In Canada, IP May Become Reality

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Two MSO proponents of IP-voice services over cable closed
out 1998 asserting that they will prove naysayers wrong by delivering commercial,
toll-quality services before the new year ends.

"We're looking at conducting our first trials starting
in March, and we expect to be launching commercially in the fourth quarter," said
Michael Foley, vice president of telecommunications at Cogeco Cable Canada Inc.

Cogeco's Internet-protocol voice intentions came to light
as the more widely publicized plans of Le Group Videotron Itée. were drawing skepticism
from cable engineers at other MSOs, who believe that IP telephony won't be commercially
viable until well into 2000, if not later.

"An announcement from Videotron doesn't persuade us
that we're missing something in our own calculations," said one senior MSO engineer,
asking not to be named.

"While the cable industry has been universally
optimistic about the outlook for IP telephony, there have been differences of opinion on
various related topics, including timing," noted Lou Kerner, a senior analyst at
Goldman Sachs & Co. "Even AT&T [Corp.] and TCI [Tele-Communications Inc.]
will deploy switched telephony on a limited basis while they wait for IP telephony to
evolve."

Indeed, engineers in the AT&T/TCI camp, where an
IP-telephony strategy has been heavily publicized, privately expressed uncertainty over
the ability of the soon-to-be-merged companies to deliver on the promise anytime soon.

"We've got a lot of hoops to go through before anyone
can say what the timing will be," said one executive, who did not want to be named.

But Videotron, in a conference call sponsored by Goldman
Sachs, strongly defended its strategy, noting that its confidence in IP voice is so strong
that it will use this service, rather than high-speed Internet access, as the linchpin of
its infrastructure expansion.

"IP telephony is a key service that we can deploy in
the short term to help us finance the overall infrastructure," said Carmello
Teillona, executive vice president of Videotron.net, the firm's research-and-development
unit. "[IP voice] allows us to deploy other services at a marginally very, very low
cost."

Videotron's enthusiasm for IP-voice technology rests in
part on the fact that its 2.3 million-household service base is clustered together in
Quebec, allowing it to support calls throughout the province at low costs.

"We view the whole province of Quebec as a local
network, and we could, if we wanted, provide all calls on a local-rate basis,"
Teillona said.

Teillona asserted that the market opportunity for an
alternative voice service is larger than the initial market for high-speed data, making it
much easier to pay for the installation of cable modems using the voice incentive.

"If you look at the reasons for low penetration [of
high-speed cable-data services] in the United States, one of the factors is the cost of
the modem," he said. "In our case, we're going to be justifying installation of
the modem through the IP-telephony service, so the data services are going to be deployed
incrementally at very low cost."

By waiting for IP voice before offering high-speed data,
Videotron will avoid any consumer confusion over what types of modems to buy. While the
industry is beginning to deploy standardized DOCSIS (Data Over Cable Service Interface
Specification) modems, it will be the next version of DOCSIS -- 1.1, slated for delivery
later in the year -- that will include the quality-of-service and other parameters
essential to supporting voice services.

In fact, some MSOs believe that they should wait for DOCSIS
1.2 -- with a new upstream physical layer, offering more robust performance than the first
versions of DOCSIS -- before committing to IP voice. Modems conforming to this spec are
expected before the year is out, but using them will require installation of new headend
gear.

Unlike Videotron, Cogeco -- with networks passing 400,000
homes already activated for two-way services -- is not waiting for IP voice to get
high-speed data under way, Foley noted.

The company -- one of the first MSOs anywhere to deploy
DOCSIS modems -- anticipates that retail availability of the modems will help to drive
penetration at a faster clip, contributing significant revenues to cover the upgrade costs
before IP voice kicks in.

Cogeco, like Videotron, is weighing an alternative approach
to deploying modems when it comes to supporting IP voice, Foley noted.

"We're looking at the premises architecture to see if
it makes sense to put the modem by the phone or to install it as a residential gateway for
all data services," he said. "My preference is to go with the gateway, where a
single modem serves all of the household needs."

Cisco Systems Inc., which is supplying DOCSIS headend gear
to both MSOs, has partnered with ADC Telecommunications Inc. to develop such a gateway for
external mounting at the point of the drop connection to the home, said Paul Bosco,
general manager of Cisco's cable-products and solutions business unit.

"In this case, operators will be able to deploy voice
over IP without having to get into the home," he said.

The unit, slated to be available by midyear, will consume
less power than today's cable modems, which will allow the IP-voice service to be powered
over the cable network, Bosco said.

The high power required by cable modems is one widely cited
drawback to IP voice services, which require a cable modem and signal-format converter to
enable users to make voice calls from standard telephones over the cable-data network.

Both Cogeco and Videotron are making use of a wide range of
technology supplied by Cisco and its partners to enable IP-voice services, including the
new means of providing call setup and features jointly developed by Bellcore (Bell
Communications Research) and Cisco. The cable industry's PacketCable task force recently
included the-call setup protocol, Simple Gateway Control Protocol, in its first draft of
specifications for IP telephony.

SGCP is now evolving with input from other Internet players
to what is known as "Media Gateway Control Protocol." The immature status of
this technology is another factor in some operators' reluctance to get out in front on IP
voice.

Other key elements of what's necessary to make IP voice
attractive to cable operators are also still in development, Bosco noted.

"The challenges that we see are in the less glamorous
pieces of the expense area, like installation and provisioning, customer care and
operation," he said. "A big piece of the work at Cisco is in these areas."

Moreover, he noted, operators want to see ready means of
integrating services -- a chief selling point of doing voice over IP -- before committing
to the strategy.

"The benefits of having one infrastructure to manage
begin to accrue when you compete with legacy operations that use parallel networks and
many OSS [operations-system support] systems to deliver the same types of service,"
Bosco said.

"In the second half of '99, we'll begin deploying more
middleware integrating our directory work so that folks on the operations side can really
exploit this multiservice unified network for bundling and packaging," he added.

The Canadian MSOs are betting that Cisco and its vendor
allies can deliver on all of these promises this year, even though it might take other
vendors longer to deliver products that match up with the emerging PacketCable standards.

For other operators, the hesitancy in committing so
aggressively to IP telephony probably has as much to do with wanting to make sure that a
multiple-vendor supplier pool is in place as it does with any skepticism about Cisco's
ability to meet its commitments.

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