Announcements : News

We are deeply saddened by the loss of one of our own.

janderson — Mon, 29 Oct 2007 12:53:00 GMT

The Telephony Partners family was saddened to hear of the loss of one of our favorite agents, Amir Sarhaddi. He was killed over the weekend while attempting to assist during a traffic accident on I-75. He will be missed by all of us and our condolences go out to his wife and two children.

Car Hits, Kills Man Trying To Aid Crash Victims On I-75

By NICOLA M. WHITE and JOSH POLTILOVE, The Tampa Tribune

Published: October 29, 2007

BRANDON - Amir Sarhaddi couldn't just drive past the overturned Jeep and the smashed car.

It was not in his nature, friends said. When he saw the wreck early Sunday morning, he pulled his pickup into the emergency lane of southbound Interstate 75 and got out to help.

In doing so, the 29-year-old father of two became a victim himself.

Another driver who didn't see the wreck skidded into one of the smashed vehicles, veered to the left and hit Sarhaddi, according to the Florida Highway Patrol.

Sarhaddi, of Kempton Vista Drive in Riverview, died on the highway. His wife, Stacey, was in the pickup.

'He was a sole supporter of his wife and children, and now he's gone,' friend Georgette Deininger said.

'This was a great tragedy. He was a dear friend, father, husband and business partner.'

Charges are pending the outcome of the highway patrol's investigation. The drivers involved are being tested for impairment, Sgt. Rick Glover said.

Authorities say the wreck unfolded like this:

Shortly after 3 a.m., just north of the Gibsonton Drive exit, James S. Braley, 36, of Riverview, failed to notice the Jeep in front of him slow down.

His Infiniti hit the Jeep, flipping it over on the grass shoulder and into a tree.

Braley's Infiniti spun and blocked the right and right-center lanes, according to a highway patrol report.

Sarhaddi pulled his Dodge pickup onto the shoulder to help, as did another driver.

That's when a Saturn being driven by Jessica L. Paquette, 23, of Riverview, crashed into the Infiniti, hit Sarhaddi and struck the truck of the other driver who'd stopped to help.

Braley and the Jeep's driver, Perets E. Nisim, suffered minor injuries, and Paquette wasn't injured, the patrol said. The other driver who stopped, Jared Cason, 19, of North Port, also wasn't injured.

Although Sarhaddi's family was too shaken to speak about what happened, friends spoke fondly of him.

Business partner Gregg Alexander of St. Petersburg remembered Sarhaddi as a laid-back but hard worker who loved good audio equipment and playing Xbox video games with his 11-year-old daughter and 8-year-old son.

The descendant of Persian immigrants grew up in Tampa.

Alexander and Sarhaddi ran a telecommunications business, One World Communications, that designed and installed voice over Internet protocol technology for telephone and computer systems.

The pair had been in business for two years and had become friends.

'I'm hyper-antsy and jumpy. He's really laid-back. He took a little more relaxed approach,' Alexander said.

'I'm crushed. All I keep thinking about is his wife and kids.'

The partners were supposed to go to Ybor City's Guavaween celebration together Saturday night, but Alexander canceled after his girlfriend became ill.

He said he wasn't sure whether Sarhaddi and his wife were driving home from Ybor City when the accident occurred.

'He was just the ultimate in just talking to people,' Alexander said.

'He'd sweeten everything up and make everybody feel good.

'I couldn't have asked for a better partner or friend to go into business with.'

Reporter Jason Geary contributed to this report. Reporter Nicola M. White can be reached at nwhite1@tampatrib.com or (813) 779-4613. Reporter Josh Poltilove can be reached at jpoltilove@tampatrib.com or (813) 259-7691.

XO Eyes Greater Enterprise Roll

janderson — Wed, 10 Oct 2007 11:48:00 GMT

XO Communications announced new initiatives this week to expand its presence in the enterprise market, including a new enterprise sales and support organization, an enhanced network, recently expanded IP service offerings and targeted guarantees.

The new Enterprise Solutions Group (ESG) is focused on delivering products to help enterprises gain efficiencies and improve performance of their existing networks and emerging applications, XO said. The group will leverage the capabilities of XO’s nationwide and metro networks and IP networking solutions expertise to deliver high-speed network access, MPLS IP-VPN, IP telephony and network infrastructure and transport solutions to enterprise locations nationwide.

Tim Shaheen, who has been appointed vice president of enterprise sales, will lead the ESG. Shaheen has more than 17 years of telecommunications experience and comes to XO from Ciena Corp., where he was a director of enterprise and carrier sales.

XO also said it recently completed an increase in the capacity of its core network by 200 percent, deploying an additional 800gbps of capacity on major coast-to-coast routes across its nationwide 18,000 route-mile optical network.

The company expanded its IP services portfolio to support the requirements of larger businesses and enterprises with the launch of XO MPLS IP-VPN, XO SIP, XO One iPBX and IP Flex with XO MPLS IP-VPN. Some of services include a range of high-speed Internet access options; MPLS IP-VPN; broadband wireless solutions and Ethernet services; metro and inter-city network solutions and optical networking services; and IP telephony.

Supporting this enterprise growth strategy is the XO 3 Guarantee Program, which offers large enterprises price, installation and satisfaction guarantees for selected long-haul and high-capacity network services, the company said.

Federal Lawmakers Take Time Out for Telecom Policy Issues

janderson — Thu, 04 Oct 2007 11:58:00 GMT

Federal Lawmakers Take Time Out for Telecom Policy Issues

Phone+ Magazine Posted on: 10/3/2007

Congress appears to be taking a renewed interest in telecom issues. In the past week, two subcommittees have held hearings on special access, Bell forbearance petitions and copper loop retirement.

Sen. John Kerry, D-Mass., held the first hearing last week. He is chairman of the Small Business and Entrepreneurship Committee. Kerry wanted to examine ways to get high-speed Internet to more small businesses, as well as more Americans. Part of that hearing included an examination on the copper loop retirement debate. Many CLECs rely on Bell last-mile copper to reach their end users. If the incumbents continue doing away with that resource, CLECs will have to pay what they say are exorbitant access rates or lose the customers - many of whom are small businesses - altogether.

Senators heard from FCC Commissioners Michael Copps and Jonathan Adelstein, both Democrats. Each said it's crucial to re-define the speeds that constitute broadband ("The commission is still calling 200 kilobits per second ‘broadband,'" said Copps) and boost the United States from its low ranking in terms of worldwide high-speed Internet access.

Then, on Oct. 2, the House Subcommittee on Telecommunications and the Internet asked about the effects of special access deregulation as well as the granting of Bell forbearance petitions.

