BORLAND: Are average users or businesses using these services yet?
PULVER: There are people who are starting to use it. There are some phone operators that are offering phone services over the open Internet where there's no guarantee of quality of service, no guarantee the call you just made is going to go through, but the price is so cheap that they figure, as offering the service, "Who's going to care if it doesn't always work?"

On the business side, there are people, I'm sure, in business who are using the technology, both for themselves in a PC-to-PC fashion, plus making their own investment in infrastructure to roll out their own gateways to interconnect their LANs and WANs so that they can go [with] IP-based leased lines or on the open Internet. But I don't think many business people are going to use a cheap long distance phone service just to save some money. I think that in business, it's critical that the calls initiated are completed. So, while you will see people experimenting with the technologies, if it's a sales call, the person who's going to make the call is going to use the highest grade possible call in order to make the sale.

BORLAND: Are there technical strides that need to be made before it can spread to businesses, or is it simply a matter of upgrading existing infrastructure?

"I'm looking at right now an active user base of between 100,000 and 200,000 people for a month using the technology on the open Internet."

PULVER: It's a combination of both. Certainly on my hot list of things that need to happen are improvements to quality-of-service guarantees. Directory services need to be worked on. We need to have a way to map a phone number to an Internet number back and forth and do it universally. And we need to have billing, accounting, and settlement systems so that those people who are offering services have a way to actually charge for them.

That doesn't mean that people are not going to use the technology. I'm looking at right now an active user-base of between 100,000 and 200,000 peopl, for a month using the technology on the open Internet.

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BORLAND: That's right now?
PULVER: That's right now. In parallel, we are seeing major investments from Wall Street into companies that are going to offer next-generation phone servers. And we're seeing investments from the carriers and ISPs to do IP-based phone services. Those things are taking off, but we're certainly a work in progress. There are times when it works great, and there are times when it doesn't.

"What Sen. Stevens is asking for is for all ISPs to pay access charges, so that people who are charging $20 a month flat, if they don't change their pricing structures, they're going to go out of business."

I recently testified in Washington at a bank hearing in front of the chairman and the commissioners [of the FCC]. My position is that the Internet telephony industry is growing, but it's not there yet, and don't regulate us. If today the worldwide minutes volume is something like $50 billion per telephony minute, the fact that IDT Corp., which has been very successful in promoting Internet telephony to consumers, posted earnings of 2.7 million last quarter, to me, while that's great for IDT, 2.7 million represents not even the rounding error, in a $50 billion-minute marketplace.

BORLAND: What are you worried about from the FCC? What specifically are they talking about?
PULVER: Specifically, Sen. [Ted] Stevens (R-Ark.), LCI [Communications], and Southwestern Bell Corp. have gone before the FCC and asked them to regulate Internet telephony. So that if you're an Internet service provider, among other things, they're going to want you to pay access charges and pay into universal service if you're offering an IP-based phone call.

BORLAND: What do you think this kind of regulation would do to the industry?
PULVER: Over a long period of time, I've come to the conclusion this will be regulated. It's just a matter of when. It's just the timing. If we could push this off for two or three years by working with the FCC and educating them that the industry should be nurtured, that's a good thing.

What will it do to the industry? It could result in people who invest in these next-generation telcos to lose their backing, especially if they're operating a business on rate arbitrage, and there's very little profits to begin with. Also, this could have a tremendous negative effect on ISPs. What Sen. Stevens is asking for is for all ISPs to pay access charges, so that people who are charging $20 a month flat, if they don't change their pricing structures, they're going to go out of business.

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BORLAND: I suppose the telcos' argument is that there's a lot of traffic going on here, and they see this as a free ride. Why isn't this?

"I'm looking by 2001, 2002, for somewhere between 15 to 30 percent of all voice traffic to be IP-based."

PULVER: Whether it's a free ride or not, let's face it: The telcos have seen tremendous revenue intakes from being able to sell second and third lines to the home as a result. And many of the telcos are also ISPs. So it's really a case of having your cake and eating it, too, and complaining about it.

BORLAND: If this is a potentially huge market, what's to start telcos from getting into the market themselves and quashing the little next-gens?
PULVER: In fact, you're starting to see that. I think around the world today it is, in fact, the major carriers, in Europe especially, that are providing leadership by rolling out the first wave of IP-based voice services.

BORLAND: Will there eventually be a role for the small IP telephone company?
PULVER: Perhaps. It depends on how innovative they are. This entire industry is disruptive. Now is not a time to be complacent. Each one of these opportunities to both service providers and equipment venders is a disruptive opportunity, and if it's not played right, they can lose. The small operators, if they're in the right niche, could become a multibillion dollar company. It seems to be timing. They could also be acquired by one.

BORLAND: Could you sketch out a time line for the adoption of the technology as it moves into the mainstream?
PULVER: We're starting to see it pick up this year, in 1998. Certainly I'm looking by 2001, 2002, for somewhere between 15 to 30 percent of all voice traffic to be IP-based. Some of this is going to be running on private IP networks, so you're not going to see it on the traditional public Internet. But we are seeing it also to the extent that Cisco and Lucent -- all the major players -- are successful in getting their products used. IP technology becomes an invented system in everyone else's switches and routers so that like it or not, this is what's being used to transport voice. So, I'm looking certainly in the next five to seven years for a significant shift in traffic from traditional PSTN [public switched telephone network] to IP-based.

BORLAND: Can you put a dollar figure on the size of that market?
PULVER: It's about a $2 billion market by 2002 for equipment sales.