Bay Networks maps IP voice strategy: Alliance with NetSpeak includes equity investment

Bay Networks and NetSpeak Corp. last week signed an agreement under which both companies will develop Internet protocol telephony solutions for carrier and enterprise customers using Bay's hardware.

As part of the agreement, Bay will purchase 1.3 million newly issued shares of NetSpeak stock, representing a 9% stake, for about $37.6 million. Bay also has the right to purchase additional shares to maintain its percentage ownership.

In the first phase of the agreement, Bay will integrate NetSpeak's IP voice technology into its BayStack remote access and router platforms. Additionally, Bay will resell NetSpeak's IP telephony server software.

"IP services will bring a level of security to where-for the first time-you can call our products business class," said Stephen Pearse, executive vice president and general manager of Bay's Internet/telecom group.

In the rollout's second phase, Bay will focus on its carrier customers by integrating NetSpeak software into its 5399 remote access server. Although that option won't be available until the beginning of 1999, carriers will be able to add IP voice functionality by downloading digital signal processor (DSP) code onto their existing infrastructure, Pearse added. "It's the same technology that allows Bay to handle both varieties of 56K."

In the rollout's last phase, not expected until late 1999, Bay will add fax capabilities.

Initially, the two companies expect corporate clients to use IP telephony as a way to save on long-distance calls. "In talking to our customers, many organizations are planning to transfer at least part of their voice traffic to IP networks," said David House, president, CEO and chairman of Bay Networks.

In the second phase, carriers could use IP voice to compete in out-of-region markets, said Robert Kennedy, president and chief operating officer of NetSpeak. In fact, NetSpeak already is working with BellSouth and another unnamed Bell regional holding company on various IP voice applications.

"Clearly, every [RHC] is about to get into the long-distance business, but it's very difficult to go into these native markets and build out a circuit-switched environment," he said. With IP telephony, "not only will you able to deploy it in a logical fashion, but you can add multimedia services."

Among the possible future permutations are video calls over IP, according to Pearse. "We've already built this DSP platform that we're getting over 20 T-1s on, so you can build very dense solutions," he said. "This issue of deregulation is creating a whole new group of people that will want to compete."