Jan 12, 1998

Right around the corner?: The Internet fax market appears poised for substantial growth because it offers significant cost savings to business customers Erich Almasy and Catherine Kunkemueller

The Internet is about to transform the telephone business. Not because a few computer hackers or budget-minded consumers will start to make phone calls over the Internet, but because businesses will fundamentally shift the way they communicate worldwide-they will send their faxes over the Internet.

Internet faxing derives its enormous potential from the current, highly regulated state of telephony. Internet faxing leverages the generally unregulated and tariff-free Internet.

In a typical phone-to-phone application, an Internet telephony call consists of two local calls, with the middle distance carried across the unregulated Internet-free to the consumer. For calls that originate within the company, a local call is required only at the receiving end. And no local calls are required for intracompany calls.

Under any of these scenarios, the net result is substantially cheaper than the traditional alternatives that rely completely on the public voice network (Figure 1). For international calls especially, the savings can be dramatic (Figure 2).

A business basic The opportunity to bypass regulated telephony pricing with the Internet is creating quite a stir. Recent news articles are filled with exciting forecasts about sending and receiving voice calls over the Internet. However, naysayers point out that quality and reliability of voice over the Internet is too uncertain to actually replace POTS.

While low-cost voice calls may appeal to the budget-conscious consumer, businesses-which account for most of the domestic and the vast majority of international telephone traffic-may not be making Internet phone calls anytime soon. The average business caller cares more about having a high-quality connection than saving company money, regardless of the extent of the savings.

Fax, however, is different. Even businesses that cling to their high-quality voice connection will start converting to the Internet or to Internet protocol (IP) networks for faxes.

Faxes are a fundamental part of business communication. Faxes were originally developed in the late 19th century by the U.S. Army to send pictures over telegraph wires to distant forts. Faxes became popular in the early 1980s when Japanese consumer electronics manufacturing techniques made inexpensive fax

machines widely available. Businesses snapped up fax machines as an easy-to-use and inexpensive way to send and receive documents.

Even in today's so-called digital world, nearly 10 million analog fax machines are purchased every year. They join a 1997 installed base of 60 million machines worldwide. Faxing is a basic and essential part of conducting business.

The shift of fax transmission from the voice network to the Internet will save businesses money-and cause havoc for long-distance carriers. Today, fax traffic comprises $60 billion of the global long-distance market, or about 40% of the total.

The typical Global 1000 company spends almost two-thirds of its long-distance dollars on fax traffic. Even smaller businesses spend about 40% of their phone bill on fax. But, because faxes are buried in their phone bills, many companies don't know how much they spend on faxes and typically underestimate the potential benefits from fax network alternatives.

The proportion of fax traffic is even higher on highly profitable international routes. Indeed, faxes are the way much of the world communicates. For countries that use pictograms or pictorial-based languages, fax provides a bridge across language barriers. For example, 90% of all transmissions between Australia and China are faxes, according to the International Facsimile Consultative Council. Not surprisingly, these international voice routes also soak up the highest prices.

Telecommunications managers can save 35% to 45% on fax traffic by routing it as data over the Internet.

In some cases, data networks actually transmit faxes with better quality than voice lines. Internet faxes can be sent either via the PC or through a stand-alone fax machine, letting users send both computer-generated and printed material.

By 2000, New York-based Mercer Management Consulting estimates that Internet faxing should account for up to half of all international business faxes and nearly one-fifth of domestic long-distance faxes (Figure 3). That is a $10 billion market.

It also represents a direct transfer of traffic and revenue from the voice network-controlled and operated by local and long-distance telephone companies-to firms operating Internet and IP networks. No wonder so many telephone companies, such as Deutsche Telekom, are implementing IP network telephony options.

While cost savings will drive business managers to shift their faxing to the Internet, convergence will keep them doing it.

Faxes that flow over digital data networks can be integrated with e-mail and eventually voice mail. Speech recognition systems eventually may read faxes aloud to business travelers.

Internet fax may be the first meaningful step toward the long-awaited convergence of voice, data and image.