Cover Story

COVER STORY

Internet Telephony: Saving a Bundle on Long-Distance Calls

Interview With Cliff Young, President of Internet Connect

by John Eichenmuller

It's safe to say that we all want to save money on our long-distance calls. And every friend, neighbor and relative is trying to sign us up for the long-distance service they represent. The problem is this: to experience the actual savings, we have to dial a string of funny numbers before dialing, call only select friends or family, call on certain days of the week or talk for a minimum amount of time. Wouldn't it be nice to be free of all those restrictions and call when it was convenient for us and to talk for as long or as short a duration as we choose? Internet Telephony is about to make all that possible. We're soon to experience true, unrestricted (24 hours a day, 7 days a week) long-distance calling at the best rates available.

Here's a brief description of how Internet Telephony or IP Telephony works, as stated by Networks Telephony: "IP, or Internet Protocol, is a method of taking data and dividing it into many small pieces or packets and giving it an originating address, a destination address and a map for reassembly. Recently technology has been developed that allows voice messages to be digitized and compressed into packets of data, then reconverted from data to voice at the receiving end. Translation of voice data requires sophisticated mathematical formulas for compressing the data that is necessary to represent the tones of the human voice."

There are some basic prerequisites, however, to taking advantage of this new technology. The following is a list of hardware and software needs:

* Pentium or Power PC processor

* 8 MB of RAM

* 28.8K or faster modem

* Windows 3.X or above; Mac OS 8.0 or above

* 16-bit duplex sound card, microphone and speakers

* "Network Enabled" ISP

Recently, we spent some time with Cliff Young, President of Internet Connect,to get his views on the subject. Internet Connect is a full-service Internet Solutions provider to small and medium businesses. They provide dial-up Internet access, ISDN, Web design and hosting, email and e-commerce capability, frame relay accounts, and dedicated and fractional T-1 Internet access. His company is currently in the beta test phase of PC to Phone and Internet fax service. In addition, they will be launching Phone to Phone service via the Internet on July 15, 1998.

WWWiz: What is the difference between Web phone (PC to Phone) and Phone to Phone?

C.Y.: Web Phone is really the precursor to the Phone to Phone service. You use your PC as a phone, by utilizing a microphone and speakers. I believe that the vast majority of users will migrate toward Phone to Phone service once it's available.

WWWiz: Can you explain how the Phone to Phone system works?

C.Y.: We aggregate all the calls at our network operations center via points of presence (POPs) that we've established all over Southern California. Customers dial into one of our POPs, and there they are prompted to enter their PIN code. Once they've done that, they dial the number that they are calling and the call is placed. What's actually happening is that the voice call is being transferred over our primary-rate ISDN lines to a remote access server. We're working with Ascend Communications. They've developed a remote access server that will handle 96 simultaneous calls for each server. There those calls are digitized and ramped onto the frame relay network. From there, they travel over the Internet to their destination, where they're refiled through the public switch telephone network (PSTN).

WWWiz: When will Phone to Phone service be available?

C.Y.: Phone to phone service is available now on a limited basis. IDT offers voice-over IP on the public Internet. ICG, through its Netcom subsidiary, has announced a two-tiered service from 166 cities beginning at 5.9 cents per minute. The service is announced to debut sometime toward the end of the year.

WWWiz: I understand that you're currently in the beta test mode now. Could you give us an update?

C.Y.: We're now developing the new ITU (International Telephone Union) H323-compliant platform. With that, we'll be able to handle both Phone to Phone and PC to Phone via the same gateway. We've had an overwhelming response from our corporate and individual customers wanting to use the system. We expect that our beta program will be over by the first week of July, and that we'll be rolling out our Phone to Phone service via the H323-compliant standard by mid-July.

WWWiz: How large is the voice-over IP market?

C.Y.: According to Frost & Sullivan, in 2002, 13% of the world's phone calls will be placed over IP networks. This compares to about 1% projected for this year. Sixteen million users are estimated by the year 2000, amounting to tens of billions of dollars for long-distance service. Most of this will be international due to the fiercely competitive nature of the domestic long-distance market. Many international calls that would normally originate in other countries will reflect savings of as much as 90% as a result of voice-over IP.

