Many analysts reckon that the convergence of voice and data communications is now finally about to cross the threshold of marketing hype to become market reality.
And they expect changes in the telecommunications industry to be comparable to those in the data communications market following the PC revolution of the 1980s.
As a result, vendors are now gambling billions of dollars on this emerging market. US companies such as Cisco Systems and Lucent Technologies, scores of startups, independent carriers and ISPs, and European organisations such as Siemens AG, Alcatel and Ericsson are all going on buying sprees to try and establish themselves as strategic players.
In early March, European giant Siemens acquired two telecommunications equipment startups and announced an investment in a third, costing it a total of $570 million, while Lucent's recently purchased Ascend Communications for the costly sum of $18.5 billion.
In fact, over the past three years, major companies have spent more than $50 billion gobbling up other organisations as they prepare for the day when phones will no longer use the familiar network of circuit switches, but the same networks that connect computers together.
Cisco, for one, thinks the future of this industry is so bright that it announced plans for a $1 billion expansion of its site in San Jose, with the possibility of creating 20,000 additional jobs.
But the competition will be fierce. Intel, Hewlett Packard, Microsoft and Canadian telecommunications giant, Nortel Networks, have just announced an alliance to produce equipment that will enable voice, video and data to travel over computer networks.
While, ultimately, the offspring of marriages between computer networking and telecommunications companies will trickle down into homes, perhaps leading to cheaper phone calls, for now, the main market for such technology is government and big business. They see it predominantly as a way to increase productivity, cut costs and boost services.
But a lot of companies are competing for a piece of the business. Companies that have so far sold data networking equipment such as Cisco and 3Com are adding voice capabilities to their products, while telecommunications equipment vendors are scrambling to kit for the new networks.
Which is why Cisco bought StrataCom for $4 billion in 1996, 3Com acquired US Robotics in 1997 for $6.6 billion, and Northern Telecom purchased Bay Networks for $9 billion in 1998. In the same year, Alcatel also bought Packet Engines for $300 million, followed by Xylan Networks for $2 billion and Assured Access Technology for $350 million this year.
Siemens has also said it will acquire Argon Networks, Castle Networks and an equity stake in Accelerated Networks for about $1 billion this year too.
But it is not just telecommunications and network hardware companies that are rushing into the melee.
Microsoft's Windows 2000 operating system, which is expected to ship next year, will enable the smoother transfer of voice and video over data networks. Hewlett Packard is working on software for using data network bandwidth more effectively, while Novell is tailoring its directory software to help carriers operate large, unified networks.
But the technical obstacles to converging voice, data and video, remain considerable. Data networks are simply not as reliable as phone networks, which means, for example, that the amount of raw bandwidth needed to make convergence happen will be quite expensive.
At least one industry observer says that the technologies necessary to bring voice, data and video to users? doors still have a long way to go before they can provide fast and easy access.
Gary Arlen, president of consulting firm, Arlen Communications, points out that a similar wave of hype rose and fell when the phone companies promised ISDN to consumers years ago and then made it next to impossible for them to install and use it.
"There are any number of ISDN horror stories. DSL and high speed cable are starting out the same way. But I will say that there is greater intent this time by the carriers to make it work," he says.
Although a report by Dataquest predicted that the computer telephony integration (CTI) market is likely to grow into a $6.1 billion industry by the turn of the century, the figure is markedly lower than previous estimates.
While the market research firm expects the CTI industry to enjoy a compound annual growth rate of 25 per cent between 1996 and 2000, earlier predictions had said it would top $8 billion as early as 1999.
CTI enables existing offerings such as PCs and servers to work with telephony applications, although such technology has primarily been used in enterprise workgroups.
But forecasts have been lowered because the market emphasis has shifted from CTI products to system integration services. As companies interested in CTI focus more money on integrating their networks, they tend to spend less on buying CTI products.
Christopher Thompson, an analyst at Dataquest, says: "The market's value has moved significantly from products into systems integration services. If a CTI vendor has no systems integration plan, they won't be successful - no matter how good their product is."
Systems integration has become crucial, he adds, because CTI requires a lot of configuration work - a problem that simply grows when multiple users and large networks are involved.
"An individual can install the software on their own, but the question is how to configure it to work across entire workgroups, and that sets the stage for all kinds of potential conflicts," Thompson explains.
He adds that while the small and home office (Soho) market is often regarded as a hotbed of CTI potential, such booming prosperity may not happen for any individual vendor.
"The Soho market as a whole is very large, but it is also very fragmented and the market for an individual category of products may not exceed $100 million," he says.
But as part of an ongoing effort to tie telephone services closer to desktop PCs, CTI vendors introduced a variety of products and initiatives earlier this month at the Computer Telephony Expo in California.
Microsoft announced plans to integrate Dialogic?s CT Media call control telephony software into its Windows operating system to create a common software layer for controlling voice and telephony functions. The aim is to enable developers to create Windows based CTI applications for PBXs, key systems and the like.
IBM also demonstrated its newly released Computer Telephony Business Solution (CTBS), which enables customers to use advanced voice messaging and to develop custom tailored applications.
But a slew of major computer telephony companies are also joining the open source software movement to try and kickstart the market. Opentelecom burst onto the scene at the show, announcing the Open Source for Opentelecom initiative and the formation of an associated Web site from which members such as Ericsson and Motorola can download source code.
Initial contributions to the initiative came from Natural MicroSystems, Lucent?s Microelectronics Group and Telgen, which are all offering their source code for free.
Brough Turner, Natural MicroSystems? senior vice president and chief technology officer, says the initiative is focused on PCI and Compact PCI platforms for computer telephony because low level software infrastructure "is missing" here despite the rapid development of hot swap and CTI specifications.
"Our goal is to enable interoperability by allowing developers to share and evolve a common software code base," he adds.
CompactPCI is one of the newest evolving specifications for PCI based industrial and telecommunications applications, which defines how PC components should be built to ensure high availability and hot swappable capabilities.
It is electrically equivalent to desktop PCI with a different physical form factor, being based on the 3U and 6U Eurocard specification made popular by the VME bus, although it has different connectors.
The standard was developed by the PCI Industrial Computer Manufacturers Group, a consortium of more than 300 suppliers and users that develop specifications for PCI based systems and boards.
But standards in other parts of the sector have not yet been established and many of the new IP technologies are still evolving, leading many industry observers to forecast lucrative opportunities in this area as it takes off.
Jeffrey Kaplan, director of strategic marketing at network consulting firm, International Network Services, concludes: "There is indeed a revolution occurring and there are not enough skills to absorb and use all that technology."
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