New York Times
   June 12, 2001

Microsoft Is Ready to Supply a Phone in Every Computer
By JOHN MARKOFF


   Microsoft's new Windows XP operating system for PC's goes further
   than ever before in commandeering the capabilities of the most widely
   used desktop tool in America: the telephone.

   The ability to use the personal computer as an "intelligent" phone has
   been viewed largely as a curiosity by the computer and
   telecommunications industries, not to mention by consumers. Internet
   telephony has mostly not been high quality, and conversations are
   frequently plagued with static and delays. It has also been difficult
   for computer telephone callers to find each other without inconvenient
   and sometimes costly third-party directory services.

   That is likely to change rapidly as Microsoft's new software prepares
   to exploit the next generation of the Internet, offering
   computer-based telephony with better-quality voice than before and
   with more powerful features than the traditional phone.

   And that has some high-technology executives wondering whether the
   telephone companies are going to be the next target in Microsoft's
   sights.

   Microsoft is preparing to include both high-quality telephone and
   directory features in Windows XP, which is scheduled to be
   commercially available on Oct. 25.

   Weaving improved versions of features Microsoft already offers, like
   online video meeting software and Internet voice chat, and integrating
   them with a more sophisticated version of the company's identity
   system, known as Passport, Microsoft asserts that it will transform
   the very nature of the telephone.

   In the future, not only will Internet telephone calls be higher
   quality than on today's telephone network, but the personal computer
   will offer new features like the ability to tell whether the person
   being called is at her desktop computer before the call is made and
   "follow-me" capabilities that let the network track a person's
   location whether she is at the desk, at home or reachable by cellular
   phone.

   One favorite voice and computer capability described by Microsoft's
   chairman, William H. Gates, is the ability to call a restaurant and
   have its menu pop up on a computer screen during the call.

   Moreover, Internet telephony may offer Microsoft powerful new revenue
   potential from subscription services, like Caller ID and voice mail,
   in which it will begin to compete with traditional telecommunications
   companies. The company has said that it is trying to generate new
   subscription revenue from all of its software products as part of its
   new Internet strategy, known as .Net.

   That new power has some of the company's competitors worrying that
   Microsoft is planning to steal revenue from the telecommunications
   industry in the same way it undermined competitors like Netscape in
   the software business by adding free features to its operating system.

   If telephone calling becomes a standard free feature of the Microsoft
   operating system, they say, it could bring huge changes to the
   telecommunications landscape.

   "Microsoft is going to suck the value out of the telecommunications
   companies," said David Isenberg, a former Bell Laboratories researcher
   who has written about the impact of the Internet on traditional
   communications networks. "Microsoft is going to do end-to-end Internet
   telephony, and they're going to do it right."

   For longtime experts on the communications and computer industries,
   Microsoft's move is not a surprise.

   "I don't think it's shocking at all," said Reed E. Hundt, a former
   Federal Communications Commission chairman who is now an adviser on
   information technology at McKinsey & Company and a member of the board
   of the Intel Corporation. "It's like predictions of earthquakes: you
   know it's statistically certain to occur, but it's still kind of
   rattling when it happens."

   Microsoft executives said that the company was discussing the
   relationship of Windows XP with telecommunications and Internet
   companies and that it might announce new alliances before it begins
   its operating system this fall.

   "I think it's highly unlikely that we will become a network carrier,"
   said Craig Mundie, Microsoft's senior vice president for advanced
   strategies. He acknowledged, however, that the company was looking to
   produce revenue from new telephone-based services. "To the extent that
   we can add a cool capability, maybe it's possible that we can make it
   a subscription service."

   That is likely to mean that the line between the telephone industry
   and Microsoft's emerging .Net Internet strategy will be increasingly
   blurred.

   Even if Microsoft does not become a network carrier, it presents a
   potentially formidable challenge to the regional phone companies.

   It is clear that the regional phone companies "wonder the same things
   the Netscapes have wondered: are they friend or foe?" said Brad
   Garlinghouse, chief executive of Dialpad Communications, an Internet
   telephony company in Santa Clara, Calif. "Any time you have a
   competitor with $20 billion to $30 billion in cash that's a scary
   proposition."

   Currently, to make a call from a PC to a telephone it is necessary to
   have a subscription with a third- party Internet telephony service
   like Dialpad or Net2Phone.

   But in the future, Microsoft competitors say, the software company
   will move to rely less on third-party providers and more on
   Microsoft's own emerging .Net software strategy, known as Hailstorm.

   Hailstorm is intended to aggregate a wide range of personal
   information, including buying habits, calendar and contact information
   as well as "presence" information. Whether a computer user is in front
   of the computer and available for calls or traveling in a foreign
   country is a piece of information that will be held by the company's
   network, raising privacy and competitive issues.

   Industry executives say the telephone companies have until now
   believed that voice over the Internet was a competitive threat that
   was in the distance and they are only beginning to awaken to the
   challenge.

   "The phone companies should be increasingly worried," said Andrew J.
   Kessler, a partner at Velocity Capital Management, a Silicon Valley
   investment firm.

   The phone companies themselves argue that they are very much aware of
   Microsoft's looming presence, but they argue that it will face
   obstacles entering their markets.

   "I think we've woken up to Microsoft," said David Nagel, AT&T's chief
   technology officer. "There is an enormous difference between putting a
   piece of software code in a box and having a working service."

   Microsoft's major current competitor in this realm, America Online,
   has voice features similar to those found in current versions offered
   by Microsoft, but has yet to announce any plans for an improved and
   integrated service of the type expected in Windows XP. AOL declined to
   comment on Microsoft's plans or its own.

   For Microsoft, the voice communications system is perhaps one of the
   best examples of how its legendary persistence can lead to the
   creation of a formidable capability that has long been dismissed by
   competitors.

   Microsoft has already begun shifting its focus to the personal
   computer as a hub of home services and entertainment. In recent weeks,
   ads for Microsoft's MSN online service have focused on the idea of
   shifting telephone conversations away from the home phone.

   In one commercial, a teenager who has had her phone privileges taken
   away by her mother jokes with a friend about her mother's not being
   aware that it is possible to have a voice conversation on the PC.

   The company began putting voice features in its operating system as
   long ago as 1996 with its Net Meeting program, with the idea of making
   voice, video and data collaboration possible. Now it will take that
   technology and integrate it with its Windows Messenger software and
   the .Net Passport service, creating a single consistent mechanism for
   using the computer as a telephone in Windows XP.

   "One of the things we were really committed to in Windows XP was to
   provide an integrated customer support mechanism," Mr. Mundie said.
   "Once we achieved that, it doesn't matter if you call Microsoft
   because you have a problem with Office or you call a friend" because
   all calling will be done in the same way.

   Consumer advocates are concerned about the Microsoft voice strategy.
   They say that both Microsoft and AOL are creating proprietary
   platforms for new voice services that will limit competition and hurt
   consumers.

   "This is extremely troublesome from the point of view of market
   competition," said Gene Kimmelman, co-director of Consumers Union's
   Washington office. "Consumers are not well served by two enormous
   fortresses. There needs to be more openness rather than less."


      Copyright 2001 The New York Times Company | Privacy Information


VICUG-L is the Visually Impaired Computer User Group List.
To join or leave the list, send a message to
[log in to unmask]  In the body of the message, simply type
"subscribe vicug-l" or "unsubscribe vicug-l" without the quotations.
 VICUG-L is archived on the World Wide Web at
http://maelstrom.stjohns.edu/archives/vicug-l.html