The past two years have been tough for Israel's VocalTec: revenue dropped from $41.9 million in 2000 to $28.4 million in 2001, and through three quarters of this year sales are $13.1 million. Despite this, the company expects things to improve as more carriers adopt VoIP, first along international routes and later in national and local networks. VocalTec Chairman and CEO Elon Ganor recently spoke with Network World senior editor Tim Greene about the prospects for service provider IP telephony.

How do you view U.S. carrier interest in voice over IP?

The advantages that VoIP provides are really in reduction of operating expenses. But in the times that we live, most companies are really looking for new sources of revenue and not necessarily just in reduction of operational expenditures and capital expenditures. So on domestic long-distance, we have not seen - we, the VoIP industry - a tremendous push within the country.

What we are seeing is that the initial drive is really in markets in which you see deregulation happening with new commerce coming in as competitive or alternative carriers. Moving forward we are starting to see applications such as prepaid calling cards and additional ones that can be done much easier, quicker and sometimes only on VoIP systems. So we are starting to see carriers that are looking at VoIP for substitution of traditional infrastructure. It's slow. It's not moving very fast, but it is moving. It is, without any doubt, coming.

When?

The vast majority of experts said by 2006 50% of the world's traffic would be using VoIP. I talked to carriers, the large carriers, and I can tell you that their view is about similar.

What will drive the major local carriers to VoIP?

[Regional Bell operating companies] with existing infrastructure (have) less need to compete for awhile because of the death of the competitive carriers. The urge to protect is not as strong as it was. On the other hand, though, you see that the fixed line guys are losing quite a bit on the traditional fixed line. SBC, I think, showed a 9% decline in the number of fixed lines in 2001. So the real competitor for them is the mobile.

If you want to compete against home lines with mobile phones, the only way to go is packetized telephony. It's a question of scalability, of gaining confidence that the softswitch-based systems can really replace traditional switches.