users
by using a drag and drop function. WebPhone also provides secure features
such as password protection and party specific call blocking.


But, software can only do so much. The underlying hardware must be able to
competently support the code written for it. In this light,  Cirrus Logic
has unveiled a suite of integrated telephony chipsets that will support
next-generation communications in multimedia PCS and Internet appliances.
These chips are based on Cirrus Logic's new FastPath V.34+ (33.6 Kbps)
telephony platform, an architecture that incorporates a 32 bit ARM RISC
processor along with high bandwidth DSP. The FastPath platform is capable
of supporting the concurrent operation of a wide range of advanced data,
fax, and voice features up to 33.6 Kbps.


But all these technological advances will be in vain if the Federal
Communications Commission (FCC) grants America's Carriers
Telecommunications Association's (ACTA) request to ban Internet telephony.
The ACTA represents a group of approximately 130 long distance telephone
carrier resellers. The "Voice on the Net" (VON) Coalition, an Internet
organization devoted to creating global awareness of audio, video,
multimedia, and Internet telephony products and software, along with
computer industry organizations and companies filed a joint reply comments
June 30, 1996 against the ban.




(c) Copyright 1996 by Communications Industry Researchers, Inc.