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Feature Article
October 2004

Talk Is Cheap

BY Phil Asmundson

It looks like VoIP is finally ready for prime time. Now come the hard questions for enterprises intrigued by its possibilities.

For Steve Eager, director of network and systems administration for NFL Films, the decision to buy a VoIP system was straightforward. After all, NFL Films was building a brand-new facility and had to install a new phone system. Looking for ways to save money while also trying to invest where the technology was headed, Eager and his team decided that VoIP was the way to go. So, they worked with Cisco and purchased two Cisco Catalyst 6509 Switches, several Catalyst 4006 switches, Cisco’s CallManager software, and IP phones.

“Putting in the VoIP system saved us $400,000 in cabling, hardware, and software,” says Eager. “Plus we picked up on back-end costs. Moves, adds, and changes are easier and faster and can be done by anyone on our help desk.”
For NFL Films, being in a greenfield position made the decision to go with VoIP that much easier. There were no legacy systems to deal with, just a clean install.

For most companies, however, the interest may be there — especially as they face end of life for current systems — but the decision of what to do and how to do it may seem daunting.

VoIP converts voice into digits, and puts those digits into packets, which are routed across the Internet and reassembled on the receiving end. The technology resonates with implications for the future as features such as messaging, video conferencing and other applications improve. In addition, with IP phones, a user can simply unplug a phone from an Ethernet port at one location and plug it into another somewhere else, and still use the same number.

“VoIP is changing the way people are looking at phone service,” says Charlie Goldenberg, a consulting partner with Deloitte Consulting LLP. “The improvement of the technology, long-distance cost reduction, new features and functionality, and the overall cost-reduction potential are all making this an interesting technology to experiment with.”

According to In-Stat/MDR, close to 260,000 U.S. firms were using some sort of IP telephony by the end of 2002. The research firm expects that number to grow to more than 2.2 million by 2007. If IP phone sales are any indication, the market is growing quickly. According to Rick Moran, Cisco’s vice president of marketing for voice, it took three years for them to ship the first one million phones, and a year to ship the next million. “We shipped 480,000 phones this quarter,” he says. “So there definitely is an uptake on this in the market.” Still, say most experts, it will be at least 10 years before we’ll see a total conversion to IP telephony from traditional circuit-switch technology.

“I think the conversion time frame is a decade,” says Moran. “The big places that convert more quickly are the customer contact centers because if you can improve agent productivity and reduce the costs for the organization, you can rip out a system pretty quickly. The slower ones to convert are going to be the single-site organizations that really aren’t making any changes.” But, he adds, as manufacturers begin to retire traditional equipment and parts become scarce, that, too, will drive the conversion.

VoIP has been around for several years now, but it’s only recently that there has been a surge of interest in deploying the technology. Many of the concerns about voice quality have been alleviated. Security, too, has improved, and, notes Vijay Bhagavath, an analyst in telecom and networking research for Forrester Research, open standards middleware technology has “made it more natural to integrate IP communications into computing applications.” That means that applications for voice, video, and messaging have become more easily integrated. And, all this is happening at a time when companies with equipment reaching end of life are making decisions about the kind of replacement products they need to invest in.

The Cost Driver
“The primary drivers for IP telephony are cost savings,” says Daryl Schoolar, senior analyst at In-Stat/MDR. That, he notes, can take many forms, beginning with the costs of IP telephony per-minute rates, which typically are lower than per-minute phone rates. And, of course, as vendors like to point out, businesses can use the same network for both voice and data. That means equipment maintenance costs are reduced, along with staffing costs.

And, adds Bhagavath, “We’re finally seeing some savings in purchase costs. In the past, it cost $1,000 a line. Now it’s $150 a line. So, why not do it?”

The cost savings for many companies is compelling, but for others the savings may be all of 5 to 10 percent. “If I were a CIO, I would not move to leading-edge technology for only a 5 to 10 percent cost reduction,” says Goldenberg. “The compelling argument would have to be functionality, but we’re still early in the process.”

Bernd Kuhlin, president, Enterprise Networks at Siemens ICN, agrees that while in this first-generation IP the main focus is reducing costs with more efficient use of infrastructure, the impact is really on functionality. That is particularly the case in Second Generation IP (2gIP), a technology that provides a unified enterprise user experience — integrating the totality of enterprise applications — independent of distance, media, and time. He notes that 2gIP contributes to increased productivity because users can both send information to, and retrieve information from, IT systems — without time delay and regardless of location or device used. “The main emphasis is on the optimization and differentiation of an enterprise’s business processes by integrating the real-time communication functionality in the applications, and thus making real-time business possible,” says Kuhlin.

And, of course, when you talk about costs and savings, there is the issue of legacy systems. As John Namovic, a telecom consulting partner with Deloitte Consulting LLP, points out, many companies will still have the switching network and legacy equipment. “So the business case for IP-type equipment needs to recognize that existing asset base. It can’t just be discounted or removed.”

That means some companies will invest in new equipment while still supporting the old equipment. “Most customer IT departments have not necessarily adopted and prescribed to the whole idea of conversion,” says Wayne Miyamoto, director of Avaya Network Consulting Services. “There are still pockets out there that maintain two distinct and separate networks, so conversion’s become a challenge from an internal, political standpoint.”

