30 May 2000 - What network will carry the majority of voice-over-Internet Protocol traffic once large online properties like America Online and Yahoo! decide to put serious money in marketing their telephone services?
Net2Phone is a likely candidate. The VoIP spin-off of IDT Corp. has taken in a $1.2 billion investment from AT&T in exchange for control of the company. AOL owns a stake in Net2Phone, and industry pundits have been speculating for a long time that the world largest online service provider will use technologies like Net2Phone to expand into the business of telephony.
Such an event wouldn't surprise owners of switched telephone networks like WorldCom's Vice Chairman John Sidgmore, who anticipates just such a move but doesn't consider it dangerous.
"It is true that others [companies like AOL and Net2Phone] look at it this way, and that is probably appropriate, but you've got to remember: that doesn't change their cost structure. They are not going to be able to beat our cost. Our technology is already built and the cost is already in the ground," he said in a recent interview.
Other VoIP players don't plan to give up their chances to become the network underlying the next big thing in the telephony.
Intel and ITXC, a wholesale VoIP service provider of which Intel owns a portion, plan to announce Tuesday a July availability of a new VoIP client developed by Intel and distributed by ITXC. The client, a software application that users have to download in order to make phone calls over their PCs, would be available for co-branding.
"Today, if I go to Yahoo!'s Web site and decide to make a telephone call, I click on a Net2Phone icon which takes me to their Web site and I place a phone call as a Net2Phone customer, not a Yahoo! customer," said Mary Evslin, ITXC vice president of marketing. "We are giving Web sites a client that is customizable to whatever they are."
The subtle change makes a huge difference in the role that online service providers play in offering VoIP services. Net2Phone pays an equivalent of a license fee to Web sites that run its software, and in return gets direct access to customers that plan to use VoIP services, Evslin said. ITXC-empowered Web sites will act as originators of the telephone traffic by keeping customers on their site as they make the phone call. The latter scenario is deemed more beneficial, as Web sites will become stickier and may be able to tap into a larger portion of the telephone services revenue.
"One of the differences between our PC-to-phone client and Net2Phone's is a high quality of voice," said Dan Dahle, Intel marketing manager for Internet building blocks unit. Dahle said the client software took six years to develop and is better suited for phone calls over the Net.
ITXC's move underscores the growing importance of PC-to-phone communications to VoIP players and telephone companies. One VoIP services provider, ZeroPlus.com, has positioned itself as an alternative to 800 support line calls aiming to prove its value to businesses as it cuts the cost of customer support by using inexpensive VoIP connectivity.
"We are looking to establish a first mover status for businesses doing e-commerce," said Robert Veschi, ZeroPlus president and chief executive.
Broadwing has already taken a stake in ZeroPlus, looking to resell the service.
Other large carriers are also looking close at potential of adding voice to the online services bundle that traditionally included data connectivity, Web hosting and plain old telephony.
"I think that certainly VoIP will be available from WorldCom, no question about it," Sidgmore said. "There are applications that are unique to VoIP. For example, you are on the Web site and you want to talk to a salesperson. Well it is easier to hit a button than to dial your phone."