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The Future of Phones
An Asiaweek Roundtable on how the Internet is changing - and challenging - the industry

Yes, the Internet changes everything. Even the routine matter of making phone calls. Of course, we are not talking into our computer monitors yet. And most of us never will. But today's industry leaders are planning for tomorrow's telecommunications, which will involve the Internet. Asiaweek's Ann Morrison and Jim Erickson met with seven of them in Singapore earlier this year: Robert Bong, the managing director of Nortel Networks; Paul R. House, of Nortel's business development operations; Gary Jackson, vice president of Cisco Systems; Lim Eng, vice president of Singapore Telecom; Anders Runevad, president of Ericsson (Singapore); Patrick Sim, vice president of Oracle; and Raymond Tan, president of Lucent Technologies, Singapore. Excerpts:

How do you see the telecommunications industry developing over the next five years?
The simplest way I can describe it is this: We have all built circuit-switch networks that are optimized to handle voice. Along comes data [essentially the ones and zeros of digital information] and we start to push data across these "voice" networks at a less-than-optimal capability. Where I see us evolving now is almost the reverse: to a network that is designed strictly for data that can also run voice over it in so-called data packets. We will get a much more data-optimized approach, but the network will also be capable of handling voice more efficiently.

In reality, the circuitry we have now that pushes data over a voice network, is not effective. It has all kinds of bottlenecks that don't allow you to get much bandwidth through it. In a data-optimized world, you can take care of the data - that is what the technology is designed for - but you can also convert voice into packetized data very easily.

Jackson: This is where the investments are going. The IP [Internet protocol] world has been a great driver for the Internet itself and is driving a lot of the [telecom] start-ups. Still, if you want to be brutal about it, there are only a fairly small number of trials of voice going over IP packets today in Asia. We are in a very early stage of Internet services. One reason is that you've got very low personal-computer penetration rates in many Asian countries - and the PC is where most Internet service delivery is at this point. Which is why I think wireless will absolutely dramatically change everything going forward.

Tan: If you look at Internet telephony today, it is actually at a very basic stage. You don't have all the services that business users are used to - the 800 numbers, 900 numbers, call-waiting, and all those other features. Most Internet telephony operators are providing just person-to-person calls. It will still take some time for the features and services that we are used to on our regular phone network to come into Internet telephony.

Can Internet calls really be free?
Today you see people talking about so-called free minutes, free calls to certain places being offered, or unlimited calls for X dollars. I believe those business models are very much drawn by the fact that someone else is paying - for example, advertising dollars might go to subsidize the so-called free minutes. Or maybe someone else is paying for the huge bandwidth on which the "free" service is riding. So it's a different model entirely.

From SingTel's perspective, we view ourselves as a full-service provider, offering a suite of services for various segments of the markets. We know the profile of our customers; we are able to understand their needs better and therefore it enables us to evolve a relevant range of services to better serve them. For example, we have our traditional 001-service, which is our flagship for international direct dial. Sometime in the middle of 1998, we rolled out a service called Budgetcall 013. In fact the 013 service is a mix of different technologies, including IP and call-back service. Today I'll say that the Budgetcall 013 has gone on pretty well in our local market.

Sim: I was just going to ask: How much of your own lunch do you want to eat? I mean in the example about 001-long distance service versus the 013, aren't you cutting into your own customer base and your own revenue stream? In this transition period you have to recognize that you might have to lose some potential revenue in order to build more business; you've got to play your cards differently in different business streams.

Bong: I just want to make sure that we understand when we're talking about voice becoming cheaper we know the difference between cost and price. It is up to the service provider to price the service - and maybe it is zero - but the cost won't go away. For anything we do, there is a cost. Let's understand the difference.

House: Well now we are really getting into the issue. Most of the time when you build one of these IP networks you do not build it to offer voice. You build the network to run zillions of IP applications through a pure IP domain. And then, by the way, you can run voice through it too. I don't think anybody would build a new IP network just for voice. The network can run voice cheap, but not free. If I'm a new operator coming in, I may want to make voice look free to steal away market share from the incumbent - but I package it to get returns some other way. For example: "You can buy a whole bundle for X amount per month and I'll give you voice free." But that is disguising reality. There is still a cost to voice and there will always be.

Bong: As the industry becomes more mature, dishing up freebies is not going to get you customers. They will come because of the personalized transactions, content or services that you can offer. The consumer market is very different from the physical market. It is more a community of interests. The onus is on the Internet service provider to package content, organize and perpetuate this community of interests - yuppies, or wine lovers or antiques collectors. It's a different kind of market segmentation. I call it cyberspace segmentation. Here you have to have the ability to charge the people who are willing to pay.

