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Voice-Over-IP Services for Business

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Executive Summary: Voice-over-IP Services IDT's Net2Phone Direct Survives Real-World

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Most VoIP services today consist of low-cost long-distance calling cards and bypass services aimed at frugal consumers who are willing to put up with choppy or distorted-sounding calls if it means reducing the size of their phone bills. But this is just the beginning; for service providers, corporate VoIP services eventually will be the big-ticket item. The handful of business VoIP services available now are limited to PBX-to-PBX links within an organization, such as PSINet's PSIVoice, or to international calling, such as Infonet Services Corp.'s VoiceWise. Meanwhile, the Big Three--AT&T, MCI WorldCom and Sprint--are scrambling to master a tricky balancing act: All plan business VoIP services, but they must take care not to cannibalize their lucrative circuit-switched voice services.

The carriers haven't been sitting on the sidelines as the new generation of IP telephony companies, such as IDT Corp., USATalks and USA Global Link, showered consumers with IP voice rates as low as 3.5 cents a minute if they dial a few extra digits. AT&T has a calling-card offering of its own, and MCI WorldCom sells a click-and-talk Web-based voice service for businesses with e-commerce sites that lets buyers talk over the IP connection to customer-service reps while they shop online. But as you'd expect, the carriers aren't pushing VoIP as a replacement for the PSTN (public switched telephone network).

"There is no voice-over-IP service that can beat the prices of a circuit-switched service," says Jim Kwock, general manager for IP telephony at AT&T. "We want to make sure voice-over-IP adds value to what the customer is already buying from us."

The Big Three simply can't afford to ignore VoIP. San Francisco-based Frost & Sullivan expects the overall VoIP market to grow at a rate of 149 percent annually through 2001, to about $1.89 billion. Killen & Associates, Palo Alto, Calif., has an even rosier estimate for the VoIP services market: $9.4 billion by 2002, a huge jump from Killen's estimate of $123 million in 1997.

Still, it's no cakewalk to crack the big corporate market, where negotiated long-term voice service contracts already can be as low as four cents a minute. The carriers are counting on low rates to maintain their lock on those enterprises as they meld their PSTN services with IP. Most of today's VoIP gateways, routers and software that pass voice packets among different IP providers' networks aren't interoperable, and can't scale to the size and traffic volume to which the Big Three are accustomed. A typical central office switch comes with about 100,000 ports; a VoIP gateway has about 120. "Vendors can't make the equipment scale fast enough [for these providers]," says Hillary Mine, executive vice president of Probe Research in Cedar Knolls, N.J. "The VoIP products shipping are lower-scale solutions."

Mine says she expects VoIP vendors to roll out larger-scale gateways later this year, but the big service providers first must bulk up their IP and PSTN infrastructures so their new IP voice solutions match their existing voice services.