Executives from Time Warner Telecom, Sprint, Cavalier Telephone and XO Communications all testified to the "devastating" effects of these policies. Lawmakers also took input from AT&T Inc., Verizon Communications Inc. and Embarq. But it was the competitive community's insight that made the biggest difference, said Jerry James, interim CEO for COMPTEL.

"Members of Congress, both Democrats and Republicans, clearly recognize the need to overhaul the ‘special access' services market and to revisit the forbearance provision of the 1996 Telecom Act that is enabling Bell companies to remonopolize the communications industry," he said. XO's Heather Gold agreed. "The incumbent phone companies were rocked back on their heels today," she said. "Members of Congress were clearly not satisfied with the incomplete answers and erroneous data the incumbents provided to questions on access and forbearance."

Committee member Sen. John Dingell, D-Michigan, said he wanted all companies to provide market-share information, noting that it should be valid, not slanted to support a company's assertions.

"The FCC must have all the relevant data if it is going to make an informed decision," he said. "I am troubled by reports that those seeking re-regulation have thus far been less forthcoming than they might be with data about their facilities."

PAETEC Holding Corp. to Acquire McLeodUSA

janderson — Mon, 17 Sep 2007 12:54:00 GMT

Creates one of the largest nationwide competitive communications service providers with LTM revenues of $1.6 billion as of June 30, 2007. Forms nationwide platform with approximately 3.4 million access line equivalents in service. Adds network assets including 17,000 fiber-route miles;

Brings total combined switches to 116

Reduces combined company leverage

FAIRPORT, N.Y. and CEDAR RAPIDS, IOWA (September 17, 2007) – PAETEC Holding Corp. (NASDAQ GS: PAET) today announced that it has signed a definitive agreement to acquire McLeodUSA Incorporated, a privately held company, in an allstock merger for $557 million. The merger price consists of $492 million in PAETEC common stock and $65 million in net debt assumption. The company will become one of the largest nationwide competitive communications service providers focusing on business customers. With this acquisition, PAETEC adds an extensive fiber optic network and 18 states to its footprint, including such key markets as Dallas, Houston, Denver, Detroit, Phoenix, Seattle and Cleveland. The transaction creates a company with an estimated $2.7 billion enterprise value and is expected to produce cost synergies of approximately $20 million in the first year following the closing, and run-rate synergies of approximately $30 million during the second year post-closing. For the twelve months ended June 30, 2007, on a pro forma basis, the combined company generated approximately $1.6 billion in revenue and $263 million in Adjusted EBITDA1, including $30 million in synergies. The combined company expects to have approximately 3.4 million access line equivalents in service and a local presence in 47 of the top 50 Metropolitan Statistical Areas (MSAs) in the country in 2008.

"This transaction is squarely in line with our corporate strategy and positions PAETEC as one of the largest nationwide competitive communications providers serving business customers," said Arunas A. Chesonis, Chairman and Chief Executive Officer of PAETEC. "We’ll now have nearly 4,000 employees and we plan to increase our presence into 82 of the top 100 MSAs in 2008. With this combined footprint, we offer a compelling alternative to the legacy carriers. We have industry leading customer service, a comprehensive suite of business services and an extensive switching and fiber network with infrastructure including last mile capabilities. McLeodUSA’s management team of industry veterans has built a strong franchise, which we believe positions PAETEC to deliver substantial long-term value to our customers and shareholders." "This transaction validates the hard work of McLeodUSA employees, who built a strong carrier focused on the underserved needs of businesses," said Royce J. Holland, Chief Executive Officer, McLeodUSA. "I'm proud of what we've accomplished, and the combination with PAETEC offers us the ideal opportunity to accelerate our market penetration of high value integrated access customers to the benefit of our customers, employees, suppliers and partners."

McLeodUSA currently owns and manages one of the largest high-capacity fiber networks in the nation, spanning 20 Midwest, Southwest, Northwest, and Rocky Mountain states. This fiber network contains approximately 13,000 intercity route miles and approximately 4,000 metro route miles. The combined company will operate 77 traditional voice switching facilities and 39 IP soft switches. McLeodUSA has operations in 20 states, while PAETEC operates in 23 states and the District of Columbia.

Transaction Terms and Structure

Under the terms of the merger agreement, which was unanimously approved by the boards of directors of both companies, McLeodUSA will become a PAETEC subsidiary. Current McLeodUSA shareholders will receive 1.30 shares of PAETEC common stock for every share of McLeodUSA common stock they own. Approximately 40 million shares of PAETEC common stock will be issued to holders of currently outstanding McLeodUSA stock. PAETEC currently has approximately 102.1 million shares of common stock outstanding. McLeodUSA’s employee stock options, of which 2.7 million are outstanding, will be converted into options to purchase PAETEC shares, to the extent not exercised before closing.

The all-stock structure of the transaction is expected to enhance the combined company’s financial position by reducing PAETEC's ratio of debt to Adjusted EBITDA1 from the current level of 3.9x to an estimated ratio of 2.9x upon the closing of the transaction. McLeodUSA’s outstanding $104 million senior secured notes will be prepaid at closing.

"This transaction offers clear financial and customer benefits, including a significant deleveraging of our balance sheet and the potential realization of $30 million in annual combined cost and run-rate synergies," said Keith Wilson, Chief Financial Officer of PAETEC. "With McLeodUSA we add 26 of the top 100 MSAs that complement our existing footprint, a network that cost more than $2.5 billion when it was built, and a team of industry-tested managers and employees, all of which we believe will deliver immediate benefits to our customers."

Company Leadership and Headquarters

After the closing, Arunas A. Chesonis will remain Chairman and Chief Executive Officer of the company. Keith Wilson, Chief Financial Officer of PAETEC, and EJ Butler, Jr., Chief Operating Officer of PAETEC, will also remain in their respective roles. PAETEC will continue to be headquartered in Fairport, New York, and will maintain McLeodUSA’s operations in Cedar Rapids, Iowa, and other significant regional centers, including Charlotte, North Carolina. After the closing of the transaction, PAETEC’s current board of directors will add one director to be designated by McLeodUSA.

Approvals

The transaction is subject to approval by both PAETEC and McLeodUSA shareholders, the expiration or termination of the applicable waiting period under the Hart-Scott-Rodino Antitrust Improvements Act of 1976, approvals by state public service commissions in the states where the combined company will operate, and other customary closing conditions. The companies expect that the transaction will close in the first quarter of 2008.

Additional information about the transaction will be contained in PAETEC’s Current Report on Form 8-K to be filed with the SEC.

Advisors

Merrill Lynch & Co. is acting as financial advisor to PAETEC and Hogan & Hartson LLP is acting as legal advisor. Deutsche Bank Securities Inc. and Jefferies & Company, Inc. are acting as financial advisors to McLeodUSA and Ropes & Gray LLP is acting as legal advisor.

