PictureTel Takes Videoconference Technology to Government

PictureTel Takes Videoconference Technology to Government<@VM>PictureTel Corp.

Craig Reichenbach

By Jennifer Freer, Staff Writer

PictureTel Corp. has developed new videoconferencing technology that company officials hope will help snare more government business and turn the company's financial losses into profits.

The new PictureTel 900 Series products, released July 31, not only enhance the audio and video quality of conferencing, but also allow for data to be transmitted through one system much easier. The new technology also helps eliminate common problems with videoconferencing, such as the delays in transmitting, quality of the resolution and sharing data, that have kept the number of videoconferencing customers from climbing.

PictureTel now is preparing to expand its stable of government customers, said Lewis Jaffe, president and chief operating officer of PictureTel.

"We believe the marketplace has gotten bigger and we expect to regain market share from our competitors because we are delivering a better solution," said Jaffe. "Plus, there's a whole new set of users that thought the old technology was not enough."

And with an expected growing demand for videoconferencing among federal agencies, the company views the federal government as one of its biggest customers, said Craig Reichenbach, vice president of America sales for PictureTel.

The new PictureTel technology also is expected to help transform the financially struggling Andover, Mass.-based videoconferencing and Internet company by helping increase its customer base, Jaffe said. PictureTel had a net loss of $84.5 million in 1999 on revenue of $323 million.

Intel Corp., Santa Clara, Calif., a manufacturer of microprocessors, owns 10 percent of the company.

On Aug. 1, PictureTel officials told analysts that it estimates revenue for the third quarter this year will be between $70 million and $78 million, with fourth quarter revenue of $75 million to $83 million. The company also anticipates seeing profitable numbers in the first quarter of 2001.

PictureTel's strategy to increase profits includes the selling of MultiLink Inc., a division of PictureTel that makes audio bridges, the technology that allows conference calls to take place, Jaffe said.

"It's not core to what we do," Jaffe said. "We think the best value for it [MultiLink] would be with someone that could take it to the next level. By selling it, we think it gives the unit the chance to triple in size and lets us focus on our core businesses."

The selling of videoconferencing systems has been a $600,000 million industry for the last three to four years, said Andrew Davis, managing partner of Wainhouse Research, a marketing research and consulting firm in Brookline, Mass.

PictureTel's chief videoconferencing market competitors include Polycom Inc., Milpitas, Calif.; VSI Enterprises Inc., Norcross, Ga.; and VTEL Corp., Austin, Texas.

The size of the videoconferencing market overall is pretty flat when measured in dollars, but the price of the systems have been falling dramatically, Davis said. "When you measure the market in the amount of systems sold, it's been growing, about 30 percent a year."

"I think what has happened today is that videoconferencing is easy to buy now," Davis said. Videoconferencing systems cost about $6,000 today. Five years ago it cost about $26,000. "Systems today are easier to install and easier to use, which makes them more viable for government agencies to use now."

Two government agencies have been testing PictureTel's new products since June 1. OneNet, the state of Oklahoma's telecommunications and information network for education and government departments, and Sandia National Laboratory, the main engineering arm of the Nuclear Weapons Complex in Albuquerque, N.M., are using videoconferencing applications for office briefings and business learning services, Reichenbach said.

Oklahoma is using videoconferencing in state agencies, prisons, hospitals, mentoring programs and telemedicine and telejustice applications, such as, arraignments, parole hearings. Also, distance learning is the largest application for Oklahoma, said Bill Johnson, network operations manager for the state.

The agencies are testing the videoconferencing products to help with communications and get more people involved in the business, but also to address budget concerns and employee shortages, said Jim Berry, manager of videoconferencing services for Sandia National Labs. Sandia is using videoconferencing on 120 systems within the complex and makes 300 to 400 videoconferencing calls a month.

"It can change the way business is done," Berry said. "People still want to do everything in person and it's tough to get organizations and people that have never had to sacrifice family time to equate the benefits of videoconferencing."

Videoconferencing makes it possible to continue to do business with those travel restrictions, Berry explained.

Videoconferencing technology's time has come in terms of efficiencies, savings, and reducing travel, said Warren Suss, a telecommunications consultant in Jenkintown, Pa. "There is a powerful case to use videoconferencing, and in the federal government there are some agencies that have had success, especially in the Department of Defense."

But "the bets aren't in yet," Suss added. The technology is not the issue. The technology challenges that existed a few years ago, such as reliability, quality and security, have been resolved, but videoconferencing still has not achieved its potential, he said.

PictureTel Corp.

Web Site: www.picturetel.com

Business: Develops Web-based videoconferencing systems for businesses, schools, medical facilities, government and other organizations to allow them to communicate more effectively.

Founded: 1984

Headquarters: Andover, Mass.

President and CEO: Norman Gaut

Employees: 1,113 in 1999

1999 Revenue: $323 million

Ticker: PCTL on Nasdaq

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