Next best thing to "teleporting"?

SAN FRANCISCO (Fortune) -- Cisco CEO John Chambers doesn't just talk a good game about telepresence, the videoconferencing technology that creates the illusion you're in a room with someone who's actually thousands of miles away. He's planning to install his company's high-end system in his Silicon Valley home, provided he and his wife can agree on a spot for it.

"I figured we could convert one of the kids' old bedrooms," since they've grown up and left the house," he says. "She told me, 'You do that and you'll be sleeping in there.'"

Though he's not done negotiating the location, one thing that Chambers doesn't have to worry about is cost. ­As longtime chief at the networking giant, he can surely afford the installation, which can easily run north of $150,000 per room.

But can his customers? Even as Chambers and rivals such as Hewlett-Packard (HPQ, Fortune 500), Polycom (PLCM) and Tandberg tout telepresence as the perfect tech tool to reduce travel costs and boost productivity, observers have their doubts. Sure, telepresence enables meetings on three or more huge screens, in high definition with pristine audio quality.

But during a global recession, the price tag could prove too rich for many companies.

The telepresence question should get some attention when Cisco (CSCO, Fortune 500) reports its fiscal third quarter results Wednesday. Though the fledgling business won't even register as a blip in the more than $8 billion in revenue Cisco likely logged last quarter, according to analysts' expectation, Chambers has highlighted telepresence as one of several ideas he hopes can eventually bring Cisco more than $1 billion in annual sales.

And unlike many product lines these days, telepresence has been growing. Earlier this year, Chambers said Cisco added 65 customers for the HD video technology in the last quarter of 2008, reaching a total of 312. Others are banking on a telepresence boom, too; AT&T (T, Fortune 500) sells its own flavor of the Cisco technology to business customers, and expects that to expand despite the economy. "Three years ago the proportion of video traffic on our network was next to nothing," says William Archer, chief marketing officer for AT&T Business Solutions. "Today roughly 40% of the traffic on our networks worldwide has a video element to it."

Despite its promise, telepresence is far from mainstream. And analysts aren't exactly sure how eagerly customers are adopting it, because the companies that sell the technology aren't talking much. "Most of the companies have been pretty tight-lipped" about their telepresence sales numbers, says Forrester Research analyst Henry Dewing. He suspects Cisco has sold the most immersive rooms with three or more screens, at somewhere around 1,000, but he's not sure.

Even if companies are slow to build their own telepresence studios, venues like hotels and conference centers may fill the void, charging customers to rent the service. ABR Research estimates that in 2011, this so-called managed telepresence market could top $360 million.

Whether telepresence has caught on or not, early adopters are singing its praises. Erkki Reuhkala, an executive with communications equipment provider Nokia Siemens Networks, says the company is very happy with its Halo telepresence studios, which are outfitted and serviced by Hewlett-Packard. The company's far-flung executives use the system to conduct meetings that would otherwise require long flights. "We are saving on travel more than what we are spending on Halo," Reuhkala says. "We have many studios where the usage rate is around 80%."

For Nokia Siemens, this is more than an experiment. Executives placed a big bet on the technology when they went online with the first telepresence studios about a year ago, and they plan to have a total of 40 available by the end of 2009. Beyond that, Reuhkala says, the economy makes it hard to predict. "We're not making plans too far in advance. Perhaps next year we'll be in a more business-as-usual style of operation, and we can add."

If you have access to one, the difference between a single-screen videoconference and a telepresence session is striking. To take telepresence for a spin, I went to Polycom's virtual showroom in Santa Clara for an interview with CEO Bob Hagerty. Though he wasn't in the room with me, it felt like he was; his telepresence studio was a mirror image of mine, with cameras and microphones tracking our movements in real-time.

That immediacy has led the writers and production staff for the Fox series Fringe to embrace Polycom's telepresence offering. The show's producers face obvious communication challenges, given that the show is shot and edited in New York while the writers, effects artists and executives are based in Los Angeles. The high-definition telepresence rooms allow far-flung workers to virtually attend script readings and review special effects.

Will productivity stories like that be enough to spark quick adoption of immersive videoconferencing? Given the economy, probably not. Cisco's John Chambers likes to tell folks that of the 260-plus customer meetings he has done this year, 200 were virtual meetings using telepresence,­ which is a pretty strong case for building the studio in his house. The rest of us would have a harder time justifying the high-tech renovation.