Conference Call

PAETEC will host a conference call with the investment community today at 11:00 a.m. ET. PAETEC Chairman and CEO Arunas A. Chesonis, Chief Financial Officer Keith Wilson, and Chief Operating Officer EJ Butler, Jr., will be participating, along with McLeodUSA CEO Royce Holland and Joe Ceryanec, McLeodUSA Chief Financial Officer. Listeners may dial-in to 866-825-3354 (617-213-8063 international), and enter the passcode 57376589. A live Webcast and replay of the call will be available at www.paetec.com.

About PAETEC

PAETEC (NASDAQ GS: PAET) is personalizing business communications for mediumsized and large businesses, enterprise organizations, and institutions across the United States. PAETEC offers a comprehensive suite of IP, voice, data and Internet services, as well as enterprise communications management software, network security solutions, CPE, and managed services. For more information, visit www.paetec.com.

About McLeodUSA

McLeodUSA provides managed IP-based communications services to small and medium-sized enterprises, and traditional circuit-switched telephony services to commercial customers in the Midwest, Rocky Mountain, Southwest and Northwest regions of the nation. McLeodUSA delivers a wide variety of broadband IP-based voice and data solutions, targeting primarily small and medium-sized enterprises and multilocation commercial customers. For more information, visit www.McLeodUSA.com.

Footnote 1: Adjusted EBITDA, which represents earnings before interest, taxes, depreciation, amortization, and other charges, includes $30 million of run-rate synergies and excludes $6.5 million of one-time costs associated with the US LEC acquisition.

Forward-Looking Statements

Except for statements that present historical facts, this release contains "forward-looking statements" within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934. In some cases, you can identify these statements by such forward-looking words as "anticipate," "believe," "could," "estimate," "expect," "intend," "may," "plan," "potential," "should," "will" and "would," or similar expressions. These statements, which include PAETEC’s forecasts of the combined company’s total revenue, adjusted EBITDA, merger-related synergies and other financial results, involve known and unknown risks, uncertainties and other factors that may cause the combined company’s actual operating results, financial position, levels of activity or performance to be materially different from those expressed or implied by such forward-looking statements. Some of these risks, uncertainties and factors are discussed under the caption "Risk Factors" in PAETEC’s 2006 Annual Report on Form 10-K and in PAETEC’s subsequently filed SEC reports. They include, but are not limited to, the following risks, uncertainties and other factors: changes in regulation and the regulatory environment; competition in the markets in which PAETEC operates; the continued availability of necessary network elements from competitors; PAETEC’s ability to manage and expand its business and execute its acquisition strategy, to adapt its product and service offerings to changes in customer preferences, and to convert its existing network to a network with more advanced technology; effects of network failures, systems breaches, natural catastrophes and other service interruptions; and PAETEC’s ability to service its indebtedness and to raise capital in the future. PAETEC disclaims any obligation to update publicly any forward-looking statements, whether as a result of new information, future events or otherwise.

Additional Information and Where to Find it

PAETEC Holding Corp. will file with the SEC a registration statement on Form S-4, which will contain a proxy statement/prospectus regarding the proposed merger transaction, as well as other relevant documents concerning the transaction. WE URGE INVESTORS AND SECURITY HOLDERS TO READ THE REGISTRATION STATEMENT AND PROXY STATEMENT/PROSPECTUS AND THESE OTHER DOCUMENTS WHEN THEY BECOME AVAILABLE, BECAUSE THEY WILL CONTAIN IMPORTANT INFORMATION ABOUT PAETEC, MCLEODUSA INCORPORATED AND THE PROPOSED TRANSACTION. A definitive proxy statement/prospectus will be sent to PAETEC’s stockholders seeking their approval of the transaction and to security holders of McLeodUSA Incorporated. Investors and security holders may obtain a free copy of the registration statement and proxy statement/prospectus (when available) and other documents filed by PAETEC with the SEC at the SEC’s web site at www.sec.gov. Free copies of PAETEC’s SEC filings are available on PAETEC’s web site at www.paetec.com and also may be obtained without charge by directing a request to PAETEC Holding Corp., One PAETEC Plaza, Fairport, New York 14450, Attn: Investor Relations.

PAETEC and its directors and executive officers may be deemed, under SEC rules, to be participants in the solicitation of proxies from PAETEC’s stockholders with respect to the proposed transaction. Information regarding PAETEC’s directors and executive officers is included in its annual report on Form 10-K filed with the SEC on April 2, 2007. More detailed information regarding the identity of potential participants and their direct or indirect interests, by securities holdings or otherwise, will be set forth in the registration statement and proxy statement/prospectus and other documents to be filed with the SEC in connection with the proposed transaction.

AT&T expands services in Middle East

janderson — Wed, 12 Sep 2007 13:06:00 GMT

AT&T expands services in Middle East
LM Ericsson has selected AT&T to provide an advanced VPN across the Middle East

By Grant Gross, IDG News Service

September 10, 2007

AT&T is pumping up its services in the Middle East by expanding its network in the region and building up its local presence there, the company announced Monday.

In addition, Telefonaktiebolaget LM Ericsson has selected AT&T to provide an advanced VPN (virtual private network) across the Middle East, AT&T said.

An AT&T network node being deployed in Jeddah, Saudi Arabia, in cooperation with Saudi Telecommunications and NavLink is expected to be operational by the end of the year, AT&T said. AT&T owns a minority stake of NavLink.

Data infrastructure from AT&T will allow AT&T and NavLink customers to directly connect to Saudi Telecommunications' nationwide MPLS (Multiprotocol Label Switching) network, which is the largest in the Middle East.

AT&T will also deploy a new global network node in Kuwait, with cooperation from QualityNet, a local provider of data networking services. The companies will work with NavLink to activate MPLS node during 2008, AT&T said.

QualityNet will host the global network node and allow AT&T to offer VPN services to Kuwaiti customers seeking global connectivity and to AT&T's existing multinational customers seeking to expand in the Middle East.

AT&T currently has network facilities operating in the United Arab Emirates and Qatar. These expansion are part of AT&T's $750 million global investment program announced earlier this year.

In the coming months, AT&T plans to hire more sales and support employees in Dubai, it said.

In the Ericsson deal, worth $6 million, AT&T will provide VPN services to support Ericsson's growing business activities in Qatar, Bahrain, Kuwait, Jordan, Saudi Arabia, Lebanon, Oman, and the United Arab Emirates. The agreement builds on a relationship between the two companies in which AT&T provides network services to Ericsson's business in Europe, the Middle East, Africa and the Americas.

