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 THE STAT 26Percentage of wireless customers who use their cell phones to take picturesMore Vitals
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JANUARY 6, 2004
For Whom the VoIP Bell Tolls [Page 2 of 2] PBX SHAKEOUT. Many corporate tech departments now have experience in working with advanced technology such as high-speed Wi-Fi (wireless fidelity) networks. Plus, the latest PBXs for Internet protocol are easier to manage than the older gear. Most upgrades can be simply done via reprogamming, without any changes to the physical infrastructure. Dartmouth College's Johnson figures that a VoIP PBX will cost half as much to maintain as the $500,000 needed annually to run a traditional, campus-size PBX. As sales of VoIP PBXs ramp up, some equipment makers could even compete with phone carriers to provide PBX management services. Some analysts believe that networking king Cisco could enter this business, though it denies any such plans, according to Don Proctor, vice-president and general manager of Cisco's voice-technology group. In the $14 billion PBX business, makers of the VoIP variety will make life tough for traditional telecom-equipment makers such as Nortel Networks (NT ) and Lucent Technologies (LU ), say analysts. Cisco's Internet protocol product sales are growing at double the industry rate, say analysts. And startups such as Cedar Point Communications, privately held and based in Derry, N.H., have found customers such as Comcast for their switching equipment, says David Spear, an executive vice-president at Cedar Point. NOT CUT OUT -- YET. The incumbent equipment makers are responding by increasing their efforts to supply the VoIP market. About a month ago, Lucent announced a special strategy and products for VoIP, including various switches and software. It believes its long-standing relationships with phone carriers will give it an advantage in retaining business, says Roger Heinz, vice-president for convergence solutions at Lucent. The advent of VoIP isn't the end of the world for the traditional phone carriers. Today, the U.S. has more than 180 million regular phone lines vs. fewer than 30 million broadband lines (a prerequisite for quality VoIP). For the foreseeable future, moreover, cable operators and other VoIP newcomers will need the telcos' help to route calls to their customers who aren't on IP networks. Even so, U.S. broadband adoption is growing at 40% a year, according to RHK, so the threat to the phone companies could grow rapidly. That means the established carriers will have to hop onto the VoIP bandwagon fast -- or be left behind. If nothing else, VoIP offers them an opportunity to recoup some of the estimated 12% in annual revenues they're losing as customers disconnect their second phone lines when opting for broadband, estimates i2 Partners' Jezierski. (With broadband, consumers can make calls and surf the Web at the same time, over the same line.) "PLANETS ARE ALIGNING". Some incumbents might acquire companies with VoIP expertise. In December, local phone company Qwest (Q ) bid for most assets of bankrupt Allegiance Telecom as the basis for its IP network (see BW Online, 12/18/03, "Qwest Opens the War for Allegiance"). Others might build their own networks, thus raising the ante for VoIP competitors, all of which are still losing money, though some expect to turn a profit in 2004. Cable outfits, meantime, may be distracted by that other war for customers they have to fight -- against satellite TV systems. It may not help that in surveys consumers tend to associate cable companies with constantly rising rates, says Cathy Martine, senior vice-president in charge of VoIP efforts at AT&T. Who has the best chance of success in VoIP will also be determined in part by regulations covering call-transfer fees and other issues that the Federal Communications Commission is expected to release within the next year or so. But many experts believe the FCC will take a light-handed approach -- leaving the established phone companies to largely fend for themselves. Whatever else happens, it's obvious that "the planets are aligning for VoIP in 2004," says Joe Glynn, Qwest's vice-president for product strategy. "This is clearly the way the industry is going." And the players that don't get up to speed fast could lose out.
 By Olga Kharif in Portland, Ore.
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