A New Calling for the Net

The city of Silute, Lithuania, with a population of 22,000 and a location three hours from the national capital, is an unlikely place from which to foment a revolution.

That’s particularly true of the one Stepas Kairys carries on simply by staying on the telephone for hours at a time.

For the equivalent of $10 a month, Kairys, a 49-year-old basketball coach who has helped place 60 Lithuanian players on U.S. high school and college teams, gets to make unlimited calls to the United States. His calls to European countries often cost a tenth of standard rates.

The only sacrifice--a minor one, he says--is that he has to make his calls from a headphone-and-mike arrangement connected to his personal computer, which enables the calls to move not over conventional phone lines, but the Internet.

“I can’t imagine my life without it,” he says.

Kairys is a pioneer, but the rest of the world is not far behind him. Telephone service is moving off the traditional telephone system, on which voice communications dominate, and onto the Internet, which it will share with Web pages, video and music transmissions, and a near-infinite variety of other data.

As that change unfolds, a tidal wave of innovation will swamp the traditional telephone business--and will likely lead to lower prices and better features for consumers.

The transition is already underway. Many international calls already travel, at last partially, over the Internet, and dozens of small companies have sprung up to offer free or cut-rate dialing for long-distance customers by bypassing the conventional phone system.

The big telephone companies whose franchise has depended on traditional phone technology are taking notice. “This is coming at us whether we want it to or not,” says Cathy-Ann Martine, president of the international carrier services unit of Concert, a joint venture of AT&T; and British Telecom that will operate high-speed Internet telephone services in 60 countries, including China and Japan, by mid-2001. “It’s a freight train.”

Moving voice calls to the Internet also opens the doors for non-telephone companies to offer phone service--leading to more competition that may also benefit consumers. “The idea of America Online as a telephone company is not really farfetched,” Martine says.

In simple terms, Internet telephones work by breaking up the sounds of callers’ voices into a stream of digital “packets” and piping them onto digital networks at high speed. Because they share these networks with packets carrying Web-page data, music and video, they travel at much lower cost than a traditional voice call, which monopolizes a single circuit linking the callers.

The benefits to consumers are already becoming clear. It is not only that ordinary calls can be transmitted cheaply. Once linked inextricably to a computer network, the telephone itself becomes a lot smarter.

“What’s so powerful about the Internet is that your phone isn’t a black box, but a Pentium III piece of hardware,” says Bruce Maxwell, vice president of strategy and planning for Firetalk Communications, which allows subscribers to hold phone conversations via their computers for free.

That means phone services can become as flexible and imaginative as computer programs.

“We have a friend in London who’s very time-insensitive and keeps calling us at 5 a.m.,” says Jeff Pulver, a market analyst who sponsors several “Voice on the Net” industry conferences every year. “I’d love to have a ‘Do Not Disturb’ sign on my phone that tells him the Pulvers are sleeping now, but if you want to wake them, dial 1. Or a distinctive in-box that answers ‘Hi, Mom,’ if Mom calls from her home number.

“When my [6-year-olds] turn 10, they’ll have their own [computerized] answering machines. There will be callers who get busy signals, callers who get voicemail, and callers who get through.”

Routing calls over the Internet will give service providers new opportunities to offer customers cheap conference calling, video calling and integrated voice and e-mail. Some of those services have been available for years from conventional phone companies, but at prices that make them inaccessible to most users. At least one company, EVoice, already offers a free service that accepts voice messages left on your home or business phone and allows you to retrieve them, via digital audio files, from any Internet Web browser.

Others see a day when anyone can be reached by the same phone number no matter where he or she is in the world, just as one can read one’s e-mail from almost any computer. That’s because inside one’s telephone will be a unique code that identifies it to the worldwide network the moment it is plugged into a network.

“There are probably more applications than anyone has even thought about,” says Greg Braden, the head of telephony services at MediaOne, the large cable system operator that provides consumer phone service over its network in Culver City and elsewhere in the country. “The result will change the very nature of what a telephone call is.”

The merging of voice and data may also improve the Web-surfing experience.

“Everything happening on the Web today will [soon] have voice attached,” says David Greenblatt, chief operating officer of Net2Phone, which provides long-distance service at cut rates over its data network. “In e-commerce it’s no secret that 70% of [shoppers] enter the site and leave [without buying anything]. What you have is a Nordstrom’s without employees. But what if you had someone there telling you how something fit, or how it’ll wash and wear? Every place is better with a human interface.”

As with any heavily anticipated technological revolution, how soon these applications will actually materialize is still an open question. The traditional phone system is ubiquitous and familiar--and the beneficiary of billions of dollars of investment over the years. Even the most liberal forecasters expect Internet telephony to coexist with the Ma Bell variety for at least the next 10 years.