The key requirements for the deal included a reliable network, a comprehensive service level agreement and speedy implementation, Carl-Magnus Månsson, chief information officer of Ericsson, said in a statement.

Inc. 500 Lists Tout Telecom Companies

janderson — Tue, 04 Sep 2007 17:58:00 GMT

Inc. 500 Lists Tout Telecom Companies

By: Cara Sievers

Inc. Magazine revealed its 26th annual list of America's 500 fastest-growing private companies last week, and the list shows telecommunications as one of the top growth industries.

The telecommunications category of companies grew by 1,056.5 percent on average, making it one of the top five most notable median growth categories, preceded by environmental services, food and beverage, and media and health. The largest business category is IT Services, with 56 Inc. 500 companies listed.

Cedar Point Communications, a provider of integrated VoIP switching technologies for the service provider and enterprise industries, was the sole telecommunications company in the top 10. Cedar Point was recognized as the second-fastest growing private company and the fastest growing private telecommunications company in the United States, with a revenue growth rate of 14,853.3 percent from 2003-06. In addition to being named to the top spot in telecommunications, Cedar Point also was named as the No. 1 company in two other categories: Companies Intending to Go Public, and Companies in the Boston-Cambridge-Quincy, Mass., and New Hampshire region.

"Our growth over the past several years has been a testament to the vision of our founding team, the hard work of our employees and the loyalty of our customer base," said Andy Paff, president and CEO of Cedar Point Communications. "We're pleased to have been recognized in a leadership position among private industry, and are grateful to the Inc. 500 team for their consideration."

Gracing the Top 10 Inc. 500 Companies Ranked by Revenue list was Granite Telecommunications. Granite reported revenue of $206.6 million and was ranked as No. 296 on the list.

Telecom was present throughout the various categorical designations as well. Companies like Credant Technologies (No. 15 on the list), a company that provides authentication software that protects mobile computing devices such as smartphones and laptops, appeared in the security category, which was chock full of telecom-related companies. And in the software section, companies like Five9 (No. 136), which makes Web-based software for small and midsized call centers; and BroadSource (no. 385) which provides hosted software and data processing services to help midsize companies track and manage their voice, data and wireless spending.

There were 24 companies categorized as telecommunications on the Inc. 500 list. They employed a total of 2,448 people and boasted a total revenue of $689.9 million. The named companies were:

Cedar Point Communications, No. 2

Santur, No. 12

Ethertronics, No. 52

Broadband National, No. 57

MDI Access, No. 64

GotVMail Communications, No. 66

Rizzo Consulting, No. 98

InnoPath Software, No. 102

Southern Light , No. 151

User Telecommunications & Technologies, No. 165

Genband, No. 194

Bandwidth.com, No. 201

Integrity Communications, No. 204

GetWireless, No. 248

Host.net, No. 251

Granite Telecommunications, No. 296

5Linx Enterprises, No. 336

VoIP Supply, No. 359

TeleSource, No. 405

Adex, No. 425

IneoQuest, No. 427

Masergy, No. 437

Vcom Solutions, No. 445

Vocera Communications, No. 462

This year Inc. expanded the Inc. 500 list tenfold, to create the first-ever Inc. 5,000, the most comprehensive look at the most important segment of the economy - America's independent-minded entrepreneurs.

Of course, telecom companies were represented on the list, including CornerStone Telephone Co. at No. 736 with three-year sales growth of 458 percent. CornerStone was listed as the third-fastest telecommunications company in New York and the 34th fastest-growing in the United States.

"We are proud to have made it on the first Inc. 5,000 list," said Dan Yamin, co-founder and CEO of CornerStone Telephone Company. "Our goal was to make it to the top 1,000, which we exceeded and we hope our growth in 2007 will place us further up on the list in 2008."

The 2007 Inc. 500 lists measure revenue growth from 2003 through 2006. To qualify, companies had to be U.S.-based and privately held, independent - not subsidiaries or divisions of other companies - as of Dec. 31, 2006, and have had at least $200,000 in revenue in 2003, and $2 million in 2006.

Time Warner Telecom Takes Off

janderson — Thu, 09 Aug 2007 18:39:00 GMT

Time Warner Telecom Takes Off
Evelyn M. Rusli, 08.08.07, 4:40 PM ET

Time Warner Telecom is still in the red but that didn't stop investors from snapping up shares on Wednesday.

Shares of the telecommunications services company took off in afternoon trading, after the company reported that its second quarter loss narrowed. The stock surged 24.9%, or $4.19, to $21.02.

The company said its quarterly loss shrunk to $9.6 million, or 7 cents a share, versus a loss of $40.4 million, or 34 cents a share for the year ago period. Meanwhile, sales climbed 40.1% to $268 million from $191.3 million. The results were largely in-line with analysts' predictions--the Street expected a loss of 8 cents a share and revenues of $267.7 million.

The solid quarter provided some relief to investors, who were concerned about the integration of its newly acquired unit, Xspedius. So far, so good, according to Morgan Stanley analyst Vance Edelson. In a Wednesday research note Edelson said: "The company appears back on track operationally, demonstrating accelerating enterprise growth and making significant progress integrating Xspedius."

Edelson maintains an "overweight" rating on the stock because of the company's "attractive growth prospects."

Momentum certainly seems to be building in Time Warner Telecom's favor.

The company's enterprise sales grew 5%, up from 4% for the previous quarter. On a year-over-year basis, the unit, which now makes up 68% of the company's total business, grew 57%. In addition, on a continuing operations basis, its data and internet business grew 7% in the quarter and 30% on a year-over-year basis. Meanwhile, margins also improved in the period.

"Margins were right in line at 31%, and better than expected at 32% if adjusted for the branding expense," Edelson said. The margins are expected to return to pre-acquisition levels, a 35 to 36% range, by next year.

A Phone System Your Small Company Can Afford

janderson — Fri, 03 Aug 2007 14:22:00 GMT

A Phone System Your Small Company Can Afford
Scott Koegler 05.11.07, 5:37 PM ET

Companies of any size need a worthy phone system. At its heart is something called a private branch exchange, or PBX, that delivers the dial tone, routes incoming telephone calls to the correct extensions, and provides features such as voice mail, call forwarding, conferencing, voice recognition and more.

A PBX isn't cheap--and that puts smaller operations that can't afford one at a significant disadvantage. Enter "hosted" PBX, which aims to let small shops communicate just like their bigger competitors.

The advent of Internet-based telephone services, such as Voice over Internet Protocol, has reduced the cost of single-line services. And the ability to make unlimited long-distance calls over VoIP connections has made it possible for employees working in different locations to keep in touch as often and for as long as necessary. Even so, the features that office-based workers take for granted in their enterprise phone systems may be out of reach for smaller organizations.