WWWiz: Can you explain the technology for digitizing and compressing voice data?

C.Y.: Well, the technology has advanced rapidly over the last eighteen months. Today we are able to compress voice calls into data packets with a TCP/IP protocol, and then send them over the public Internet or over a private TCP/IP, or what's commonly known as a voice over IP network. Those calls then get translated back into voice on the receiving end, either through the public switch telephone network or through a private network connection that is set up to handle voice-over IP.

WWWiz: Does an ISP have to be "Network Enabled" to provide Internet Telephony service?

C.Y.: Yes, they do. What we're doing now is aggregating those calls through our different dial-up POPs and also offering customers an 800 number that they can call. Either way, that traffic is routed through our network operation center. Other ISPs can also offer the services to their customers. They would need to establish a dedicated connection to Internet Connect, either through frame relay or a point-to-point DS1 connection.

WWWiz: How do you route calls?

C.Y.: We route all of our calls over a private backbone. The backbone is prioritized for voice traffic, reducing our latency to a minimum. As you may know, the latency problem is what has kept Internet Telephony from taking off sooner. Frequently, callers would experience delays or would be talking over each other. With our backbone, all of our packets are prioritized for voice and we're able to achieve minimal packet loss and minimal latency problems throughout the entire network. Calls that are routed over the public Internet, as opposed to the private backbone, are more subject to this latency because they're sharing bandwidth with Web protocols, mail protocols and all different types of packets.

WWWiz: What about Internet faxing?

C.Y.: We expect that Internet faxing will prop up the domestic voice-over IP market. Since fax data is not latency-sensitive, ISPs will offer a low-cost alternative for domestic long distance over traditional long-distance telephone companies who are reluctant to cannibalize their rates.

WWWiz: Can you explain the pricing of your IP programs?

C.Y.: We have several tiers of programs. We have a program for voice-over IP domestic as well as international. Our domestic rates for Phone to Phone for any customer dialing into one of Internet Connect's POPs is 7 cents a minute, flat rate. International rates vary, depending on the destination. All of our rates are posted on our Web site. In addition, we will have a calling card program beginning July 15, where customers can buy prepaid minutes. Those will go at the rate of 9 cents a minute. In addition, we will have our 800 number service available, which will be priced at about 10 cents a minute, and customers can place a call to any phone in the U.S. at that rate through an 800 number.

WWWiz: What type of savings should a customer expect?

C.Y.: On the international rates, savings will be as high as 70% off the current telco rates. On domestic rates, savings can be anywhere from 30-50% of current rates for similar quality services. And again, this is a telco-quality service, as opposed to calls routed over the public Internet.

WWWiz: Do you see the industry dominated by competitive local exchange carriers?

C.Y.: Probably not. As you're probably aware, the administration and Congress have been under pressure to allow telephone companies to assess charges for ISPs terminating voice traffic over their networks. Recently, the FCC has been reviewing their policy toward ISPs. In its final report, FCC Chairman William Kennard offered ISPs a temporary reprieve. Because of this administration's position on protecting Internet development, I see the ISP as the gateway for the future growth of voice-over IP services.

WWWiz: It appears as if Internet Telephony is a viable business solution.

C.Y.: Yes. I believe that we have now entered a period where, for the first time, we will be able to achieve a widespread use of this service. This has come, for the most part, from innovations in compression, and standards like the ITU H323 protocol. The savings have always been glaringly apparent, but the problem has been practicality.

WWWiz: So is Internet Telephony the salvation of the modern ISP?

C.Y.: No, I don't think so. Internet Telephony, like other telecommunications services, will eventually face competitive pressures, and therefore downward price pressure. What will differentiate tomorrow's successful ISP, and all telecommunications providers for that matter, will be their ability to deliver fully integrated end-to-end Internet solutions for businesses harnessing the awesome power of this bold, new medium.

It appears as if 1998 will be remembered in the history books as the year of implementation of Internet Telephony to the masses. With today's competitive pricing on processors, RAM and modems, the average computer user should be able to take advantage of this new technology. Get yourself a "Network Enabled" ISP and start enjoying those savings.