Hedging its bet: AT&T sets up camp in Silicon Valley to explore IP telephony

Silicon Valley has quickly established itself as a U.S. hot spot for Internet protocol telephony through a series of small start-ups. Now AT&T Labs is getting into the game, establishing new headquarters in Menlo Park, Calif., to boost its foray into new media.

While not unheard of, the move is a geographical shift for AT&T Labs, which has more than 2000 scientists and engineers in New Jersey. The Menlo Park lab is staffed with 150 employees to lead the company's effort to entrench itself in new media.

"We intend to be the leader in IP services," said David C. Nagel, AT&T Labs president and AT&T chief technical officer. "We want to make the phone the IP device of choice."

According to Karl Duffy, director of telecom services for Killen & Associates, a Palo Alto, Calif., analysis group, AT&T is late to the party but heading in the right direction.

"A lot of the things they introduced were responses to demand and changing market forces," Duffy said. "The advantages they had three or four years ago don't exist anymore.

Although the AT&T Foundation paved the way into town with a $1 million grant to the Tech Museum of Innovation in San Jose, executives hope to benefit from possible partnerships and coalitions with area universities and neighboring corporations.

"Our presence here signals a new relationship with Silicon Valley, which is a big part of who we are becoming," said C. Michael Armstrong, AT&T chairman and CEO.

The newest Internet-based technologies the group is working on-including Connect 'N Save Service, the AT&T Global Clearinghouse and 21st Century Advanced Network Services Platform-are in trial stages.

Connect 'N Save is an Internet phone-to-phone long-distance calling service, currently being tested in Atlanta, Boston and San Francisco.

Customers prepay $25, $50 or $100 for service and get a 7.5 cents to 8.5 cents per minute rate. The system carries calls on AT&T's private IP network, which has plenty of bandwidth to spare, according to Robert Lyons, an AT&T Labs technical manager. AT&T Labs is using its own software for the system but is testing a number of gateways from other vendors.

AT&T Labs developers are confident enough in the strength of its network that it has asked vendors not to tune their gateways for outside traffic.

"The characteristics of the data network are so good that we eliminate the jitter buffering schemes they have," Lyons said.

Jitter buffers, which enhance the streaming of Internet voice packets, sometimes add delays and static to IP phone calls, Lyons said.

Connect 'N Save developers are also confident enough in the system's architecture and bandwidth that the system does not fall back on a circuit-switched network if Internet traffic gets jammed.

The prepayment aspect of the service solves a lot of problems other companies encounter with any form of telephony, said Duffy.

According to a recent tally, AT&T's uncollectables topped $1 billion. "In any business, it's always preferable to get payment up front," Duffy said. "Another advantage is that it offers phone service-particularly international service-to high-risk groups."

The AT&T Global Clearinghouse addresses what may be the biggest hurdle to widescale IP telephony deployment: settlements. The clearinghouse is a trial service that compensates different network providers for carrying traffic from another network.

AT&T Labs developed its own software for the Global Clearinghouse and is using Clarent gateways.

"AT&T Global Clearinghouse is one entity to deal with all the agreements in one currency in about 140 countries, where we can provide immediate termination," Lyons said. AT&T negotiate rates, carries traffic and captures revenue by charging a service fee for each unit of cleared traffic.

The recently renamed 21st Century Advanced Network Services Platform, originally code named GeoPlex, is a trial technology to support high-speed multimedia applications for the next generation of the Internet, called Internet2. The software platform, which uses standard existing equipment such as Sun Microsystems workstations and Cisco Systems routers, incorporates service management functions such as authentication and usage recording.

Developers provide access to Internet2 through PCs, network computers, personal digital assistants, pagers, cell phones, faxes, set-top boxes and other devices.

Although developing standards that help improve the Internet takes AT&T into uncharted cyberterritory, analysts believe it is the right direction.

"Internet voice, fax and eventually video is an equalizer." Duffy said. "It allows other companies to get in on the game. AT&T Labs has their work cut out for them."

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