A typical PBX consists of a set of external phone lines, a centralized server system, a set of internal phone lines, and a console from which all connections are manually configured. Traditionally, a PBX's nerve center and its thick tangle of cables reside on a patch board in a closet. Not so with hosted PBX.

Now, a single, high-performance PBX can be located anywhere in the world and connect its users across the Internet. This provides greatly increased economies of scale so that thousands of users can share the expenses of a single sophisticated PBX. Beyond the ease of installation and maintenance, most hosted PBX systems come with advanced features, such as connection via a personal computer ("click-to-call"), automatic call recording and even integration with customer management software. And you get all of this for perhaps 25% of the price of hardware-based solutions.

This new breed of hosted PBX services is now able to deliver the same levels of service and features through VoIP connections to organizations as small as two employees. And not only can these systems support small work groups; companies also can add users whenever and wherever they need by simply adding a user account to their virtual PBX and connecting a VoIP telephone to the user's high-speed Internet connection.

Diversity Of Offerings

The other nice thing about these systems: Customers can configure nearly all aspects of their phone services. These functions can include adding users, setting up call routing, establishing call restrictions and permissions and reviewing call logs. Each of these functions would normally be part of an organization's PBX system. The difference here is that the management functions are handled through a Web browser rather than at a console connected directly to the PBX.

Selecting A PBX Service

When shopping around, compare the features offered and determine what is standard and what is optional. Find out how features are added: Can you simply click an option in a Web browser or will you need to change your service offering entirely?

Also check to see whether you will need to install any hardware other than the phones themselves. Some systems require just phones; others allow you to use only the phones supplied by the company. Still others require an additional piece of equipment.

Before you can set up the specifics of your PBX, you need to establish an account with your chosen provider. Your account may include fewer or more features, depending on your contract and the capabilities of the service provider you choose.

Qwest Earnings Double

janderson — Wed, 01 Aug 2007 16:54:00 GMT

Qwest Communications International Inc. posted second-quarter earnings Wednesday that more than doubled from the same period last year.

The Denver-based phone company said net income was $246 million, or 13 cents a share, compared with $117 million, or 6 cents a share, during the second quarter in 2006. It was the sixth consecutive quarter Qwest netted a profit.

Qwest did miss analyst expectations, though, sending stocks down in morning trading. Analysts had been estimating that the company’s net income would be 14 or 15 cents a share. Qwest shares were down 2.1 percent to $8.35.

The quarterly earnings were strengthened by cost-cutting efforts that helped counter fewer phone customers and weak sales.

The company said it has completed of its $2 billion share buyback plan and has eliminated $356 million in debt. Qwest also said it cut its operating costs by 4.2 percent to $2.93 million.

Its landline numbers dropped 7.1 percent and total residential lines dropped 6.1 percent. Wholesale revenue was down less than 1 percent, Qwest said.

The company did add 100,000 broadband customers and bundle penetration increased 60 percent.

Revenue declined slightly from $3.46 million from $3.47 million in 2006.

XO Increases Capacity of Core Network, Extends Incentive Program

janderson — Mon, 30 Jul 2007 21:13:00 GMT

XO Communications said Monday it has increased the capacity of its core network by 200 percent by deploying an additional 800gbps of capacity on major routes across its18,000 route-mile optical network.

The company also said it has extended the availability of its 3 Guarantee Program, which offers carriers, cable companies, content providers, enterprises and wireless companies incentives to leverage its transport platforms, including Ethernet, IP transit and wavelength services.

XO will light two new fiber strands on its nationwide fiber network adding 800gbps of capacity in core network nodes, which will deliver an additional 80 10gbps channels on major coast-to-coast network routes. XO has contracted with Infinera Corp. to implement the upgrade using the Infinera DTN system.

XO implemented the Infinera system last year with the initial expansion of its network.

Under the 3 Guarantee Program, XO said it will offer best price and install guarantees and a 90-day trial for its services.

PAETEC Offers Data Backup, Dedicated Server and Web Hosting Platforms

janderson — Wed, 25 Jul 2007 17:58:00 GMT

07/25/2007

PAETEC Holding Corp. has announced the availability of its data backup and recovery, dedicated server and Web hosting platforms.

The PAETEC data backup and recovery product provides businesses with a secure, automated off-site server backup, which copies data to two data centers over a customer’s Internet connection. Recovering data can be made from the Web-based control console, allowing on-demand restoration.

The company’s dedicated servers are housed in a PAETEC owned and operated data center with generator and battery-backed power, network access and power grids, and 24/7 monitoring and staffing.

Web hosting lets businesses develop an Internet presence without their own Web servers or the IT resources required to host it themselves. All Web hosting packages include disk space, data transfer, an exclusive domain name and e-mail/Web-mail capabilities.

The above solutions also can include PAETEC’s MPLS VPN, SIP trunk and network firewall services. They are all available through the company’s agents.

PAETEC Holding Corp. www.paetec.com

The Future of Sprint's Fixed-Line Business

janderson — Tue, 24 Jul 2007 13:01:00 GMT

Research

Publication Date: 11 May 2007 ID Number: G00148185

The Future of Sprint's Fixed-Line Business

Eric Paulak

Sprint has so de-emphasized the fixed-line portion of its business in the way it sells, funds and markets the services that we believe it will turn it into a cash generator or sell off at least a portion of it. As a result, enterprises must re-evaluate how they should use Sprint's fixed-line services going forward. However, Sprint should still be considered for all its wireless services.

Key Findings

• To increase revenue, Sprint is focusing on its largest business customers and those with expanding mobility needs, instead of trying to compete head-to-head with AT&T and Verizon.

• We expect further cost-cutting as Sprint struggles to maintain margins, market share and shrinking revenue in its fixed-line business. It will instead invest in new WiMAX wireless services, in the EVDO network, and in maintaining its established wireless networks, including the iDEN network.

• Sprint's overall investments in its fixed-line business have fallen behind the market, and it is unlikely to catch up without acquiring a competitor — although we do not think this is likely.

Recommendations

• Large enterprises should not consider Sprint for stand-alone, international services, but rather only as part of a domestic deal.

• Existing Sprint wireline customers should not leave Sprint. Instead, they should add a second provider to act as a backup, as we recommended when other carriers have gone through significant transitions.

• Non-Sprint wireline customers should still consider Sprint as a leading provider of IP data services, but should also include a backup provider.

• Because of the difficulties in changing from one managed service provider to another, large enterprises should not consider Sprint's managed fixed-line services at this time.

• All enterprises should consider Sprint for its mobility services, along with AT&T and Verizon.

