Subtle moves

In the same week that Insight Research predicted slow revenue growth for IP telephony, AT&T was linked to two announcements that indicate the company is ramping up its interest in IP telephony.

AT&T invested $10 million in Nuera Communications, a voice-over-IP infrastructure provider that develops packet-voice telephony solutions.

While AT&T was unavailable for comment, Nuera President and CEO Bill Ingram said the carrier has a strategy to invest in technologies that can radically change the performance and cost of its networks.

"We're an infrastructure technology for carriers like AT&T," Ingram said. "If they can use a small investment like this to give themselves an opportunity - a glimpse at a significant technology that could have dramatic benefits to them - they'd be wise to do it."

Nuera's packet-voice gateways and switches allow carriers such as AT&T to connect with the broadband data world quickly, easily and inexpensively.

Unable to share details about plans for a future pairing with AT&T, Ingram instead drew a hypothetical map: "AT&T has acquired over $100 billion of cable companies, and [CEO C. Michael] Armstrong has publicly stated these acquisitions are intended to get high-speed broadband access points into customers' homes. We make voice infrastructure equipment that connects the circuit-switched world to high-speed Internet ports."

Nuera's technology will complement the investment AT&T made last April - alongside Liberty Media and BT - in IP voice provider Net2Phone, he added.

"We could theoretically become the infrastructure supplier to Net2Phone," Ingram said. "They're a service provider offering packet-voice communication as a service. We make the actual equipment and software that allows all this to happen."

Nuera potentially could be the final piece of the puzzle in a second IP voice announcement AT&T made last week. It plans to test Motorola's switched IP access solution over its cable network in two markets this year.

The solution allows AT&T to use its installed base of Class 5 switches while converting voice signals into IP packets as they travel over the company's hybrid fiber/coax (HFC) plant to Motorola's customer premises equipment, the CentriQ 1000, said Glenn Altchek, director of marketing for Motorola's IP telephony solutions.

The CentriQ is a communications gateway that provides four lines of telephone service and a high-speed data connection to a user's home.

"This is a play to be able to offer merged services within that HFC plant over the same bandwidth," Altchek said. "It enables AT&T or any other [multiple systems operator] to start bundling to provide more cost-effective service to consumers."

Ideally, Nuera would supply the central office switches required to make the trial work, Ingram said. "Our equipment is completely compatible," he added.

Voice over IP is gaining interest across the industry, but quality-of-service (QOS) and ease-of-use issues may delay the technology's growth, according to Insight. Insight projected last week that IP telephony will account for only 10% of total North American packet telephony revenue by 2004 - a market the company projects will top $33.9 billion.

By its nature, IP telephony takes longer to fully implement, said Christopher Whitely, project manager for Insight. "AT&T has shown [its] willingness to be creative with IP telephony strategies. They're focusing on it... but implementation takes time," he said.

Another analyst said AT&T is seeking to penetrate the local residential market any way it can - via cable or other broadband technologies - in an attempt to beat the incumbent local exchange carriers into local service areas.

As IP telephony continues to battle with high latency, poor quality and an increased number of dropped calls, general interest in the technology is still a few years away, said Francis X. Duffy, research director of intelligent networking for Communications Industry Researchers.

Compared to overall expenditures for packet network equipment, which is expected to reach $1.68 billion by 2005, dedicated voice-over-IP gateways are not in high demand, he added (see figure).

That's not to say AT&T's efforts are for naught. When IP telephony achieves QOS parity with circuit-switched voice and consumers become more discriminating about pricing, voice over IP may take off commercially, Duffy said, which is when AT&T's efforts will pay off. "You have to get your servicing and provisioning operations up and running, and they have to become best in market if you're going to succeed in this particular venue."