At the beginning of October 1997, Israeli VocalTec and US firm ITXC signed a cooperation and share acquisition agreement which conferred minority rights in ITXC on VocalTec. The company has steady backing, as AT&T announced an agreement granting it ITXC stock options.
ITXC is a communications provider for Internet service providers, hoping to connect various providers of Internet telephony services, establishing a world-wide network that will enable any customer to call from any place in the world to any place in the world.
Tom Evslin, the company's CEO, was a senior manager at Microsoft and established AT&T's Internet division, known as WorldNet. In an interview with "Globes", Evslin unfurls his vision of the IP world, in which voice communication via the Internet garners a larger portion of international communications. In his opinion, large public switches will become scrap iron, and the new ATM technology will become outdated and irrelevant.
Evslin: "In 1994, AT&T offered me the job of planning its Internet strategy. I started work in December 1994, when AT&T didn't have an Internet plan yet, but realized it had to get with the program.
"It was decided then to put all data transmission services on the Internet. We didn't think of voice via Internet then. We started to develop the infrastructure for working on the Internet and we established WorldNet."
In February 1995, Israeli company VocalTec announced Internet-Phone - the first software to enable a voice conversation via the Internet (IP). At the end of 1996, WorldNet became the largest Internet service provider in the US and in the world. Evslin describes the story from that point on.
"When we started to research the subject of voice communication via the Internet, we thought we were talking about a market of nerds. Computer geeks, where one freak talks to another freak. Then we realized there would be technology to bridge the gap between computers and real telephones, and we called that 'Freak talks to Grandma'. Then we caught onto the fact that the real potential was in 'Grandma talks to Grandma', with no understanding of technology."
Evslin isn't just a businessman. He has vision, and he puts all his chips on the vision. "I understood that switch communications isn't going to be the only kind of communications. On the contrary, it's going to fall. I believe that within ten years, most communications will be via IP networks. I understood the industry's growth potential and what is stopping its development. That was at the beginning of 1997. VocalTec and other companies already had bridge servers that enabled Freak-to-Grandma communications."
What is slowing development?
Evslin: "Essentially, right now voice communications via the Internet is like telecommunications 100 years ago. Whoever uses it, does so in small, closed networks. If you want to call Hong Kong, you need a relationship with a local communications provider that has a bridge server. The same is true of New York and other places.
"I started to think about establishing a company that could exploit the industry's growth potential. Then I met Elon Ganor, founder and CEO of VocalTec, and we talked about the problem that service providers don't allow communication outside of their own internal network. Everyone was limited to communication with points where their provider had a presence."
Evslin and Ganor decided to establish ITXC, the company that would create the relationship between the providers. AT&T, for its part, also gave its backing. "At AT&T they said to me," Evslin recalls, "that they wanted to study what I was going to do in the company. To learn at my expense."
But that education costs money. The company was founded at the end of 1996, with VocalTec as one of the investors. For the moment, AT&T "only" promised to fund ITXC's market entry, as a tuition fee, and holds an option to acquire shares in the company. What really is AT&T's promise? Evslin steers clear of talking numbers, but notes that market penetration will cost millions of dollars. "Right now", he says, "we have the money to launch operations."
When exactly is that going to happen?
"In Q1 '98."
What is the service that ITXC will provide?
"Connection between Internet voice communications providers. The prevalent name for such companies is ITSP or Internet Telephony Service Providers. There are currently more than 1000 companies in the world interested in becoming ITSPs. Not all of them are active yet.
"Many companies that provided CallBack services, have become ITSPs. Even regular Internet Service Providers have begun handling or have become ITSP companies.
"This is a young industry. Many want into the field, but there are only about 50 out there right now. They start-up every week and a few fall because they don't understand the industry. The trend taking shape is that the CallBack companies will be the first. They already have clients who are looking for cheaper communications."
It looks like a telephony industry for the poor, with which the large companies don't want to be identified.
"That's true. The large companies don't want to be identified with low-quality, cheap telephony. That explains the CallBack companies' big market entry. The large companies won't announce it, but they will do it. I estimate that despite the image, cheap calls will have a large market share."
Internet voice communications is low-quality audio, but cheap. What advantage will it have when the current global trend is that settlement rates are collapsing and prices are dropping?
"The source of the low-quality sound is not the software itself, but in the background disturbances on the network itself. If we use exactly the same technology on the IP network, quality will be different. As more networks transfer from switching to IP, the consumption of Internet telephony services will increase. But even today, let's assume that Internet telephony will garner 10% of the market - that's still a large market."
You said there would be a transfer from switching to the IP network. That sounds like a revolution to me.
"Almost all investment right now is related to IP. What will disappear will be the public switches themselves. Instead of purchasing switches, routers and Internet voice servers will be purchased."
AT&T thinks so too?
"There is a dispute at AT&T on the pace of development, but not about the thing itself. That's why AT&T invested $9 billion in the new network."
When will all this be realized?
"By the end of 1998, when the Internet networks will be closed and telephony companies will transmit some of the traffic to the IP networks."
How does ATM technology fit into this vision?
"There is disagreement in the industry. Some believe that ATM will use IP technology, as switching can also transfer to ATM switches. I think the need for ATM will disappear and we will be left with IP. We will see growth in ATM in the next three to four years, and then a drop. Internet telephony, in contrast, will grow at a dizzying pace. For the end user, the slogan will be 'Surf and Speak'."