WHAT YOU NEED TO KNOW

Because of its single-minded focus on wireless and mobility services, we believe that Sprint will sell off at least a portion of its fixed-line services by 2009. Even if it does not, it has still underinvested in fixed-voice, managed and international services, and is behind its competitors.

Sprint is not likely to catch up to them during the next two years without a significant acquisition, which we think is extremely unlikely given its focus on wireless. Therefore, enterprises should only use Sprint's fixed-line services tactically or as a backup to other providers.

STRATEGIC PLANNING ASSUMPTION(S)

By 2009, Sprint will sell off a least a portion of its consumer and/or business fixed-line network service business (0.7 probability).

ANALYSIS

Ever since the breakup of the Bell System in 1984, the U.S. long-distance market has been dominated by three companies: AT&T, with its declining market share, and MCI and Sprint as its principal competitors. Even with the wave of mergers, AT&T, Verizon Business (MCI's successor) and Sprint were still considered the three leading, nationwide providers.

However, this assumption is no longer valid. Qwest has more fixed-business revenue than Sprint. Companies with more than $1 billion in business service revenue, and that are growing faster, include Level 3, Global Crossing and XO Communications. Because of its overriding focus on wireless services, Sprint is no longer one of the top-three fixed-service providers. We also believe that it will sell off all or part of its fixed-service business during the next two years.

Wireless Focus

Sprint earned $41 billion in 2006 revenue, and 86% of that amount came from wireless voice and data services; 14% comes from the fixed-line side. Sprint's wireless services also accounted for most of the company's profits, with operating margins of 10.1% for wireless vs. 6.7% for wireline. With these numbers, it makes perfect business sense for Sprint to focus on its wireless division.

As a result, wireless also dominated 83% of capital expenditures in 2006, and we expect that this number could be as high as 93% in 2007 as Sprint continues to support the Nextel iDEN network, further roll out its Evolution Data Optimized services, and launch its mobile WiMAX services.

Sprint's wireless business is not perfect, however. The company struggled with wireless customer churn in 2006 and had the lowest net add-ons of the top four carriers. At the same time, a significant percentage of its new wireless subscribers aren't direct Sprint subscribers; rather, they are coming in through wholesale deals with Virgin and Qwest. Sprint is still a leader, however, with its managed mobile application services. Many of its new investments are designed to shore up and grow these services.

Wall Street and Investor Pressure

Sprint is no longer classified as an integrated communications provider by most Wall Street analysts. It is strictly viewed as a wireless service provider. As such, it has still underperformed on its wireless services compared with those of integrated communications providers, such as Verizon and AT&T. This has led to increased pressure on Sprint to improve such areas as new subscriber additions and the increasing average revenue per user.

Because of this increased pressure, several Wall Street firms have said that Sprint must invest more in its wireless operations and, in several cases, Sprint investors have called for it to sell off its fixed-line business to do that. We do not believe this pressure will decrease until Sprint shows better performance in its wireless services, compared with its competitors. As a result, we do not expect the investment focus to shift from wireless to wireline during the next two years.

Lack of Wireline Focus

Sprint has said that it only wants to target two types of customers: companies that need mobility services and companies that need strategic services. Sprint has given mixed messages as to what the latter category really is, ranging from IP data-only customers to big revenue customers.

Sprint is at risk of losing revenue from its biggest customer — the U.S. government — because Sprint lost the Networx Universal Contract bid. We do not think this lack of wireline focus is new.

During the past five years, Gartner estimates that Sprint only spent about 7% of its revenue on fixed-line capex, whereas its competitors spent between 11.2% and 17.4%, and the average is between 10% and 12%. We consider 7% to only be at a level to sustain the business, but not to competitively add new services and grow it. Sprint has increased funding during the past year, but it is still behind overall. Below are specific views on Sprint's position in different wireline areas.

• Legacy services — Sprint has said that it has no interest in selling or investing in standalone voice offerings. As a result, it sold off its conferencing business in 2006. Sprint has also said that it is no longer actively marketing consumer voice services. These decisions, along with strong price competition, led to a 23% decrease in retail voice revenue in 2006. This means that Sprint's $1.4 billion in business voice revenue is at risk because it doesn't want to continue with legacy voice services, and it is not fully investing in new voice over IP (VoIP) alternatives. On the data side, Sprint has declared year-end 2008 to be the end date for its legacy frame relay and asynchronous transfer mode services. This again puts $906 million in revenue at risk because Sprint will force most customers to migrate off these networks during the next year and a half. Our concern is that with the forced shift to the IP data service, companies that are late to migrate off their legacy services could see a deterioration in support and likely price increases.

• International services — At one time, Sprint had a significant global wireline network, and where it did not have services, it partnered with Deutsche Telekom and France Telecom in the Global One venture. With the demise of that venture, most of Sprint's capabilities ended up with what is now Orange Business. As a result, 99% of Sprint's assets are in the U.S., accounting for 95% of Sprint's revenue. Sprint has expanded its service-level agreement coverage for international services via partners, such as Orange Business, NTT and Rogers Communications, but aside from that, it has limited plans to expand internationally. We have seen with Sprint and other carriers that the more you rely on one-off partnerships, the harder it is to manage the services, and that is the reason for our concerns about Sprint's global offerings.

• New IP offerings — When the world's carriers were rolling out their Multiprotocol Label Switching (MPLS) services, Sprint was offering a Level 2 Tunneling Protocol as its primary IP data service. Sprint corrected that error with its own MPLS service and it has continued to grow, reaching 28% year-over-year growth in the first quarter of 2007. This is mainly because Sprint's MPLS offering is more flexible and typically less expensive than many of its competitors' offerings. Sprint's data portfolios currently lack Ethernet capabilities, but the company plans to partner with cable companies to offer Ethernet services in 25 U.S. markets by year-end 2007. Thus far, the cable companies have not been strong Ethernet providers.

On the voice service side, Sprint is behind the market. AT&T and other carriers have rolled out their toll-free VoIP services, and have had IP and SIP trunking services; but Sprint has not even started investing in inbound VoIP, and will only have the trunking services in thirdquarter 2007 and fourth-quarter 2007.

• Managed services — Sprint has been trying to expand its managed-service offerings. We estimate that about 20% of Sprint's data services are sold as managed services, compared with 32% for AT&T, 12% for Qwest and 40% for Verizon Business. So far, however, most of Sprint's efforts have been tied to its mobile application offerings, not the traditional voice and data areas.

Sprint could correct some of these deficiencies by acquiring a competitor, but that is unlikely due to its focus on wireless services and Wall Street's pressure to focus on wireless. As a result, any improvements will have to come from new or expanded partnerships.

