Ops Keep Eye on IP Providers


IP-telephony providers outside of the cable industry are
beginning a crucial transition to long-term business models that should have a lot to say
to cable operators about the ultimate potential of packet services.

Dramatic as the gains in IP-voice (Internet protocol)
technology have been in the three short years that it has been around, cable engineers are
still in a wait-and-see mode when it comes to betting that MSOs can take on the local
telcos via the packet platform.

"The [circuit-switched] technology that we have today
works fine," said Jim Chiddix, senior vice president of engineering and technology at
Time Warner Cable. "There's a lot of work to be done before we can say the same thing
about IP telephony."

Much of that work will have to be done outside of the
PacketCable initiative, Chiddix added. PacketCable, which is backed by Time Warner Cable
and other MSOs, is focused on choosing operational interfaces that are specific to cable's
needs, while relying on the IP-voice industry to address interface-protocol issues that
are common to everyone. This will require existing players to push beyond today's
applications in order to generate demand for solutions on a massive scale.

So far, the surging but still miniscule telecommunications
sector that delivers voice over IP networks has largely survived on two factors. Those are
cut-rate pricing, which exploits the low cost of long-haul data networks, in conjunction
with gateway servers that translate signals to and from the analog pulse-code mode of the
local switched telephone networks.

IP-voice carriers recognize that now is the moment to try
new things, because in the eyes of most players, there's plenty of momentum left from the
low-cost price advantage, especially on international routes, to carry them through at
least another year.

The prospects for another banner year in the sector provide
carriers with the financial momentum that they need to develop new services and network
capabilities, noted Mark Winther, an analyst with International Data Corp.

IDC said early this year that revenues for IP telephony
would total $1.89 billion for the year on 5.84 billion minutes of use, expanding to $24.39
billion and 151.7 billion minutes, respectively, in 2002, which would represent 11 percent
of total call volume worldwide. Now, Winther said, it looks like the IP share of calling
"will be more like 20 percent to 25 percent" in that time frame.

"We absolutely don't believe that there's a viable
market for cheap, low-quality IP-voice services," said Jackie VanderBrug, director of
business development at VIP Calling Inc., one of the pioneers of and a major player in IP

"We play only in the wholesale business right now,
where our carrier customers require that we have the processes and systems in place to
support toll-quality fax and voice services," VanderBrug added. "We're looking
at possibly entering both the retail [consumer] and the enterprise markets with the same
requirements in mind."

VIP has "transformed itself" over the past year,
bringing in new top management with strong backgrounds in voice and data and obtaining
$10.5 million in new venture-capital funding, VanderBrug said. It plans on being in 20
countries by year's end.

With wholesale minutes of use "in the millions per
month" and growing at a rate of 50 percent per month, VIP has focused its feature
development on the most important aspect of its business -- quality of service.

For example, the company has implemented "Assured
Quality Routing," where customers' signals are transferred to PSTN (public switched
telephone network) routes when latency or other problems intervene on its data routes.

"We're providing IP cost structures, but customers
don't have to incur the risks that often come with such pricing," VanderBrug said.

From the cable perspective, one of the key things to watch
in IP telephony is the move by some providers toward offering service that translates
phone calls to packets right at the user premises, rather than at gateway servers, which
is how cable wants to proceed.

With this shift, the "call-agent" servers that
set up and manage calls will have to directly interact with each user at the
"gateway" box on premises, rather than merely interacting with the more
centralized gateways that handle the handoffs for hundreds or thousands of calls between
the IP and PSTN domains.

One-on-one call-agent management simplifies the management
task by avoiding the need to handle many calls at one gateway point, thereby making it
easier to scale the network to serve a mass market. But cable needs support in its efforts
to reach consensus on how this one-on-one call management and the resulting distributed
architecture are designed and supported by multiple vendors.

The year ahead will see ever more carriers moving into the
packet-from-the-premises mode of offering IP-telecommunications services. This includes
Level 3 Communications Inc., which has predicated its future on its ability to make use of
a 16,000-mile fiber-based infrastructure that currently reaches 50 cities to deliver
PSTN-quality service in the all-IP environment.

Level 3 said last week that it was throwing its support
behind Bell Communications Research's (Bellcore) approach to the crucial issue of handling
call management, eliminating a potential clash between leading proponents of alternative

Bellcore, in partnership with Cisco Systems Inc., is
proposing SGCP (single-gateway-control protocol) as an alternative to the call-management
mode set up under the established H.323 voice-over-IP standard. As previously reported,
the PacketCable group is close to adopting this approach, as well.

"When I talk about IP voice, I mean voice
indistinguishable from voice over the PSTN, with no double dialing, no PINs [personal
identification numbers]," said James Crowe, president and CEO of Level 3. "We
believe that this is possible today."

As important as the feature-rich environment of Level 3's
IP-voice network will be to drawing customers, Crowe made it clear that he is convinced
that the long-term advantage for IP voice over PSTN voice rests with cost, as well.

In assessing how it would proceed in developing services
over its new national fiber network, Level 3 calculated the fundamental costs of
delivering traffic through switches versus through an IP network on a coast-to-coast
basis, eliminating superfluous aspects of the differential, such as access tolls. It found
that for a 650-megabit payload, the PSTN cost was $27, versus $1.98 for IP.

"People say that the cost advantage will go away for
IP voice when costs imposed by arbitrage and regulations are eliminated," Crowe said,
"but they're wrong."

Moving ahead of Level 3 as a next-generation long-distance
carrier entering IP voice is Qwest Communications International Inc., which began offering
the service in February. Qwest is now serving about 19 cities in California and other
parts of the West, as well as in Indiana and Ohio, according to company officials.

"We'll be in 125 major metropolitan service areas,
including big cities like Los Angeles, New York and Chicago, by year's end," said Guy
Cook, vice president of data networks for Qwest.

No company has gone further in the direction of adding
intelligent-networking capabilities to the IP-telephone network than I-Link Inc. At year's
end, I-Link is set to add the New York; Chicago; Seattle; Orlando, Fla.; and Pittsburgh
markets to its retail service base in Southern California; Dallas/Fort Worth and Houston,
Texas; Phoenix; and Salt Lake City.

The company -- which offers enhanced local services and
long-distance service at rates as low as 4.9 cents per minute -- intends to be in markets
representing 60 percent of the U.S. population by the end of 1999.

One of the technical advances that I-Link has committed to
bringing online in 1999 involves the C4 multiline-communications device, which the company
began demonstrating in the third quarter through its ViaNet Technologies subsidiary. The
premises unit is designed to support up to 24 lines of voice and Internet service over
existing telephone wires, using various access technologies such as ISDN (integrated
services digital network) and DSL (digital subscriber line), as well as standard analog

"We think that price is the beginning point for
success in this business, but just the beginning point," said Bob Bryson, vice
president of product marketing for I-Link.

Success on the part of I-Link, Qwest, Level 3 and the other
players pushing the envelope would make it much easier for the cable industry to jump into
the IP-voice market in mid-2000 -- the time frame that is now targeted as cable's goal for
achieving a standards-based approach to launching services.