VoIP drives network makeovers

The early use of Internet protocols and Ethernet for inexpensive, international phone calls exposed the problems of relaying voice over a network designed for data. Voice quality was poor because the Internet’s asynchronous structure is not suited for the synchronous nature of voice. However, as Internet capacity has grown and standards have evolved, good-quality voice over IP has become easier to achieve. The growth in intranets, which can be managed for higher-quality voice, also has helped propel the use of VoIP.

While bypassing toll charges is still one of the attractions of VoIP services, what is driving the acceptance of VoIP is the rich applications that converged data, voice and video make possible. The ability to integrate data and voice traffic onto one network not only reduces the total cost of ownership of that network, but also enables various network elements, including call servers, application servers such as voice mail storage and client devices, to be more easily integrated.

This merging of voice and data networks is driving what eventually will be a multibillion-dollar transition in the voice telecom infrastructure. While VoIP is a fraction of the U.S. telecom industry, it is growing rapidly. North American wholesale VoIP sales were estimated to be well over $400 million in 2002, Gartner says. Total equipment purchases of VoIP gateways, softswitches such as IP PBXs and VoIP application servers are expected to reach almost $12 billion by 2006, according to Frost and Sullivan – a sixfold increase over 2001.

Many developing countries are jumping to VoIP-based technology, both wired and wireless, to build modern communications infrastructures. VoIP also is one of the hottest communications technologies being adapted for transmission over broadband technologies such as cable and DSL.

For investors, the rate of growth in infrastructure equipment is exciting. Mayfield has invested in several companies that hold promise. Convedia is a supplier of media servers that provide voice processing for services such as conferencing and voice mail. Sylantro has developed carrier-class application servers for deploying IP Centrex and hosted PBX services.

Also attractive to Mayfield from an investment standpoint are the features and services that VoIP will make possible. Nuasis is a software company that has developed an end-to-end, IP-based system for the emerging IP contact center. Its product consolidates the routing of customer phone calls, e-mails and Web contacts on one platform for improved customer service and contact handling. And Orative is using VoIP technology to improve mobile voice communications for enterprise users through intelligent calling.

It will take time for user companies and service providers to move from their legacy equipment and support systems. However, keep an eye out for products and technologies that will let you migrate to VoIP in a way that will protect your existing technology investments. Clinging to technologies based on the public switched telephone network will ultimately limit your company’s competitiveness.

Ladd is a general partner with Mayfield, a venture capital firm in Menlo Park, Calif. He can be reached at dladd@mayfield.com.