Technology issues: a new kind of Internet chat.

Sure, the Internet can provide your business with a world}wide audience, but what about the phone bills you'll incur returning calls to Timbuktu? Fortunately, the Internet promises even bigger communication savings by drastically lowering your long-distance phone bill. Internet protocol (IP) telephony, one of the fastest-growing uses for the Internet, cuts long-distance phone charges down to a bare minimum by using existing data lines and gateways, which translate analog calls into digital information and back again.

Regular phone calls may travel through several circuit switches, while Internet calls need to travel through the gateway only twice: once to turn it to digital form and once to change it back. "Internet technology is more efficient," says Lee McKnight, former principal investigator for the Internet Telephony Consortium at MIT. "You don't need a dedicated line, like you do with a land line. You get savings using digital packets to talk to someone." A large part of most conversations is, in fact, silence, so only the voice transmissions are sent over the lines using IP. These transmission are sent in the form of digital packets of ones and zeroes, which are then converted back into the sounds you hear.

Instead of paying between 10 and 30 cents per minute for domestic long-distance calls, most IP telephony services charge an average of 8 cents per call. Cost savings on international calls via the Internet can be even greater. "Because of the regulatory atmosphere, although it may only cost 5 cents per minute to actually make the call, it can end up costing a customer $2 each minute using traditional analog telephone service," McKnight says.

A major drawback of using IP telephony is that it doesn't give the stable quality that consumers expect during a phone call. If the lines are jammed with other Internet traffic, calls can break up and bits of the conversation will get delayed or lost. IP telephony calls can be made three ways: computer-to-computer, computer-to-phone or directly phone-to-phone.

According to McKnight, half a million people are using IP telephony, and the number is growing significantly each month. Analysts estimate that IP telephony software sales were $75 million in 1997, and Internet gateway sales will reach $500 million in 1998. Total global sales of long-distance IP telephony services added up to $123 million in 1997. In addition, analysts expect $157 million in calls will be made using IP technology in 1998, compared with $55 billion on the public switched telephone network in 1997 in North America alone. Killen & Associates, a market research and consulting company in Palo Alto, California, projects that by 2002 global revenue for IP telephony will reach $17 billion.

Eventually, competition between IP telephony services will drive the price of the long-distance phone call down to 5 cents per minute, says McKnight.

IP telephony started as a hobby for Internet surfers, who developed simple programs to allow them to talk to each other via Internet lines, but today several companies offer options for cutting costs by using IP telephony. For example, Netspeak, located at www.netspeak.com, sells Webphone 4.0 for $49.95. Webphone integrates voice calls with the ability to send text and video. In addition, the program allows users to log inbound and outbound calls, and redial the last five calls.

To get around quality issues, Netspeak has partnered with MCI's Click'n'Connect service. This service enhances business Web sites by allowing Internet users to talk to a company representative online. The service uses a combination of Netspeak Internet gateways and MCI phone lines to ensure strong connections between Webphone users. "MCI Click'n'Connect is a significant step toward adding a new dimension to electronic commerce and customer service, enabling the call center agent and customer to talk and share the same desktop," says Keith Kelly, vice president of systems engineering for Netspeak.

Another major way companies are deploying IP telephony is with direct phone-to-phone dialing, but the process is not simple. To use the Internet for a long-distance call, a customer has to dial an access number to a gateway, a personal identification number, a PIN number, then the number they want to reach. AT&T, for example, is developing a direct phone-to-phone service called Connect 'N Save that is available in Atlanta, San Francisco and Boston.

The Connect 'N Save service allows customers to make long-distance calls for about 7.5 to 8.5 cents per minute. The service requires prepayments of $25, $50 or $100. AT&T has its own data network with enough bandwidth to carry the new IP telephony traffic, says Robert Lyons, a technical manager for AT&T Labs, but in the event of heavy traffic, calls would be switched to their standard voice network.

AT&T Labs recently opened a Silicon Valley office in Menlo Park, California, to bolster the development of Internet-based telephone services. "We intend to be the leader in IP services," said David C. Nagel, AT&T chief technology officer and AT&T Labs president. "We want to make the phone the IP device of choice."

But observers say that large phone companies are late to the IP telephony parry. Large companies have a harder time responding to marketplace movements. "The most aggressive service providers are the new companies, which don't have much to lose and a lot to gain," says Karl Duffy, director of telecommunications services for Killen & Associations. Companies such as Qwest, IDT, PSINet and VocalTech offer various IP telephony solutions.

"Right now it is pretty cumbersome for consumers to use the Internet," Duffy says. COmputer software solutions are still "primitive." Direct calling requires a customer to punch too many numbers, and both types of services don't deliver the quality needed for important calls, such as sales calls. But the technology is advancing rapidly and should have the bugs worked out soon.

"Only two years ago, this was an amateur-hour endeavor and radical idea for the marketplace," he says. "Expect that tomorrow IP telephony companies will be calling, asking you to switch from MCI or Sprint to their Internet-based service."