Internet Telephony Comes of Age

Microsoft and Netscape stand to be VocalTec's new competitors

Voice over the Internet, a concept that has captivated the imaginations of numerous telephony start-ups, is expected to hatch a burgeoning new market as a roster of industry giants prepare to introduce Internet voice products.

By revealing its plans for an Internet phone product, Lucent Technologies Inc. earlier this month joined an elite clan of industry developers, including Netscape Communications Corp., Microsoft Corp. and Intel Corp. Lucent is now sending an extra-potent message to Internet telephony players, since the offering will be the inaugural product of the company, due to be spun off officially Sept. 30 from its parent AT&T, Basking Ridge, N.J.

"This is a defining market for Lucent," said Denis Aull, vice president of communications software at Lucent, which is based in Murray Hill, N.J. "We want to be the leader after the transformation from [traditional] voice to multimedia." Phoning, faxing, collaborating on projects and videoconferencing are a few of the applications expected to incorporate Internet telephony.

Before any deals are struck, there is the matter of industry standards, a major focus at the Talking Net Conference, held earlier this month in New York by Internet phone guru and author Jeff Pulver.

The two-day conference unearthed many issues and prodded Netscape, Microsoft and Intel to set the record straight by agreeing publicly on a single data conferencing standard.

"[H.323 standard] should be in every vendor's product," said Blake Irving, group manager in Microsoft's Internet Platform and Tools Division.

Along with Microsoft, several developers underscored their maturing interest in the fast-developing market.

"I receive two to three calls a week from companies entering this space," said Michael Po, director of engineering, live media at Netscape, at the conference.

Po gave the lowdown on his company's product, CoolTalk. Irving touted Microsoft's counterpart, NetMeeting. For its part, Microsoft is looking into the possibility that it can merge the profitability of videoconferencing with Internet phone. Microsoft's Irving calls the new market "IP Commvergence."

But, Irving admitted, the whole industry -- his company included -- has a long way to go in this niche. "Internet telephony is a new category," he said. "[NetMeeting is] a 1.0 offering in a 1.0 market."

As more people use the Internet, they will demand more sophisticated reasons for going online. A backlash against employee World Wide Web surfing is already occurring. Bosses want to save money and increase productivity through the Internet. Many think Internet telephony, which depending on the service and the call can save businesses big bucks, is such an offering.

By 1999, the Internet telephony market will reach $2.5 billion, while the total telecommunications services and equipment market will reach $500 billion, predicts one of the first companies to offer the service, VocalTec, Northvale, N.J. VocalTec is the grandfather of all these efforts. Its revenues have gradually grown from $46,000 in the second quarter of 1995 to $1.81 million in the second quarter of this year. VocalTec started offering the service in February 1995. However, since it now holds so much of the market, it stands to lose as the big software and hardware companies enter the business.

Lucent's Aull said he is spending much time now forming partnerships in this new industry. Lucent has talked with four or five other companies also in the Internet phone world about alliances. The company may license its technology to some and form more strategic partnerships with others.

So far, Netscape has signed on to work with elemedia, a new software venture launched by Lucent this month, Aull said. Elemedia will use Bell Labs research on voice and music compression technology for the Internet. Camelot Corp., Dallas, which makes the Internet telephony software Digiphone, has also become an Internet telephony partner, although spokespeople at Lucent would not give details.

As these deals are being made, one of the most important questions is how will these products and services from competitors work together?

Companies represented at the 240-person, sold-out meeting, the largest so far of its kind, included America Online, Dulles, Va., GTE, Stamford, Conn., the Swedish company Ericsson and France Telecom. Everyone, it seems, is interested in the potential business. "We will be leveraging this technology," promised Aull. He's not the only one.

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