Calling Without Cellcos
By Peggy Anne Salz, Thu Jan 27 08:45:00 GMT 2005

With products in the pipeline a handful of companies are moving P2P over IP forward at breakneck speed. The outcome could rock the enterprise, and potentially wreck operators' business models.

With 52 million downloads and counting since its commercial launch in August 2004, Skype has clearly fuelled consumers' passion for free voice calls over the Internet. Estimated to carry 25% of annual VoIP traffic (as counted by TeleGeography), or the equivalent of 4% of total international traffic worldwide, the impact of Skype and other VOIP applications could put a serious dent in mobile operators' revenues.

The scenario for the mobile industry turns from bad to worse when Skype is embedded in a 3G phone or Wi-Fi-enabled device, and falling data prices offer users a much cheaper alternative to cellular voice. Indeed, one eager Taiwanese handset manufacturer recently wrote an open letter to Skype asking for the privilege to be the first to embed the technology in its 3G phones, leading many to believe such handsets will appear this year.

While Skype has clearly caused a shift in the consumer telephony market, security and admin concerns have kept it out of the enterprise market. That lucrative enterprise segment is likely to belong to little-known newcomers including Canada's Nimcat, a provider of embedded call processing software, and Popular Telephony, a telecom middleware company with offices in France and Israel.

For the moment, both companies have their sights set on the fixed market, where it's much easier for enterprises to replace their voice providers with VOIP applications running over data networks. Their P2P technology, which moves the intelligence from the centralized PBX down to end users' devices, eliminates the need for expensive telecoms infrastructure. The companies' roadmaps, though, take aim at mobile users, offering carriers a stark choice: ignore the technology and let it decimate their businesses, or acknowledge it and integrate it into their offerings.

Small Business, Big Gains

Established in 2002, Nimcat's objective is to provide P2P telephony to small and mid-size businesses with less than 100 extensions at a low cost. Put simply, employees can buy a Nimcat-powered phone, plug it into their company's existing LAN, and make calls to colleagues throughout the enterprise. Because one phone can immediately recognize all the other phones in the network, small companies no longer require large and expensive admin and IT departments to program the devices.

Nimcat's focus, for now, isn't on replacing operators. "We're not out to change the carrier space. What we're changing is the enterprise," explains Marc Gingras, Nimcat's VP of product management. "Communication between branch offices of a company is direct and takes place through what we call the nimTUNNEL, which is similar to a VPN connection, saving businesses a ton of money in long-distance and roaming costs." Communication outside of the company requires transport on traditional networks, and Nimcat can "lock into certain service providers" allowing operators who work closely with the company to insure calls outside the nimTUNNEL are only routed through their networks.

Pinball In the Sky

Popular Telephony's Peerio P2P technology targets large enterprises, and ultimately seeks to create a parallel network on top the IP network of Peerio-enabled devices that would allow communication between users without the need for call-controlling servers, switches, proxies or gatekeepers. There are no servers, no operators -- and potentially no limits.

Unlike Skype, Peerio doesn't need superpeers, supernodes or any sort of centralized device. "Information in the network is stored everywhere because it's stored nowhere, says founder and CEO Dmitry Goroshevsky. "It's distributed, so there is no bottleneck." He likens his patented technology to a pinball machine. There a ball doesn't have to hit every point -- it bounces around in a seemingly random manner and eventually makes the connections that lead to a score. "It's the same here, except it's a pinball machine that we totally control. It's not chance and the mathematical probabilities are 100% certain."

A Brave New World?

Looking ahead, Goroshevsky can imagine Peerio at the core of file-sharing and content-distribution applications in both the enterprise and consumer spaces. "I want my Peerio technology working on every IP network on the planet. That is the ultimate mobility."

It could also be the ultimate nightmare for the telecoms industry, warns James Enck, a telecom analyst at Daiwa Securities SMBC Europe Ltd. Through his blog and extensive research, Enck has been following the rise of P2P and predicting the fall of telecoms vendors and operators when it catches on.

He argues that the economics of building a sustainable business case solely around voice are becoming increasingly untenable. "Already voice is becoming a weapon in the arsenal of global Internet brands. Whether it's Google or Microsoft, voice is going to become just another feature in applications aimed at some other ultimate objective, perhaps selling some premium services or generating advertising revenues -- in the same way that these same players have commoditized Webmail and storage to a certain extent."

Embed P2P in mobile phones, and the outcome could be profound -- if operators stand still. The technology will no doubt empower enterprise users and road warriors, and deliver them significant savings in roaming and long-distance charges. The choice for operators is to let any remaining revenues go to their competitors, or to adopt the services and apply them to their own networks and users.

There are simple steps operators can take, such as drastically cutting voice charges, particularly for international and roaming calls, where mobile VOIP would make its initial impact. But there's also an opportunity for carriers willing to work with upstart companies like Nimcat -- in addition to simply "locking in" the outside traffic, mobile carriers could further integrate the technology into their own networks, and potentially steal business away from fixed providers by providing enterprise PBX features such as the ability to have common directories or a call attendant.

Mobile operators are control freaks whose worst nightmare is to become dumb pipes for their users' data. They can use some of their usual tricks to resist this, like blocking VOIP traffic on their networks, though this is likely to just drive users to more friendly competitors, even data-only MVNOs (one of which could be launching on a Japanese 3G network soon). But if they offer users the technology as a way to reduce costs and improve services, they've got far more to gain.