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18 May 2004 IBM and Cisco Systems are partnering in a bid to push Internet telephony into the corporate market.

Both companies have promised significant investments and tight integration of their technologies for a complete offering of 'Voice over Internet protocol' (VoIP) services. Cisco, the world's largest manufacturer of networking equipment, will provide technical expertise and hardware, while IBM will look after software and services.

VoIP is seen as a cheaper, more flexible alternative to traditional circuit-switched telephone networks. The technology is not new but widespread adoption has been hampered by poor call quality and unreliable network equipment, not to mention proprietary products that cannot fully interoperate with those of other vendors.

IBM, the world's largest computer company, believes the technology has now matured sufficiently to make VoIP a viable option for businesses. "We think we have hit that inflection point, we think it's taking off," said Don Fitzpatrick, IBM's vice president of Cisco strategic alliances. "We think it's a significant opportunity."

Phone calls made across the Internet are charged by a one-off subscription cost, and so represent a substantial challenge to traditional telecoms companies' per-minute pricing. IBM and Cisco will initially target medium to large financial and retail companies.

Analyst group Gartner has forecast that most corporate phone systems will be based on VoIP within three years. Cisco believes the technology can cut call costs by half and improve productivity by combining voice with video, conferencing and data services. The company says it has sold its VoIP products to 14,000 companies and claims to have shipped three million IP telephones.

IBM and Cisco have made several similar partnership agreements in recent months, in areas such as security and servers.