IP Telephony Moves to the Fore

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Faster than anyone imagined, IP telephony is moving into
mainstream telecommunications, serving both to vindicate and to challenge the cable
industry's strategic thinking in this arena.

The business of providing low-cost calls over IP
(Internet-protocol) networks began a little over a year ago, with a handful of start-ups
offering cut-rate international service, and it has now blossomed to include a wide range
of providers offering stateside service, as well.

Perhaps most dramatic, AT&T Corp.'s WorldNet
data-services unit announced in January that it would begin market-testing IP telephony in
three cities later this year, marking the first time that a top-three long-distance
carrier has committed to entering the field.

Driving AT&T and many other established carriers,
including the local telcos, to look at IP telephony is the recent emergence of a new class
of "integrated communications providers."

For example, Qwest Communications Inc. is now offering
7.5-cent-per-minute long-distance service in nine major markets, and IDC Communications
Inc. two weeks ago announced plans to begin offering service at under 6 cents in 166
cities by year's end.

These companies, along with large, nationally based
Internet-service providers, are taking advantage of the rising capacity of fiber by using
wavelength-division multiplexing over their own or leased facilities, in conjunction with
the great leaps in performance of IP-telephony server gateways, to support profit-making
business plans at such low rates.

"Currently, we're seeing long-distance and local
telephone companies starting to shift gears and move faster with plans for deployment of
IP-telephony services," said Lior Haramaty, vice president of technical marketing at
VocalTec Communications Ltd., a pioneer in the technology.

"The next-generation telephone companies are taking
advantage of the latest technology advances at a pace that is causing traditional telcos
to realize that they don't have much time if they're going to do something to check these
newcomers," Haramaty said.

The spurt in activity rests in part on the release of a new
generation of IP-telephony gateways and of what are known as "gatekeepers,"
which were built to the recently completed H.323 Version 2 protocols of the Internet
Engineering Task Force. The International Telecommunications Union is finalizing the
adoption of these protocols.

The gateways perform the conversion of IP to
circuit-switched signals, or vice versa, in the interface between a data network and a
telephone network at a local point of presence. The gatekeepers add capabilities such as
advanced billing, security and intelligent routing, where calls are directed to travel the
best routes in the hybrid IP-circuit-switched domain.

Two years ago, the first gateways that allowed
phone-to-phone IP telephony versus the original personal computer-to-PC Internet-voice
concept were limited to handling a relatively low volume of calls within a network
"cloud" that used a single vendor's gateway products. But today, the combination
of standardization and advanced functionality allows the interconnection of multiple
providers using multiple vendor products in hybrid IP-circuit-switched configurations that
can involve thousands of gateways and millions of users worldwide.

"Now, you're seeing gateways running on big Sun
[Microsystems Inc.] servers, rather than on PCs, and some IP fiber networks have so much
capacity that they're running uncompressed voice, which means that the end-user is getting
quality that sounds better than a lot of calls running end-to-end over the PSTN [public
switched telephone network]," said Dave Bernstein, who runs Vergent Communications, a
San Francisco Bay-area consultancy.

The new gatekeepers, also known as co-management agents,
are especially important to the expansion of IP telephony. These server-based software
platforms provide the addressing, directory and other intelligent, networklike
administrative features that can both link gateways within a given IP operating
environment and share such information with other providers' gatekeepers and with
independent settlement houses, which provide administrative call-tracking services for
multiple carriers.

"The gatekeeper enables complex intranetworking
billing solutions with support for roaming, handling load balance, least-cost routing and
fulfilling call-termination agreements," Haramaty said.

Where fulfilling roaming requirements is concerned, this
means being able to keep track of dynamically assigned IP addresses and to find a user
"whether he's on an office phone, using his PC or at home," he added.

For now, the takeoff in IP telephony is based on low costs,
where customers -- including big businesses with high-volume long distance -- are willing
to forego many of the features that they're accustomed to in the PSTN world, said Mark
Winther, a consultant with International Data Corp.

IDC predicted that IP voice traffic, which is now on course
to be a $200 million-or-better business this year, will hit the $3 billion mark in annual
global revenues in 2001.

"We give the cheap-telephony phase about two years
before rate cuts by the established carriers force IP providers to move to more
sophisticated strategies," Winther said.

The cable industry has been extremely circumspect about its
IP-telephony plans since first announcing its initiative in this area in September, under
the direction of a task force authorized by the board of Cable Television Laboratories
Inc.

"We're making great progress, with some tests under
way and close cooperation of vendors, but we just can't talk about the initiative at this
point," said a senior executive involved in the process, who asked not to be named.

But it was clear that the fast-moving developments in IP
telephony outside of cable were not making it any easier to settle on a strategy.
Fortunately, the executive noted, "we don't need everybody to be pursuing the same
service strategy, but we have to agree on the fundamental architectural requirements,
which do require us to set minimum performance benchmarks."

One of the vendors representing the new wave of
capabilities that will benefit cable and other new-generation providers is Cambridge,
Mass.-based Kenan Systems Corp. Its billing platform and Internet-service-provisioning
software have been designed to allow cable and other providers to build services and to
create billing parameters from a table of components that support quick changes and highly
targeted features, said Paul Varley, Internet-products manager at Kenan.

"The system supports telephony rating by time of day,
destination and other traditional parameters," he said, "but it also has
components supporting other features, such as quality of service, where you might want to
charge 8 cents per minute when the network is operating at latency below, say, 200
milliseconds, and discount the charge to 6 cents when it's overloaded."

Varley said Kenan is working with a number of MSOs to
develop advanced services and billing capabilities, some tied to voice applications and
others more focused on pure multimedia aspects. "There's a lot of activity that we
can't talk about yet," Varley added.

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