The excitement about IP fax first started two or three years ago. The promise of huge savings on long-distance and international fax calls seemed like a big enough selling point for IP fax machine devices, but FEW service providers exploited THIS.

The problem was that the initiative originally was led by small start-ups, according to James Rafferty, chairman of the Internet Engineering Task Force's Internet Fax Working Group and founder of IP fax consulting firm Human Communications Inc.

"They couldn't get credibility," Rafferty says. "A couple of established companies developed prototypes. But there were no standards, and the products didn't speak to each other, so IP fax was tough to market."

And while IP fax carried some hype along with its price advantage, the simple fact that the world already had a base of 100 million installed, working analog fax machines begged a question: Why fix fax if it wasn't broken?

However, the rate arbitrage advantage was nothing to ignore - a 1996 report by Gallup/Pitney Bowes revealed that a typical Fortune 500 company spent an average of $37 million a year in telephone costs, with 41% of that spent on fax. Nearly three-quarters of those fax calls were expensive international long-distance connections that often failed on their first try. But introducing IP fax into the broader legacy market remained a hurdle.

Without standards, the technology couldn't really get going.

Since the 1996 report, however, two changes have taken place. First, the IETF and ITU - in their first joint work - issued a set of basic IP fax standards in 1998. As a result, major players such as Panasonic and Omtool started building IP fax machines. The other big change was the plummeting of long-distance rates in the U.S., with Europe not far behind.

IP fax companies that had based their businesses solely on rate arbitrage suddenly were looking for other strategies. Some found them. The rest either failed or pulled out of the market, going on to other things.

In the world of standards, Rafferty says, "The main task was to get the fax and e-mail communities talking together using the same concepts. One of the biggest areas of creative tension between the groups was the difference in technologies and user models, so the goals of the groups were very different. The biggest challenges were to get the best fax service concepts moved over to e-mail and to get the groups to agree."

In terms of user models, a fax user expects to put the document in the machine, send it and get immediate confirmation of delivery. Quick and easy.

E-mail is a different experience. "E-mail technology is simple for the computer-literate," says Rich Heckelmann, manager of product development and engineering at Panasonic. "Look at the time it takes to open e-mail, write it and attach a document. There is a lot there. Not everyone is comfortable with all those steps."

Unlike fax, e-mail is based on store-and-forward technology, meaning that delays are normal as packets hop along independent Internet paths. Furthermore, e-mail offers no confirmation of delivery.

It was a chicken-and-egg problem. For fax to travel over the Net, it had to use existing e-mail standards because tens of millions of e-mail users would hardly change the way they did things just to accommodate fax. At the same time, IP fax had to remain quick and easy to use - otherwise, why bother with it when analog fax was already completely satisfactory?

Another challenge was that two organizations that normally didn't work together - the ITU and the IETF - were working on the problem.

"The IETF and ITU have different procedures, so there was a fair amount of time needed to come up with a way to [bring] the two groups together," Rafferty says. "After lots of discussion and compromise, the ITU Study Group 8 [fax] agreed to reference the IETF Internet fax [requests for comment] - once they were published - in T.37 [the ITU simple IP fax standard], thus endorsing the concept of a single set of standards for store-and-forward Internet fax. This helped provide some push for the IETF work, and the RFCs 2301-2306 were approved about six weeks later and published shortly after that."

Rafferty then submitted the RFCs to the ITU, and in June 1998, T.37 with the IETF references was approved.

Industry players now say they support T.37 - it's a quick reference to all the standards at once.

The six RFCs referenced in T.37 did several things. For the first time, they set a standard for TIFF images. They also established support for some other ITU image and compression standards, including color fax.

But in terms of maintaining fax's ease of use while still using e-mail technology, the two most important things were setting up a means of confirmation and making it possible to map fax numbers to e-mail addresses.

E-mail could already notify a sender of the failure to deliver a message. This disposition status notification was incorporated into the simple IP fax standard. Although it's not the full confirmation of delivery and processing that analog fax delivers, it's a start.

Mapping fax numbers to e-mail was crucial because, as Rafferty says, "Most of the [IP fax] calls would take place over the Internet, but the last hop takes place over the [public network]. You have to deliver the off-ramp [from the Net] with the phone number it needs to dial to get to a Group 3 fax device."

The IETF looked at many alternatives for moving such a fax number from one side of the Net to the other, and ultimately it created an addressing scheme in which the fax number is placed to the left of the "@" sign in an ordinary e-mail address.

"The fax number is prompted by the machine," Rafferty says. "It's pretty transparent to the user."

With standards in place, manufacturers could move forward with IP fax.

Panasonic's DX-1000 Panafax is the first true IP fax machine that implements the T.37 standard. Gary Bailer, Panasonic's assistant general manager for marketing and product development, says the DX-1000 connects to a company's Internet-linked LAN through an Ethernet port.

