Internet telephony is the latest technology to dazzle both the datacom and telecom industries. Many outside those sectors are now wondering what exactly this technology is, how it works, and whether it has yet matured into a commercially viable communications tool.

The concept behind Internet telephony (also known as Voice over IP or IP telephony) is a simple one: the transfer of voice messages using Internet protocol (IP) networks. This technology enables standard data packets to transmit multimedia information such as voice or video over the Internet or any other IP-based local- or wide-area network. It draws on open standards and recommendations generated by international groups such as the Internet Engineering Task Force (IETF) and the International Telecommunication Union (ITU). All suppliers of Internet telephony products meet these standards.

Standing to benefit most from Internet telephony, obviously, are companies that make significant numbers of long-distance calls—for example, large organizations with offices around the world. With Internet telephony, the customer pays only for the call to the Internet gateway hosted by its local Internet service provider or its own company intranet. Thus all telephone calls are billed at the local-call rate, dramatically reducing long-distance charges. Moreover, choosing an IP network enables a company to use a single communications medium rather than having to maintain separate systems for voice and data communications—again lowering costs and increasing efficiency.

In effect, then, Internet telephony offers a single method for communications, combining voice, video, and data traffic by adopting IP as a common protocol and merging up to three different network structures in one comprehensive medium.

One reason for the increasing acceptance of Internet telephony is the continuous expansion of bandwidth within LANs, as Fast-Ethernet and switching are gradually being replaced by the far more efficient asynchronous transfer mode (ATM) and Gigabit Ethernet. The resultant oversupply of bandwidth (especially among local networks) has in turn created a demand for new applications such as Internet telephony. Standards now being developed will guarantee a certain level of service in these IP-based networks, since bodies such as IETF have recognized that few or no standards adequately addressed the transmission of voice or video over the Internet. New technologies such as RSVP (resource reservation protocol) and RTP (real-time transport protocol) have therefore been developed to enable real-time operation on today's existing IP networks. More than anything else, however, it is the sheer improvement in voice quality that has allowed the Internet telephony technology to compete successfully with traditional telephone companies.

On the approval front, there are a number of considerations that must be addressed regarding Internet telephony, including connection scenarios, technical requirements, and country-by-country regulatory differences.

The three basic types of connection in Internet telephony are telephone to telephone, telephone to computer, and computer to computer. At present, no specific country approvals apply specifically to Internet telephony, although formal approval is required for any equipment that connects directly to a public network. Such connections comprise standard telephony connections to the public switched telephone network (PSTN) via either approved telephones or modems; connections via internal or external ISDN adapters (BRI or PRI); connections via "nailed-up" circuits such as G.703s or X.21s; and connections via least-cost routers or PBX systems.

In each case, the equipment must meet the requirements of the relevant CTR, TBR, or national variant. The onus of an approval thus lies with the manufacturer of the CPE equipment. CTR8 (ISDN telephony) is applicable only to ISDN terminals with integral handsets (i.e., justified-case handset telephony) and has no further implications for Internet telephony, for which a standard hands-free or headset arrangement would normally be used.

The harmonization of IP telephony products will be eased by the introduction of the H.323 standard, which forms the basis for the transmission of audio, video, and data over IP-based networks. A common standard will enable products from different suppliers to be used in conjunction with each other, so that users will not have to concern themselves about compatibility. With no official overall standards yet laid down for IP telephony, several U.S. organizations, including the FCC, are now studying the regulatory issues involved and pondering how to proceed. Given the nature of Internet telephony, this work is likely to be focused predominantly on quality of service.

Exactly what kinds of hardware and software will be required for Internet telephony? For each connection type, several components are necessary within a given telephony network. On one side there are terminals for Internet telephony, much like traditional telephones but with an Ethernet rather than an analog or digital connection to the telephone network; alternatively, there are special PC programs that act as Internet telephones (e.g., Microsoft NetMeeting and VocalTec Internet Phone). Gateways are needed at the interface between the traditional telephone network and the IP-based network to map the different signaling and transmission procedures; also necessary are certain central components such as directory services to map and find multiple terminal addresses (both IP and e-mail addresses and telephone numbers), as well as servers for authentication and billing. These devices typify the range of products now being developed for Internet telephony.

Until very recently, Internet telephony has been widely accused of suffering from poor voice quality and long time delays in transmission. These problems have now been largely eliminated, making Internet telephony's voice quality competitive with that offered by its rival PSTN, and reducing delays to an acceptable 250 milliseconds or less. Unlike traditional PBX telephony, Internet telephony cannot guarantee a 100% connection rate, but its reliability is sufficient to allow companies to save huge sums of money over a relatively short period. Financial controllers of large companies such as PepsiCo have already been persuaded on purely economic grounds to implement IP telephony across their organizations. Industry reports endorse the claims that Internet telephony is here to stay; Forrester Research even predicts that by the year 2004, U.S. telephone companies alone will have lost some $3 billion to Internet telephony. Little wonder, then, that traditional carriers and telcos are beginning to feel the pressure.

Steve Shergold is managing director of TTA Ltd. (Bristol, UK).