Lim: At the end of the day, somebody has to pay. But I don't think anyone today can say definitely that this is the revenue model that will work to tackle the marketplace. Because the demands of the social users, Internet users, the corporate users of the multinational corporations - they are entirely different. That's why there will be different service level agreements (SLAs) for different customers, depending upon their requirements. The social customers, those who initially enjoy the benefits of the freebie calls, may have to put up with some inconveniences and lower quality.

What is the typical phone company going to look like in five years?
Well, you'd probably get 12 different answers to that. I certainly believe that the service providers in telecommunications will have to move up the food chain - that is provide service that goes beyond just infrastructure. It's what things can I get from you that maybe I can't get from somebody else or that I can't get in the same way? You know, they're already starting trials of Internet call-waiting, giving you a second Internet line so that you can interrupt your Internet service and take your telephone call. Now there is huge interest in video conferencing at the desk. I also think electronic learning has enormous potential. Look at companies like ours where you are trying to keep everybody all over the world up to date on what's going on. It's a lot better to say "here is the latest product, go and learn it by downloading something," instead of saying "wait for the manual to arrive." Both within businesses and within countries that are trying to take themselves from third-world to first-world status, the Internet presents an enormous opportunity to deliver electronic learning.

If you are going to say, "where do I want to be in five years" as a major Internet service provider or as a telecommunications service provider I believe that to be a major Internet service provider or a telecommunications service provider in five years you would have to be affiliated with, or in control of, content. You would need to have a variety of high-end service options because that's where you've got to try to make your money. The low end, the base line delivery of Internet services, is going to be driven on price, and that price is going to be very low. The telco has to offer a lot of extras at progressive prices, much of which will be high-end services about content. I can't see how you're going to be able to drive your revenues into profits without going up the food chain.

House: I think the biggest change is going to be for the business user, not the home consumer. Let's look at business-to-business. If the telco can start to facilitate applications that actually reside on its network that can deliver goods-transfer, just-in-time inventory, all of that sort of thing, then businesses will be pulled to that specific telco. I think you are also going to see wireless Internet be another huge area in which the business user will want a whole lot of applications.

Lim: May I add that going forward, a telco like SingTel has to widen its horizons, where we see customers as unique individuals and we have to offer them interesting, tailor-made propositions to meet their specific needs.

Sim: Telcos, by their very nature, will have the bandwidth and the networks and the lines in the ground. They will be able to handle a lot of those business-to-business applications faster and quicker than anybody else who wants to come in and offer a similar service.

Tan: Everything comes down to the availability of bandwidth to the user. That's the bottom line today. Fortunately, a lot of work, a lot of investments, have been done in this area. The capacity of optical fiber is doubling every twelve months.

House: What do incumbent telephone companies do better than anyone else in the world? They are extremely good at billing, right? If you could couple this billing ability to doing business over the Internet, and have the telcos doing the billing for these transactions - all of a sudden there could be quite a huge business here.

Sim: I'll [also] use the word transaction. If telecommunications systems can actually bill by transaction, and bill more according to the importance - or the cost - of the transaction, there is a lot of money to be made.

What types of telephones or other communications devices might we see in the next few years?
The phone will not be a phone; I mean the phone will be something else. It will be more like an appliance that you always have with you. Think of it: You change your clothes, you change everything, but you still have your mobile phone. So why not use it to get your personalized news, or as a paying device, or to communicate within your own home, or to unlock your car door with?

Sim: I would love to be able to use my mobile phone to park my car: you know, activate it when I come into a car park, and turn it off when I leave, and be charged for the time my car is there. That typifies the sort of mobile phone application that we will see. And yes, the mobile phone is always with you.

Runevad: We have something we call an electronic-wallet project with SAS. You can get changes in flight schedules, you can pay for your tickets, re-book them, and so on. It's a whole concept built around time-keeping, flight booking, re-booking, schedule-changes, check-in and even keeping track of your luggage. You will see a lot of those kinds of applications that combine the mobile phone with different kinds of payments.

For example, in Scandinavia you can already pay for a car wash with a mobile phone, you can buy something from a vending machine. It comes back to the idea that the phone is something like a wallet, because it's something you carry with you almost all the time. It has a smart card in it already. Then, of course, when you add in all the communication from the Internet, there will be even more applications.

House: I think people will pay a lot for new services, as this convergence between mobile telephony, global positioning and the Internet comes about. If you know where you are, it will be as simple as saying, "Well, where is the nearest restaurant that serves this kind of food?' In New York, people want a telecommunications service that will enable a driver to find an available parking spot.

Jackson: I don't think it's going to take a lot to train people; we're in the "early adaptive phase" of industry and social change. It is just a remarkable time to be in Asia. Asia is the fastest growing piece of Cisco's business and the telecommunications sector is the fastest growing part of that. When you have a piece of business growing 100% year on year, why wouldn't you be excited? In the future we are going to look back at 1995-2001 as a really significant change-point - from the industrial economy to the information economy. We're sitting right in the middle of it, and that makes it sort of hard to know you're in a dramatic point in history. But we are.

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