I installed the modem driver in my system and tried connecting to the Internet using my dial up software. However the modem does not respond, it gives a hardware failure response.

If you are using Dialup Networking, you do not need the TCP/IP functions integrated into the MT5634SMI-IP. To disable the Internet controller module on the MT5634SMI-IP, issue the command AT$P1. With the Internet controller disabled, dialup networking can use the modem integrated in the MT5634SMI-IP.