Nortel readies cheaper Net-based phone system

Ready or not, here they come.

To compete with rivals 3Com, Lucent Technologies, and Cisco Systems, Nortel Networks will soon introduce a new phone system for small and mid-sized businesses. The company contends that its system is a cheaper and easier alternative to traditional technology that is used to route voice calls.

Nortel's new phone system combines traditional voice technology with Internet routing--a less expensive option to traditional circuit-based systems, called PBX systems. It is part of a company strategy dubbed "Inca" that was first discussed in June.

For the past year, data networking and telecom equipment companies, including Lucent, Cisco, Nortel, and Cabletron, among others, have all preached the concept of communications "convergence"--having all network data and voice traffic run through the same connection based on Internet protocol (IP).

Nortel's Internet Solutions marketing director Christine Durham said the firm's history with phone systems gives it an advantage over its competition.

"Why are we different from Cisco? The difference is we have a history with telephony," she said. "We understand what it takes."

When Nortel ships its "Enterprise Edge" phone technology next week, it will join competitors in a the new market for voice systems that is expected to reach $300 million in revenue this year and jump to $5 billion by 2003, according to market researcher Cahners In-Stat Group.

Enterprise Edge is a Microsoft Windows NT server-based phone system aimed at small firms. The system allows users to make Internet-based phone calls within a corporate network or to a traditional phone system.

This new market marries old software and hardware previously used for telecommunications networks and new, cheaper Internet and PC technology. But any company that is dedicating itself to this new market may be jumping the gun, according to some industry observers.

Recent research shows large businesses are skeptical and won't deploy the new systems until the technology is proven. A recent study by industry consultants Infonetics Research found that the average large U.S. business loses millions of dollars a year from data network failures--and most large businesses may not want to risk having a phone system and data network crash at the same time.

The bottom line
Industry observers believe small and medium-sized businesses will warm up to the idea of converged networks, as the technology is less expensive than traditional phone systems and is already commercially available.

3Com in February bought Internet-based telephony start-up NBX for $90 million and says more than 600 businesses have signed up to use the new system. Cisco bought a company called Selsius Systems last fall and sells a similar product. Lucent Technologies last September released its own IP-based PBX product, called IP Exchange Systems, aimed at small and mid-sized businesses.

Nortel executives said they hope to install 500 systems by the end of this year.

Giga Information Group analyst Elizabeth Herrell believes that Nortel has an advantage over 3Com and Cisco because of its history with selling traditional PBX systems. 3Com and Cisco, on the other hand, have historically specialized in data networking technology.

"Nortel and Lucent will have the edge in the early stages because of their infrastructure for service and support. If the server for the data network or voice network goes down, you need someone to come fix it," Herrell said.

But Yankee Group analyst Mark Thompson said the market is big enough for all the major players to succeed. "Voice-over-IP will eventually become commonplace in offices. The jury is out who the winners will be, but folks like Cisco and 3Com will be players," he said.