“It takes a long time to unseat a technology,” Greenblatt says. “There will always be pieces and stragglers who will never go.”

The traditional phone system has another advantage over alternatives: Its robust dependability. Americans have come to expect their phones to work 99.999% of the time--the so-called “five nines” standard. As anyone knows who has cursed a crashed computer or catatonic Internet connection, data systems don’t yet come close to that mark.

“Data networks aren’t known for their rock-solid reliability,” says Michael Van Norman, technology and development manager for UCLA’s communications technology services department, which manages a system of more than 30,000 phones on campus and at UCLA Medical Center.

“There may be some areas where the phones absolutely cannot go down,” he says, “like the hospital or our police and fire departments. So until these issues are worked out, we don’t see [Internet telephones] as a replacement.”

Communications engineers expect these and other issues to be ironed out fairly quickly, however.

“Ten years from now there won’t be a phone call that doesn’t go over the Internet,” says Thomas Evslin, a former Microsoft and AT&T; executive who is chairman and chief executive of ITXC, a company that wholesales Internet minutes to telephone carriers.

If this shift is to be successful, it will have to be invisible to the average phone user. But it will represent a crossroads for the industry.

Phone companies are already suffering from an elemental shift in the public’s telephone habits. Barely 10 years ago, most people relied for almost all their calls on their monopoly local phone company and a single long-distance company; on the road the choice was a pay phone or nothing.

But that sort of enforced loyalty is a thing of the past. Even at home one can choose from a vast array of long-distance providers--one’s regular service, or a “dial-around” service using the 10-10 prefix, or a phone card available from any of dozens of providers, including some that transmit the calls over the Internet, or a handy cell phone. For many homeowners the basis of the choice is simply price.

The impact on traditional carriers has been dramatic. AT&T;, the nation’s largest long-distance carrier, earlier this month sharply cut its estimates of revenue growth in part because consumers are “moving from basic wired long distance to wireless and Internet services at greater rates” than anticipated, in the words of its chairman, C. Michael Armstrong. “These forces have accelerated in recent months.”

AT&T; had already taken steps to join a revolution it knows it can’t beat. As leader of an investment consortium, the company in March paid $1.4 billion for a one-third stake in Net2Phone, the largest Internet phone company, with an option to purchase overall control.

This is happening while IP, or Internet Protocol, telephony still accounts for a tiny fraction of all phone traffic. While 476 million minutes of conversation and fax traffic was carried by voice over IP, or VOIP, networks in 1998, the world’s long-distance carriers handled more than 880 billion minutes, according to a study by the investment firm of Piper Jaffray Inc.

But many communications experts believe the trend will build. “We are trying to get to VOIP in the core of our network as fast as we can,” says Kathleen Earley, president of AT&T;’s data and information arm, “because the savings are enormous in getting rid of the legacy [traditional] networks.”

The reasons derive from several historic changes in telecommunications traffic: The volume of data is steadily overtaking that of voice on the world’s networks. Data traffic has exceeded voice traffic on U.S. long-distance networks since 1998, thanks to the growth of the Internet, and will pass voice on most other components of the system this year.

As the relative role of voice diminishes, it makes more sense to require that spoken conversations and digital data share a single network, rather than allowing voice to claim a huge portion of the nation’s copper wiring for itself. Anything else would be as wasteful as building parallel freeway systems; say, one for Mazda Miatas and one for all other vehicles.

“Today you have two networks,” says Noam Bardin, the chief executive of the telecommunications company DeltaThree. “One does everything, and the other does only voice. That means the [phone network] has no real technological reason to be around in the future.”

That’s especially true because transmitting data by Internet protocol is much cheaper than transmitting voice by electronic pulse, the traditional method.

Think of the traditional phone network as a huge bundle of discrete lines, like individual coast-to-coast spaghetti strands. Every conversation ties up one of those strands for its entire duration regardless of whether the parties are speaking, silent, or keeping each other on hold.

Phone bills have long been billed by duration and distance because of this architecture: The longer the call and the farther apart its participants, the greater the demand on a finite resource.

Not so when the freight is digital data. Data transmissions--say, the images and text comprising a Web page--are broken up into individual packets of digital bits before being shot onto the Internet, the backbone of which is not a bundle of discrete circuits but copper wires, coaxial cables, and fiber-optic lines making up a vast lattice of interlocking arms and branches.

Each packet traverses its own path, getting routed around traffic jams when necessary, until all arrive at their destination generally out of order and out of sync, like the violinists in a grade-school orchestra. At that point they are reassembled in proper order so the Web page can appear on your screen.

Therein lies the opportunity for voice on the Internet--and the impediment. Broken up into packets, voice can travel the information freeway like any other data, with time and distance reduced to irrelevancies. That’s why some Internet telephony companies can offer PC-to-phone calling services for pennies a minute or even for free.

