Matt Boettcher                            Darren Durrett                       Michelle Nelson
 

The concept of Internet Telephony (IT) is still in its discovery phase but if it can prove its viability it is likely to change the long distance phone industry as we know it today.  Internet Telephony allows users to communicate real-time voice over packet-switched networks, rather than relying on dedicated switching circuits of long distance and local phone carriers.  The technology will offer free or low-cost long distance voice service to users on and off the Internet.  This emerging technology has the potential to redefine major segments of the telecommunications business.  Discussed below are descriptions, opportunities, challenges, regulatory, and market reactions to this technology. 

Description

The distinction between packet-switched and circuit-switched networks is at the core of defining internet telephony.

Circuit-Switched Network

In a circuit-switched network all nodes are connected with dedicated lines that are reserved for point-to point connections.  In the early 1900's every telephone in a city was wired together, however as switching centers were deployed this grew into what is now known as the Public Switched Telephone Network (PSTN).  The concept of switching is based on the assumption that there will be less than 30% of the population in a subscriber on the phone at one point in time.  The switch dynamically routes calls to open circuits which completes a phone connection.  Traditionally the average call time for the PSTN was 3 minutes, however a recent study in California showed that because of high internet usage the average call time has risen to 20+ minutes. This shift in call patterns means that the original switch algorithms are no longer sufficient to route calls. In turn, this has forced the Local Exchange Carrier's (LEC, e.g. BellSouth) to purchase and install much more capacity than originally forecasted.

Packet-Switched Network

In a packet-switched network, routers are used to ship packets of information from one point to another.  Each piece of information that is sent uses a header that identifies the sending location and the sequence of the information.  This information is broken up by a hub computer and sent to  routers that determine the least congested path to the final destination of each packet.  These packets are identified by the header information so they arrive at the destination computer and are sequenced and reconstructed to form the original message.  The advantage of using the packet-switched network is that it requires significantly less infrastructure than a circuit-switched network while providing the same data capacity.    With the exception of chat rooms, packet-switched networks utilize primarily store-and-forward communications, whereas the PSTN utilizes real-time communication.  Store-and-forward means that documents are created and read later.  With Internet telephony this shift to real-time communication will become a reality for packet-switched networks.

How does it work?

The original model of  Internet telephony relied on computer to computer connections to carry voice signals.  This still works today, however, to reach a broader market Internet telephony is moving to a different model:
The call will be placed on a telephone (that is connected to a telephony card) which will place the call on the local PSTN.  This call will travel into the Local Exchange Carrier's (LEC, e.g. BellSouth) central office where it will enter a Gateway server.  This server will route the call onto the Internet where the data packets will find the least congested path to the destination.  When the destination is reached the data packets will exit the Internet via another Gateway server and travel the remaining distance on the LEC circuit-switched network.
 This example shows how Internet telephony is moving everyone to a hybrid circuit and packet-switched network.  The picture below further illustrates how a local Gateway server is used to access the internet and bypass the long distance phone carriers.
 

Very Brief History

Internet telephony will rely on the packet-switched networks to replace existing internal telephone networks with LAN, WAN, and PC-based multimedia systems.  The first iteration of this technology was introduced in January 1995 when VocalTec marketed the first PC-based phone.  Currently there are more than 40 Internet telephony products either introduced or in development by as many companies, including firms such as: Microsoft, Intel, IBM, Netscape, Nortel and Lucent Technologies.

 The development of this new medium brings rise to a myriad of technical, economic, strategic and policy issues associated with telecommunications over the Internet.  In response to this the Internet Telephony Consortium was formed at MIT in 1996.   Member companies and academic
researchers work collaboratively to understand and shape future technologies, industry and market structures, and regulatory policies worldwide.  This consortium does not set standards, but identifies gaps and emerging issues that require standardization. The organization that does set the standards is the Internet Engineering Task Force (IETF).  Members of this task force come from various companies to work to resolve the standards issues.

When these standards issues are addressed, the opportunity for explosive growth will be phenomenal.  A 1996 report by International Data Corporation estimated that industry revenues were about $3.5 million with over 500,000 users.  In 1997, a study by Killen & Associates estimated that by the year 2001 Internet telephony will be a $1+ billion market and there will be over 2 million users.
 

 
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