Microsoft a service provider?

Last week, Microsoft set an Oct. 25 release date for its Windows XP operating system, and anxious members of geekdom began downloading evaluation copies of this potentially breakthrough software. The question is: Should service providers feel anxious as well?

Telecom leaders who are not known for their appreciation for — or concern about — desktop software may want to keep a closer eye on the early reports of Microsoft's new operating system. Windows XP, in particular the Windows Messenger product, is coming after their voice market.

The company believes it is “ushering in a new era of communications” with Windows XP's combination of real-time audio- and videoconferencing, application sharing and online collaboration features.

When Windows XP was first announced during the Voice-on-the-Net conference in April, Jeff Pulver, president and CEO of pulver.com, said of the possibilities presented by the operating system and other session initiation protocol (SIP)-enabled applications, “I definitely think this is one of those turning points in telecom history where a provider of services may not necessarily be a phone company.”

While Microsoft may skim off a lot of voice traffic, the company maintains it has no plans to become a service provider. In fact, Microsoft has been making some serious headway into the telco back office with the .NET initiative of its network service providers group and does not want to be seen as a competitor but as a partner.

Developers and service providers will be the ones to complete the voice services enabled by Windows XP, said Tom Laemmel, Windows product manager for Microsoft.

Analysts agree, but the potential for changes in the way telcos and Microsoft relate is strong. “I don't think Microsoft is ever going to want to get into the transport business, but the telcos do want to get into the applications business,” said Nancy Kaplan, vice president at Adventis.

Kaplan said that service providers need to move up the value chain to areas that are more profitable than transport and rather than competing for voice traffic, service providers and companies such as Microsoft would be better served by partnering.

“Microsoft really needs to make some pretty strong alliances to make this work and have strong appeal. A company that has good access and a good broadband backbone would be a dynamite combination,” Kaplan said.

According to one expert, the merger of applications and transport is a given. “Service providers have no choice but to come along. Everybody has suffered the terrible pain of rate arbitrage going away, and along with it their profitable services,” said Jonathan Rosenberg, chief scientist for dynamicsoft. “Everyone is looking to advanced applications. Those who get there faster will eat into some of the revenue from carriers, but the carriers will eventually get it. It's inevitable.”

On its own, Windows XP is even beginning to sound like a telco product. The improvements to Windows Messenger in the XP operating system include forward error correction technology that reduces delay in audio and video streams. It also makes use of acoustic echo cancellation to improve the feedback problems in typical PC-to-PC calls over the Internet.

Perhaps the most significant change in Windows XP is its SIP support. SIP helps Messenger users take advantage of presence and availability features and provides a platform for other software developers to build applications that will interoperate with Windows XP and Messenger.

People “are seeing the light of what we have been saying about SIP for presence and instant messaging all along. Its not just about messaging and presence; its about everybody wanting to do voice anyway, and all these [messaging] guys want to have voice as a component. To converge these together and bring value, SIP makes a lot of sense,” Rosenberg said.

The full impact of Windows XP won't be obvious on Oct. 25, Kaplan said. “This kind of technology isn't going to be terrific until it is a little more widespread, and telephony equipment is a little more user friendly,” she said. “[But] the voice piece will hit the telcos between the eyes.”