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IT companies are digging further into voice communications, forcing change to traditional telephony that could leave a century-old communications industry unrecognizable in short order.

As the telephone carriers struggle to adapt to packet-based networking, data companies are quickly adopting voice strategies of their own. Moreover, VOIP (voice over IP) is forcing the convergence not only of voice and data traffic, but also of voice and data companies.

Microsoft Corp.’s foray into the voice world started with its decision to build SIP (Session Initiation Protocol) into its Windows operating system and other clients, including MSN Messenger, enabling PCs to carry voice calls.

“SIP as a control protocol has more or less won. It’s embedded in everything we do,” said Michael O’Hara, Microsoft’s general manager of the solutions provider business of the communications sector.

To integrate voice with its more traditional data applications, the Redmond, Wash., developer is testing a new client for its Live Communications Server, which would link instant messaging with telephony and video applications. Called “Istanbul,” it is slated to replace Messenger as the key client for LCS and will be released early next year.

Click here to read more about VOIP in “Istanbul”.

According to some experts, Microsoft’s move into voice and video has the potential to shift telephone competition from its focus on mass-marketed bundles of service to highly customized services. In this environment, owners of applications and services, rather than owners of the network facilities, will hold the most value, which “could further the deterioration of traditional telco toll revenues based on time and distance, particularly long-distance charges,” according to a report authored by analysts at Legg Mason Wood Walker Inc., in Washington.

With SIP embedded in its nearly ubiquitous operating system, Microsoft could even deliver an IP platform for computer-to-computer communications with advantages over traditional voice delivery, including greater integration, easier customization and lower prices. Unlike other similar telephony offerings—such as’s Free World Dial-up, or FWD, and Vonage Holdings Corp.’s basic VOIP service—a voice network via a Microsoft operating system would connect a vast number of users instantaneously. “If Microsoft rolls something out, they can immediately reach millions of people,” said David Kaut, a Legg Mason analyst.

The potential for Microsoft to dominate voice communications has not been lost on the legacy telephone companies, which were monopolies themselves not long ago. By expanding its market power in the operating system to other platforms, the software maker could become a gatekeeper for all services moving over the desktop, potentially directing users to its own services, SBC Communications Inc. warned in a plea for tougher sanctions against Microsoft in the antitrust lawsuit brought by the government.

According to Microsoft officials, however, the company is more interested in partnering with telephone companies than competing head-to-head with them, as illustrated by its agreement with SBC last month to deliver a hosted IP-based television service, known as Project Lightspeed.

“I think the focus we have here is to help our service provider customers to succeed in the marketplace,” O’Hara said. “You’ll have a free choice in terms of where you buy your applications. We would like to enable those applications for service providers.”

Expanding into voice and video is a way for Microsoft to add more value to its data applications, and, at the same time, partnering with Microsoft is a way for telephone carriers to add more value to delivering traffic. Rather than serving solely as a delivery mechanism—an increasingly commoditized service—carriers are moving to become service managers.

In addition to its partnership with SBC for hosted video, Microsoft has forged an agreement with British Telecommunications plc. to provide hosted data services, including Exchange and Messenger. Forming similar partnerships that enable hosted voice applications is something that Microsoft is “looking very closely at,” O’Hara said.

“Our view is that it’s a triple play over IP,” he said, adding that the initiative is optimal “when you start to combine Exchange and voice and maybe one or two channels of video.”

Next Page: Microsoft competing with manufacturers.

While Microsoft’s strategy may not take market share from the telephone companies, its move into voice communications does put it in competition with the network equipment manufacturers that traditionally supported the carriers. By embedding the operating system in user devices, Microsoft competes with IP “soft” phone makers such as Nortel Networks Ltd. and Avaya Inc.; by further integrating it into switches, it would compete with Cisco Systems Inc.

“There’s certainly overlap with traditional telco equipment providers,” O’Hara said.

Microsoft isn’t the only giant in the IT world making inroads into the voice business. Other software makers, including Oracle Corp., are taking steps to make voice integral to their traditional data systems.

“Everybody uses the telephone. I think that’s the link behind what these companies are trying to do—tap into that workflow tool that everybody uses,” said Brent Kelly, an analyst with Wainhouse Research LLC, in Hyde Park, Utah. “They are sensing that the market is going to go to those who are able to create tools that integrate nicely into the workflow.”

To be of value to enterprises, integrating voice into data applications will have to encompass presence awareness tools, Kelly said.

“If I’m in an Oracle financials application, for example, and I want to make a voice call, what does it buy me if I end up getting voice mail?” he said. “When we begin adding collaborative capabilities to software or to the telephone, one of the main components is presence and presence management.”

While Microsoft has a strong foothold in presence management with LCS, IBM also has a solid base with the widespread use of Lotus technologies, Kelly said.

As IT companies move into voice communications, they will have to avoid falling into the thicket of telephone regulatory requirements. Next year, the Federal Communications Commission is expected to issue comprehensive rules on VOIP, but so far, it has concluded that computer-to-computer calls aren’t subject to regulation, but VOIP calls flowing over the PSTN (Public Switched Telephone Network) are. Once VOIP becomes a widespread replacement for traditional telephony, though, regulatory exemptions are likely to fade.

VOIP and its potential to displace traditional calling is upending tenuous regulatory structures that carriers have balanced for decades. Regulators are working to determine how social policies apply to IP-based calls. More urgently, however, carriers are struggling to bring VOIP providers into the system of payments they make to use each other’s networks. This line-sharing fee system, as well as other programs, supports a policy of affordable, basic phone service nationwide, known as Universal Service.

Regulators fear that Universal Service could collapse if large volumes of calls begin bypassing the fee structures imposed on calls that travel over the PSTN. The Universal Service program is of particular benefit to users in rural areas, whose representatives in Congress are key players on telecommunications matters. While the roster of regulatory issues surrounding VOIP is long and complicated, the matter of Universal Service is likely to spur action, sooner rather than later.

Extension of VOIP into Windows CE 5.0

  • Runs on a variety of voip-based devices, including wireless and desktop phones
  • Enables new telephony applications and tight integration with desktop and server applications
    “Istanbul” client for Live Communications Server

  • Integrates IM with telephony and video
  • Supports contextual collaboration
    Collaboration Suite Voicemail & Fax

  • Messages stored in Oracle9i Database as .wav files for voice mail or .tif files
  • Supports legacy voice systems and voip
  • Replaces third-party voice mail and calendar applications
    Collaboration Suite Wireless & Voice

  • Provides access to e-mail, voice mail, calendar and documents from any phone or PDA
  • Presence can be set when user leaves desk to streamline and manage communications
  • Sends alerts with time-sensitive information

    Check out’s for the latest news, views and analysis on voice over IP and telephony.