A new breed of interexchange carriers is needed to help create a viable market for Internet telephony, according to Tom Evslin, CEO of startup ITXC and a speaker at the Internet World exposition this week.
The Internet telephony market is still in its infancy, expected to capture just 0.7% of the total US$100 billion long-distance market in 1998, according to Evslin, who before founding ITXC earlier this year was an AT&T vice president and head of its WorldNet division.
Evslin, speaking in a seminar at Internet World, said he agreed with typical industry estimates that Internet telephony will capture 7.5% of the long-distance market by 2002. But to achieve this some basic infrastructure problems have to be solved.
The main problem with using the Internet to carry voice is that callers can only reach cities where their Internet Telephony Service Provider (ITSP) has gateways. If an ITSP only has gateways in New York and Washington D.C., for example, it can only offer IP calling services for those two cities. To allow customers to call beyond the two cities, the ITSP would have to reach interconnection agreements with other ITSPs or carriers with gateways in other cities.
According to Evslin, this is the way the public switched telephony network (PSTN) works: carriers have bilateral interconnection agreements with other carriers in order to let their customers call anywhere in the world. While it is theoretically possible for ITSPs to reach similar agreements, in reality it isn't practical, since it took decades to put the bilateral PSTN agreements in place.
"There's no time to form that complex Web of bilateral relationships" for Web telephony, Evslin said. "Though we have advanced technology, in many ways we're in the same situation that the phone network was 100 years ago," he said.
But Evslin was invited to talk here about the problem because he also is offering a solution: interexchange carriers like his own ITXC can act as brokers, building facilities and managing gateways for ITSPs to use. It would make sense for a relatively few large, facilities-based interexchange carriers to work out interconnection agreements with each other than for many small ITSPs to try to do so, Evslin said. He pointed to the math: for each one of 100 ITSPs to have bilateral agreements with every other ITSP it would take 4,950 agreements in all.
Interexchange carriers also can take care of billing and settlement issues, such as making sure that an ITSP receiving -- or "terminating" -- a call is being compensated by the ITSP from which a call originated. Interexchange carriers can work with each other to resolve bill settlements, passing on the relevant portions of the bill to the appropriate ITSPs, Evslin said.
This separation of roles between ITSPs and interexchange carriers would let ITSPs focus on sales, service, and marketing, while the carriers could focus on managing the network and settling billing issues, he said.
Large, regional ITSPs might also build infrastructure and own gateways and perform interexchange functions, Evslin said. "But there aren't many companies that can perform two different business functions well," he said.
Evslin also offered pricing advice to other startups, suggesting that ITSPs need to offer services at 25 to 50 percent of regular PSTN pricing, since line quality over the Internet is not as good as that over the PSTN.
Internet telephony is growing, he said "We've gone beyond the hobbyist phase."
But to reach the expected growth rate over the next few years, gateway and bill-settlement issues need to be resolved, Evslin concluded.
ITXC, in New Brunswick, New Jersey, is on the World Wide Web at http://www.itxc.com/.