What Is Likely to Happen

Because of its single-minded focus on wireless and the increased Wall Street pressure, by 2009, Sprint will sell off its consumer and/or business fixed-line network service business (0.7 probability). There is some speculation by Wall Street analysts and industry pundits that Sprint will try to sell off its fixed-line network as well; however, we do not believe this will happen for two reasons:

• There is too much backbone capacity. The demand is in metropolitan networks, and Sprint has none. Therefore, there is not enough value in its network.

• Sprint gets a low cost for backhauling its wireless traffic over the fixed-line network. Although it could get this capability from another provider, it would not have the owner's economics of the network, and as wireless data use increases, backhaul demand and costs will also increase.

The list of possible buyers of Sprint's fixed-line business is large. The most probable buyers and the impact of such a deal, include:

• Investment firm — If Sprint does not try to sell off its fixed-line assets, then a large investment firm is likely to buy the company and split it up by selling pieces to some of the buyers below.

• Cablecos — Sprint already makes about $1.8 billion in wholesaling voice services — a significant amount of that coming from cable companies (cablecos), such as Comcast and Cox Communications. The cablecos could benefit from growing their consumer customer bases and lowering the cost of their voice services. Many cablecos have been trying to expand their business services; therefore, buying Sprint could be beneficial in this area. If a cableco buys Sprint's business services, be cautious when choosing it, because cabelcos mainly focus on local fiber offerings, not nationwide network services.

There is also the possibility that a cable company could buy all of Sprint to gain access to the wireless services. This is similar to the reason why AT&T bought BellSouth — to gain full ownership of Cingular.

• Second-tier carriers — Any carrier, from Qwest to XO Communications to Level 3, could benefit from expanding its customer bases and gaining greater economies. Level 3 (especially) has been expanding its retail customer base through acquisitions during the past year. Any one of these companies could turn itself into the leading competitor of AT&T and Verizon with such a deal, and enterprises should consider what a potential new company for fixed-line services might be like.

If Sprint exits the fixed-line business, we expect it to offer its WiMAX solutions as an alternative wherever it can. Where WiMAX does not meet networking requirements, Sprint will partner with other fixed-line providers (such as the cablecos with their Ethernet services, and system integrators) to offer a bundled solution for companies that want more than Sprint's wireless offerings.

Sprint says that it is committed to its fixed-line business and has no plans to sell it off. Sprint points to its IP data services and some plans for expanded marketing as proof of that commitment. However, we believe that external and internal forces will make that commitment increasingly difficult to maintain. Even if Sprint does not sell off its fixed-line services, because it has underfunded its business and fallen behind its competitors, we do not believe it will catch up without major changes.

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Level 3 Acquires Servecast

janderson — Wed, 11 Jul 2007 21:06:00 GMT

Company Expands Portfolio with Video Management and Streaming Services to Enable Formatting and Delivery of Content to the Internet

DUBLIN, Ireland, July 11, 2007- Level 3 Communications, Inc. (NASDAQ:LVLT) today announced that its operating subsidiary has acquired Servecast Limited, a Dublin-based provider of live and on-demand video management and streaming services for broadband and mobile platforms. Level 3 has paid approximately €33 million, the equivalent of approximately $45 million, in cash to complete the acquisition of Servecast.

Founded in 1998, Servecast offers proven publishing and distribution tools for video rights holders to monetize their digital assets. These tools enable customers to manage, protect, deliver and track online audio and video content. Servecast provides an easy-to-use platform that supports multiple stream rates, languages, currencies and formats, including Adobe Flash™, Real Player™, Windows Media Player™ and Apple QuickTime™. Servecast’s capabilities have been developed for easy adaptation to emerging video formats and other content delivery technology.

“Servecast’s video and rights management platform, combined with its streaming services complement Level 3’s existing portfolio of content delivery capabilities,” said Brady Rafuse, president of Level 3’s Content Markets Group and European Markets Group. “The addition of these services accelerates our planned development of this technology. These capabilities will enable us to manage and distribute online video content in multiple formats to meet the increasing demand for high-quality video over the Internet.”

“We are excited to be joining Level 3,” said Darach Deehan, chief executive officer of Servecast. “We believe Level 3’s scale and capabilities across Europe and North America will provide our customers an important opportunity to access new markets.”

“We are confident in our ability to continue offering Servecast’s customers high-quality service as we incorporate these key capabilities into our portfolio and expand the availability of these services to additional markets in Europe and into new markets in North America,” said Rafuse. “This is a strategic capabilities acquisition that does not require the type of physical integration associated with our larger, previously announced metro and backbone transactions.”

Level 3 plans to maintain Servecast’s headquarters and broadcast operations center in Dublin, as well as its data centers in London and Amsterdam. Servecast’s existing streaming server sites throughout Europe and North America will also be incorporated into Level 3’s Content Delivery Network.

Servecast had approximately $5 million in annual revenue for 2006. IBI Corporate Finance advised Servecast in relation to the transaction.

U.S. lags behind other nations in broadband speeds

janderson — Wed, 27 Jun 2007 13:12:00 GMT

A recent survey has found that the U.S. is behind many other nations in broadband speed, access, and affordability

By Linda Rosencrance, Computerworld, IDG News Service

June 25, 2007

The U.S. is lagging behind other industrialized nations in the availability and use of high-speed broadband connections according to a report released today by the Washington-based Communications Workers of America.

The report, based on aggregated data from nearly 80,000 broadband users, found that the median real-time download speed in the U.S. is 1.9 Mbps, compared with 61Mbps in Japan, 45Mbps in South Korea, 17Mbps in France, and 7Mbps in Canada.

The report is based on data collected through the speed test at SpeedMatters.org, a CWA project launched last September "to help bridge the digital divide and keep America competitive by encouraging the government to adopt national policies to bring about universal, affordable high-speed broadband access for all Americans, no matter where they live." The CWA is a labor union with a membership of more than 700,000 in fields like telecommunications, media, manufacturing, health care, and aviation.

According to the report, the U.S. is 16th in the world in deployment and availability of high-speed networks.

"Speed defines what is possible on the Internet. Speed determines whether we will have the 21st century networks and communications necessary to grow our economy and jobs," said CWA President Larry Cohen. "It's clear that other nations -- all of our economic competitors, in fact -- have made the decision to promote true high-speed networks. The longer we delay, the more we put our economic growth at risk."

The CWA said it supports many of the provisions in the Broadband Data Improvement Act, a bill introduced in May by Sen. Daniel Inouye (D-Hawaii). The legislation would require the collection and evaluation of data on broadband deployment, an upgraded definition of "high speed," and grant programs for states and local communities to conduct their own broadband mapping.

"The first step in an improved broadband policy is ensuring that we have better data on which to build our efforts," Inouye said at the time. "In a digital age, the world will not wait for us. It is imperative that we get our broadband house in order and our communications policy right. But we cannot manage what we do not measure."

