Level 3, Lucent To Build Voice-Over-IP Network

Level 3 Communications Inc. said yesterday that Lucent Technologies Inc. will be supplying software technology--known as "softswitch"--to create a network that will transport voice over IP, with the same quality that's available on the traditional circuit-switched public telephone network. The agreement is worth $250 million initially, but could grow to $1 billion over five years. With softswitch, calls will travel over Level 3's IP network, and when the quality of the call drops below a certain level, it will automatically be routed over the public network. "We will be able to deliver the much-talked-about promise of convergence based on IP telephony," says Rich McGinn, chairman and CEO of Lucent. In addition to integrated voice and data applications, that promise includes the ability for any software developer to write new networked voice and data applications. Traditionally, the phone network has been a closed system, and only the companies that make core networking technology are able to develop new applications. "It is an invitation to every entrepreneur to stretch their imagination and come up with a new way to provide the best of the Web and the best of telephony," says James Crowe, president and CEO of Level 3. And it will improve time to market. "We'll see new applications in Web speed instead of 12 to 18 months," McGinn says.

Crowe says the new infrastructure will reduce capital costs of creating its network by 40% to 60%, and that operating savings will be even greater.

Voice on the nation's networks continues to grow about 10% per year, while data grows several hundred percent per year, according to analyst Jeff Kagan. Voice traffic used to be dominant, but now data and voice traffic are about even. Kagan and other analysts say that at this rate, voice will shrink to 1% and data will explode to 99% of the traffic on the nation's networks in the next five years.