On the other hand, voice requires much more precision than raw data. The delays and misroutings that commonly afflict data packets on the Internet barely matter when they are carrying text or images, because they can be retransmitted or ignored without noticeable degradation of the end product.

But the same problems render conversations unintelligible. And that’s why many of those free Internet conversations sound like bad cellular calls and are at worst interrupted by pauses and static that make it sound as though each person’s words have made a round-trip detour to the moon.

Some of these glitches are already on the way to being solved by a combination of network and software improvements. Several start-up companies have invested in private fiber-optic data networks that circumvent the public Internet backbones and avoid their bottlenecks. Meanwhile, manufacturers like Cisco Systems have devised switches, known as routers, that distinguish between voice and data packets and give the former priority, thus cutting down on transmission delays.

Voice quality is an area of critical research, for Internet telephony companies understand that to succeed, sound on their networks will have to be nearly indistinguishable from that of traditional networks. That’s especially because their price advantage is rapidly fading as the cost plummets for standard long-distance calls.

Industry experts say the real benefit of moving voice to the Internet is that it makes the potential for innovation limitless. Where innovation in the traditional phone network is centralized, innovation on an Internet-based telephone network can take place as it does on the Web itself--anywhere a clever programmer contrives a new application and loads it into his home phone.

“No one was ever able to build a business in their own garage by innovating on AT&T;’s network,” says Pulver. “But IP will allow a 13-year-old writing code to create a phone application.”

In many respects VOIP technology today sits right on the borderline between what is promised and what is proven. It’s a stage that confronts large telecommunications customers with a tough choice--take a plunge, or wait.

For Cornell University, which will undertake a more than $3-million upgrade of its campus phone system by the end of next year, when some existing equipment reaches the end of its useful life, the promises are great. They include an integrated network offering video, Web access, e-mail, voicemail, and voice; the ability to give staffers one number they can take anywhere; and easy replacement of the system software as new innovations appear. If the technology is not truly ready for prime time, however, disaster will ensue.

“We’re certainly confident that VOIP is going to happen,” says Helen Mohrmann, Cornell’s director of network services. “Our dilemma is that we have to convert 15,000 users by January 2002.” If that could happen three years from now rather than one, she confides, “we’d be a lot more comfortable.”

Other universities connected to a new academic Internet--”Internet2”--designed to avert the data logjams on the commercial network are experimenting with IP installations on their campuses.

“We’re trying to find out what breaks,” says Russell Morrison, systems developer for Ohio State University. OSU has 112 phones on IP, mostly in administrative offices, in anticipation of a broader installation some day soon. But they haven’t given up their conventional phones: Morrison’s phone number goes first to his conventional phone but then is automatically forwarded to his Internet phone. That way, if the Internet system breaks, he still has the old system as a backup.

But he has been impressed with the speed of improvement in what was originally an unreliable, echo-plagued network. “Now a major campus deployment is a viable option,” he says.

An even bigger challenge confronts Merrill Lynch & Co., the vast financial services firm, which is working with Cisco and AT&T; to install a VOIP network in its under-construction office campus in Hopewell, N.J. There, 8,000 employees in eight buildings will one day do all their phoning over IP, starting gradually as the first workers arrive late this year.

Eventually, says Adam Schoenfeld, Merrill Lynch’s director of private client architecture and a technical advisor to the Hopewell project, almost all their staff will be on an integrated voice and data network.

“We see it as raising personal productivity,” he says. “Our financial consultants will be able to set up rules where high-priority callers”--say, important clients--”can find them regardless of where they are. Today that’s almost impossible to implement on a phone system.”

The project is very much a work in progress as Merrill Lynch learns the downside of the Internet and Cisco engineers simultaneously acquaint themselves with the peculiarities of the telephone. A pilot program for a few hundred phones at a nearby Merrill Lynch complex has had “a few outages,” Schoenfeld says, including a couple caused by hard drives in Cisco computers running out of space.

Schoenfeld says he has found nothing in the basic architecture of principles of the IP telephone system that indicates it won’t work. But he does say that IP telephony, notwithstanding its potential for new features, will have to meet the reliability standards set by traditional carriers.

“If the fundamental phone system isn’t working at five nines,” he says, “it won’t be in long enough to use all the features. People won’t say, ‘Great, I can do these things, but they only work 90% of the time.’ That won’t be acceptable.”

(BEGIN TEXT OF INFOBOX / INFOGRAPHIC)

Internet Telephony on Its Way In the biggest upheaval since the 1984 AT&T; breakup, phone technology is moving to the Internet. The change will mean lower prices for consumers and a proliferation of personalized

phone features.

THE CURRENT PHONE SYSTEM

INTERNET TELEPHONE

Source: Times research

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* THE FUTURE IS CALLING

New communications services are coming to the Internet, but the technology is on a slower track outside the U.S. C1