The CWA report also ranks individual states based on average Internet download connection speeds. The state with the fastest connection speed is Rhode Island, at 5.011Mbps, followed by Kansas at 4.167Mbps, New Jersey at 3.68Mbps, New York at 3.436Mbps, and Massachusetts at 3.004Mbps. The states ranking at the bottom are Wyoming at 1.246Mbps, Iowa at 1.262Mbps, West Virginia at 1.117Mbps, South Dakota at 0.825Mbps, and Alaska at 0.545 Mbps.

That means that it would take 15 seconds to download a 10MB file in Rhode Island and nearly two and a half minutes to download the same file in Alaska, the CWA report found.

The voluntary speed test was conducted online at SpeedMatters.org between September 2006 and May 2007. Most of the people who took the test had either a DSL or cable modem connection. Because 30-40 percent of Americans still use a dial-up connection, the median speeds in the report were higher than if dial-up users had also participated, the report said.

In May, U.S. Rep. Edward Markey (D-Mass.), chairman of the House Energy and Commerce Subcommittee on Telecommunications and the Internet, held a hearing on draft legislation to address broadband mapping and data collection in the U.S.

Markey said at the time that the current data-collection methods used by the Federal Communications Commission are "inadequate and highly flawed." He said that according to the FCC, a single broadband subscriber in a certain ZIP code area could indicate that the entire ZIP code area has broadband availability, even if the sole subscriber is a business and not a residential consumer. Such interpretations could result in inaccurate measurements of broadband availability and use, Markey said.

He also said that the federal Telecommunications Act compels the FCC to assess the nationwide availability of "advanced telecommunications capability," which Congress defined as having "high speed" capability. However, he said, the FCC defined "high speed" in 1999 as meaning 200Kbps. Markey said the draft bill proposes increasing the definition tenfold to 2Mbps.

Markey also said that the U.S. lags behind other nations when it comes to cost of broadband access. He said speeds of 50Mbps, which are not available to residential consumers in this country, are available to Japanese consumers for roughly $30 per month. U.S. consumers typically pay $20 for about 1Mbps service and $30 to $40 for about 4Mbps service.

Will enterprises hang up on desk phones?

janderson — Mon, 04 Jun 2007 19:43:00 GMT

Many analysts see enterprises moving away from traditional desk phones in favor of cell phones, softphone clients, and Wi-Fi devices, but the change may take a while

By Stephen Lawson, IDG News Service

May 25, 2007

Enterprise desktop phones face growing competition from wireless handsets, but they aren't going the way of the typewriter just yet.

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Cell phones, already ubiquitous, are now being joined by Wi-Fi handsets and dual-mode devices as popular tools for workers to stay connected. Features that consumers take for granted on their mobile phones, such as call history, text messaging, and a wide variety of ringtones, frequently are missing or harder to find on a desktop set. Softphone clients on PCs, another alternative to desk phones, are gaining more capabilities and generally can work more easily with applications than a desk phone. But as enterprises embrace a new generation of telephony based on IP, they're still buying desktop phones, users and analysts say.

The new wave of IP wired sets comes as wireless options proliferate. Cisco, Avaya, and other major telephony vendors showed off numerous Wi-Fi business phones at the Interop trade show this week in Las Vegas. For employees on the road, there are dual-mode phones that can work with IP PBXs for features like extension dialing and can get better coverage in the office by switching to Wi-Fi. New software also can bring cell-only phones into the PBX fold.

In this light, increasingly elaborate desktop IP phones that often are more expensive than wireless devices are coming under fire.

"Why does my $200 cell phone have 10 times the functionality of my thousand-dollar IP phone?" remarked Yankee Group networking analyst Zeus Kerravala.

"Desk phones are 50-year-old dinosaurs. They shouldn't be there anymore," said Gartner mobility analyst Ken Dulaney. "All the desk phone does is forward calls to cell phones."

Yet Dell'Oro Group estimates the market for IP desk phones will boom in the coming years. The market research company said that 11.3 million were sold last year and that the number will rise to 34 million in 2010. The growth will come even as PC softphone sales grow from 2.6 million to 8.6 million, said analyst Alan Weckel. While strictly Wi-Fi phones will settle into vertical markets like hospitals, which restrict cell-phone use, dual-mode phones will also be popular, he said.

Hanging on to the desk set is partly a matter of tradition.

"People still relate to their physical phone. It's like their office space. It's very near and dear to their hearts," said a network administrator for a large Canadian engineering company, who attended Interop and asked not to be named. The company recently bought about 2,000 desk phones from Nortel Networks as part of a migration to IP telephony. Because it was buying in volume, the company got each set for about $200. It was one easy choice for an IT department that has plenty of more complicated issues to figure out, he said.

Wired phones still tend to have better sound quality than wireless, vendors and analysts said. In some cases, they include more phone-system features than their wireless counterparts. And for softphones, the PC's reliability and startup time are issues, Weckel said.

The right choice may depend on the user and the setting: Dual-mode phones plus laptop softphones for employees who travel frequently, and dedicated phones for workplaces without PCs. For example, Zeus Nestora, a Subway sandwich-shop franchisee in Tucson, Arizona, uses Cisco IP phones in its stores for a variety of functions, including employees clocking in and out.

But while they continue to sell desk phones, major vendors are pushing alternatives. Cisco provides software for Nokia E-Series dual-mode phones that extend office phone system functions to the handsets. The phones are already available in Europe through mobile operators Orange and TeliaSonera and in Japan through NTT DoCoMo, said Chris Kozup, mobility solutions marketing manager at Cisco. U.S. mobile operators are still unsure about the business model for such phones, which could make enterprises more loyal but also cut down on call revenue, he said. Avaya also is working with cell phone vendors on making dual-mode handsets work with its software and will reach more phones through its acquisition of Traverse Networks last year, said product manager Jamie Lawson.

"The future is going to be a future of choices," said analyst Elizabeth Herrell of Forrester Research. However, no one wants to have four phones, she said. One solution may be base stations that turn wireless phones into desk phones while an employee is at the desk. Neither of the two biggest IP phone makers has quite embraced this idea, however. Cisco has a cradle that charges its 7921G Wi-Fi phone and acts as a speakerphone, but the calls still go wireless. Avaya lets users treat a mobile and a fixed phone as one so when one is off the hook the other is, too.

Desk phones can't go away overnight, if only because of an installed base estimated by IDC at about 500 million. Even Gartner's Dulaney thinks it will take five to seven years for wireless office phones to replace wired. In the end, users will have to push vendors to change course, Forrester's Herrell said.

"No one's going to walk away from that revenue stream of business phones until the users decide they don't want it," she said.