Cisco rolls out Web-enabled phones

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By Richard Martin

(IDG) -- How does a major tech company like Cisco Systems weather an economic slowdown? The world's leading maker of sophisticated telecommunications equipment has an interesting response: It's going to start selling telephones.

With its stock price hovering at a year-long low and its core markets continuing to deteriorate, Cisco is focusing on new lines of business, including the nascent Internet telephony business. Known as "voice over Internet protocol" or VoIP, the market is still in its infancy -- but Cisco is betting that once the economy rebounds, VoIP can help the company return to its previous annual revenue growth of 30 percent to 50 percent.

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These are not your typical phones, mind you. Cisco is rolling out a line of Web-enabled telephones that send and receive phone calls and data over the Internet, offering customers an array of features and services, such as unified messaging, that are not found on conventional phones.

At a presentation to press and analysts at Cisco's headquarters Tuesday, strategy chief Mike Volpi termed voice-over-IP a "tornado market" -- one characterized by disruptive technology, rapidly escalating demand and abrupt changes in market share. Using the Internet to transmit telephone traffic will not only slash the costs of conventional phone calls, Volpi said, but will transform the telephone into a centralized message device that can handle voice calls, e-mail and Web data.

Voice-over-IP "was originally all about cheap minutes," Volpi said. "Now it's adding new services and applications that lead to more profitability."

Demonstrating the new telephones, Cisco officials noted that they have already scored some big sales: 40,000 IP phones to Dow Chemical, for instance, and another 8,000 to the New Zealand Ministry of Social Policy. The company says it's installing 2,000 phones each week -- but that's a drop in the bucket compared with the number installed by established vendors such as Nortel and Siemens.

Revenue from all types of Internet telephony services is expected to reach $18 billion by 2004, according to market research firm IDC, a subsidiary of the same International Data Group that owns The Standard. But Cisco officials acknowledge that they have little idea of how companies will use Cisco's phones and its VoIP platform to deliver new applications to customers. And it's unlikely that Cisco will remain in the telephone-handset business for long: The new phones are designed to seed the market until other vendors start selling discounted Net-enabled devices.

What's more, the telecommunications companies that might be expected to adopt Internet-telephony technology and market it to their customers are hurting for cash. The downturn in the capital markets makes it difficult for even big telecom companies like AT&T and WorldCom to make major investments in new technology -- let alone upstart competitors like Level 3 and Global Crossing.

All of which means that, while revenue from voice-over-IP products might grow rapidly during the next few years, it will still likely contribute only a fraction of Cisco's total revenues.

During the next several months, Cisco plans to announce initiatives in a series of new markets, including faster content delivery over the Internet, optical networking and wireless Internet access. Although many of these technologies have been in development for a couple of years, the increased emphasis on such markets could be an admission that Cisco's core market -- selling routers, switches and other telecom equipment to telecom companies and Internet service providers -- is unlikely to replicate its runaway growth of the past few years.

With a share price in the teens, Cisco also finds it difficult to acquire the kind of upstart technology companies that have been the source of much of its expansion during the past decade. Many of those acquisitions were made using Cisco stock, which is now a debased currency. As a January report from CIBC World Markets puts it, Cisco "faces a difficult transition to internally driven growth."

To counter that impression, Cisco recently launched a Web site to publicize the new technologies that its engineers have developed within its walls. Such innovations, along with the voice-over-IP business and other new ventures, are aimed at one ultimate goal: driving more traffic onto the Internet and thereby boosting sales of the Cisco routers and switches that continue to make up the vast majority of the company's sales.

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DoCoMo to link I-mode with vending machines
(IDG.net)
Users will adopt wide range of handhelds
(IDG.net)
'Stinger' phone tests to begin
(PCWorld.com)
Sony thinks cell phones got game
(The Industry Standard)
Pay-per-use models ready for online business
(InfoWorld.com)
Y2K comes a year late for Cisco
(Network World Fusion)

Cisco Systems

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