"You dial the e-mail address off a keypad and hit the start button. The machine scans the document and sends out an e-mail with the document attached as a TIFF. A user doesn't even have to know how to send e-mail to use this machine," Bailer says.

A user also doesn't have to stand at the machine because it can accept faxes right from a PC. And the DX-1000 easily transfers between fax and e-mail, so retrieving either one on the road is easy - fax can be sent to a local fax machine or to e-mail, and vice versa.

Although Panasonic does cite lower long-distance costs as a selling point for the DX-1000, that's secondary to its durability, reliability and cost savings, Heckelmann says. "The [IP] fax server is hard-coded, so there's nothing to go down. [Its] setup and installation vs. a regular fax server is much easier. It takes fewer human resources to keep the server up and running. There are no variable costs associated with it, no site or software licenses and no training element."

Lower long-distance costs are still a factor for fax service companies, but they're also secondary to other benefits. For example, NetMoves (formerly FaxSav), which was ranked No. 1 in IP fax by research firm International Data Corp. in Framingham, Mass., stresses the benefits of outsourcing fax.

"[Outsourcing fax] lets a company focus its monetary and personnel resources on other central projects," says Bill Fallon, NetMoves' vice president of marketing. "Costs [are lower] to deploy, manage and maintain this solution [compared with fax machines]. A company that has to distribute 1000 faxes a week won't change. On the service front, there is no better way to get high-volume messages out in a short time than to use services like ours. All a company needs is a high-speed connection."

Fallon cites another big benefit to using IP fax vs. analog fax. "[Analog] fax requires a separate analog T-1 line with separate interface cards," he says. "[With] IP fax, you can share the facilities used for mail traffic. Traditionally, you had to have a parallel and redundant facility. IT departments are under pressure to do more for less. [With IP fax,] they can save money without deploying extra equipment or changing their processes."

However, NetMoves still sees plenty of benefit in rate arbitrage in select areas of the world. "International trade is growing significantly, and so much is being manufactured in the China and elsewhere in the Asia-Pacific," says George Frylinck, NetMoves' vice president of international business development. "That coordination requires lots of communication."

Because of the Kanji character set used in that region of the world, Frylinck says, "It's easier to fax these documents, but the costs in the Asia-Pacific region, especially in China, to make standard phone calls are very high. Using the Net brings tremendous cost reductions." NetMoves has a strong presence in Japan, Korea and the China. In fact, the company actually has partnered with a China Telecom subsidiary in one province - at the subsidiary's request.

And while rate arbitrage is still a good idea for less-developed areas of the world, IP fax's other advantages will become more marketable, Frylinck says.

Domestically, telcos already are buying into that view. GTE Internetworking, which just rolled out its IP fax service in January, also is focusing on benefits other than rate savings.

"We're not huge believers that transport costs are the primary driver for moving to IP fax," says Gordon Burnes, director of marketing for the company. "It's a component, but it's not major. The primary benefits are productivity enhancement and a reduction in capital costs. We're seeking customers for whom faxing is mission-critical. We target the time and money they can save by switching to IP fax."

GTE Internetworking has partnered with Singapore Telecom to extend both companies' abilities to deliver IP fax. The agreement also allows Singapore Telecom to focus on deploying its network in the Asia-Pacific region while GTE Internetworking focuses on North America and Europe.

MessageClick (formerly .comfax), unlike GTE Internetworking and NetMoves, does not have its own network. Instead, customers link to MessageClick's IP fax servers over high-speed Internet connections, and the company's servers then deliver the faxes by phone.

Joe Covey, MessageClick's vice president of marketing, says, "When we first launched our service [in 1997], everyone thought [rate arbitrage] was the way to save money permanently. Lots of IP fax companies came out of the woodwork with that strategy. That was not our goal. We looked at corporations and saw the trend of outsourcing. Enterprise managers also want employees to fax from their PCs. We went to U.S. corporations and said, `If you want to fax from your PC, why not outsource it [instead of buying a fax server]?' That eliminates phone lines, equipment and maintenance. The state of IP fax today is transitioning from international [rate] arbitrage to outsourcing opportunities."

The state of IP fax today also includes an approved standard for real-time IP fax (T.38), although work still needs to be done to implement it. But analog fax won't vanish anytime soon.

Fax analyst Maury Kauffman says, "There's a huge installed based of fax machines, modems and software using the [public network]. You have to shift or IP-enable all this legacy equipment to move to IP." While that shift - which is also toward true unified messaging over IP - occurs, long-distance carriers such as GTE Internetworking and AT&T will adapt to the loss in long-distance revenues.

Kauffman says, "They will provide the same services as ISPs and fax service bureaus."

Ultimately, he says, "You'll send messages in the way that's most comfortable. TV didn't kill radio. In five years, 25% of all faxes will be sent over IP, but those sending the faxes will never know or care about it. Do you care how your fax is sent... or just that it is received?"