Intelligence at the Edge #9


Internet telephony makes little niche in big international marketplace.

David's smiling face

By David S. Isenberg                                                                 amnetlogo

From America's Network, May 1, 1999

Internet telephony is illegal in Krazia, an actual country somewhere between France and India, but that didn’t stop Roderick Beck from building an Internet telephone company there. Today, Beck’s six-month-old underground telco, with a node in New York and one in Kraziville (the capital) is handling over 20,000 minutes a day. He recouped the $50,000 startup costs in the first eight weeks.

Beck’s interest in Internet telephony began when he was an AT&T employee working for AT&T’s chief economist. Beck tracked telecom growth rates to counteract AT&T business unit tendencies to generate pessimistic industry estimates that would make a unit’s own performance look good by comparison. In 1997, Beck brags, AT&T Chairman C. Michael Armstrong used his analysis to raise a key internal target, making unit executives work harder for their annual bonus.

One of Beck’s last AT&T assignments was to prepare a "competitive landscape" report. As Beck worked, his eyes bulged at the international impact of Internet telephony. To understand the technology and give depth to his report, Beck tried out many Internet telephony products and services.


The plan to start an Internet telco was hatched in a Greenwich Village coffeehouse, like many other revolutionary ideas. His Cappuccino co-conspirator, named F.S., was Krazian. F.S. was also an economist and an AT&T employee. Beck, son of an English literature professor, describes himself as "not particularly action-oriented," gravitating more toward Shakespeare and Joyce than skiing or baseball. Until that day, his interest in Internet telephony seemed academic. But F.S.’s Krazian ardor and caffeine-kicked persuasion convinced Beck "to take a risk for once — to make a difference."

Beck and F.S. immersed themselves, spending evenings and weekends exploring equipment, standards and vendors. They partnered with a major Internet telephony wholesaler because it agreed to send them traffic and more. Its bulk-purchasing power let them buy Cisco equipment at a discount. It fronted an interest-free loan. It would monitor their network at its U.S.-based operations center, and would send a monthly check for minutes delivered. In other words, Beck says, "the chemistry was right."

Over the next months, Beck and F.S. rented an office in Kraziville near the national Internet center, and recruited F.S.’s wife’s cousin, an engineering student, to run it.

Then they established an account with KTT, the national telecom monopoly. They leased a KTT data feed from the Internet center and ordered 60 lines from the Kraziville local exchange. So far, KTT has provided facilities with no questions. "All they know is that we’re a big customer," Beck says.

They get Krazia-bound traffic from their wholesaler via their 60 Hudson Street, New York, interconnection. Most of this is circuit-switched traffic from the biggest U.S. telcos, Beck says. Fortunately, KTT connections to the Internet are over-provisioned and very lightly loaded. The quality is so good that, "customers don’t know it is Internet telephony," he says. Most of the minutes the big telcos are sending originate as normal, high-priced international calls.

When they were ready to begin service, Beck told his AT&T boss that he had to quit, because he’d be competing against AT&T. His boss was sympathetic and AT&T was downsizing, so Beck left with a nice severance package, which he promptly rolled into his new telco.


Today, the tiny telco is flourishing, but Beck and F.S. live in fear that KTT will crack down. For this reason, they only handle inbound calls to Krazia. "If we were originating traffic, we’d be too visible," he says. "We’d be shut down." Internet fax is legal in Krazia, though, and Beck and F.S. are quietly applying for a license to originate fax traffic.

Beck and F.S. also feel the paranoia that comes when competition, even though illegal, is intense. "There must be 10 or 12 other underground operators," Beck says. "You are always playing the pricing game. There is no peace of mind."

Recently, Beck saw daily minutes drop from over 20,000 on Friday to about 6,000 the following Monday. "Another underground operator had dropped prices, and the major telcos switched," he says. In hasty conference, Beck and< F.S. decided to cut their own prices, too. Soon, traffic was back, but margins had become irrevocably thinner. "Ultimately, we’ll be happy with 10%," Beck says.

Beck and F.S. are planning another node in Krazia’s second largest city and they’re working with a moonlighting KTT employee to bring Internet telephony to a neighboring country. Meanwhile, Beck has found a new day job at a New York investment bank — he’s an international telecom analyst.

David S. Isenberg can be contacted at

Copyright 1999Advanstar Communications.