But, he notes, that’s starting to break down as CFOs are insisting on merging the networks to bring down operating costs. That’s what happened at the Bakersfield Californian. The 400-employee newspaper, which has two facilities — main offices and a remote location for printing and customer service — had a 25-year-old PBX system and a network that needed to be replaced. System manager Mark Simons recalls that his boss learned about VoIP when he attended a Harvard Business School Program for IT. The system team looked into it for the newspaper and learned that by replacing both the PBX and the network, they’d save money. All the old wiring was replaced by CAT5E wiring, and they bought Cisco equipment.

The most popular aspect of the conversion was the phones, which enable voice mail and e-mail to come in at one place, and also allow for features like call waiting, which they didn’t have with their ancient PBX. “There was almost dancing in the streets when they got the new phones,” says Simons. “The CEO was so happy, he was the first to turn in the old phone.”

Because total conversion isn’t for everyone, vendors are also keen on working with companies that may want to simply stick a toe or two into the waters to get started.

“IP telephony doesn’t have to be an all or nothing choice,” says Alex Pierson, general manager of Nortel Networks’ Enterprise Business Networks. “It can be implemented where there’s a business case. For customers with a mature voice technology in place, they can decide if their business case allows them to go fully IP or to do it where there’s cost savings. For some, it may be a branch solution. They do IP there and leave TDM [time division multiplexing] at the core until they’re ready to do that.”

But, notes Pierson, you have to understand your business case. “There’s work to be done upfront,” he says. “You need to know what you have in terms of existing solutions and IP networks, and whether you’re choosing to replace what you have or evolve to the next step.”

In addition to managing two networks, there are many technical issues surrounding interoperability. “That’s been our great challenge in convergence,” says Roger Heinz, vice president of Lucent Technologies’ Convergence Solutions. “There’s the question of interoperability between feature servers, gateways and softswitches, as well as being able to go through a LAN firewall. Flexibility is truly critical.”

Heinz adds that many such issues have been worked out over the last 12 to 18 months and deployments are going much more smoothly.
For companies that don’t want to buy and manage all the necessary equipment and services for on-site use, the best entry into VoIP may be a hosted solution. A number of traditional telephone companies, such as AT&T and BellSouth, are beginning to offer hosting services. Here, too, companies can choose to converge or convert.

“The primary advantage to the service is saving money,” says Joe Aibinder, AT&T’s VoIP Services marketing director. “If a customer has a frame network, they no longer have to run calls over the phone network and can pay for capacity on the frame network. It’s convergence from the standpoint that they’re putting voice and data on the same private network.”

Customers, he notes, will have a mix of TDM and IP PBX equipment, and will need network services. “What we want is to be their migration partner,” he says. “We want to integrate the technology of the PBX vendors with the intelligence in our network and do it in such a way that the customer can migrate from TDM to IP telephony equipment at their own pace.”

BellSouth, too, is working the migration path hard, but it also offers solutions for a pure-play IP-based environment. Bill Daniels, the firm’s director of product management, explains that customers are looking at it from a cost savings perspective, but also as a way to drive revenues and productivity. Among the most popular features is unified messaging, which integrates e-mail, voice and fax into one platform. “This empowers teleworkers and road warriors, and when the system is leveraged with wireless LAN, it’s a compelling case,” he explains. With a focus on customers looking to outsource to a carrier environment, BellSouth is launching both a softswitch service and Centrex IP, which is currently in trials.

Future Talk: Convergence Or Conversion?
With the adoption of any new technology, it’s inevitable that talk turns to the future. For VoIP, there are a number of issues that will impact its future, but have yet to be resolved.

“Broadly, the question is: What will things look like five to 10 to 15 years out?” asks Namovic. “Within the core it will be IP, so the implication means you ought to start piloting and understand the technology. But the real question that will play out over the next five to 10 years is: What will things look like at the edge? Is there going to be some form of intelligence at the edge or is the core actually going to be fairly smart with a dumb device at the edge much like the current analog phone?”

For end users, says Namovic, the discussion is important because it will impact the type of equipment bought today. “Because the future is unknown around the edge, there are decisions that are still going to be forthcoming. It means that the IP phone you bought now may not be useful four years from now because the standards have moved in a different fashion and there’s a whole lot more functionality than that phone could ever handle. Or it moves the other way and the phone is more of a dumb device.”

Another issue has to do with standards — always a conflict with new technologies. In this case it is SIP (Session Initiation Protocol) versus H.323. The H.323 standard was approved by the International Telecommunication Union that promotes compatibility in videoconference transmissions over IP. It is considered the standard for VoIP. SIP is an Internet Engineering Task Force (IETF) standard protocol for initiating an interactive user session that involves multimedia such as video, voice and chat. According to Namovic, SIP, which is a newer standard, has more functionality and can control how information flows to a greater degree. H.323, he explains, is more limited, but it’s cheaper to implement.

“Folks in the U.S. are moving more toward SIP because of its greater functionality, but if H.323 is cheaper and is adopted by a country like China or others, it may force the issue here and relegate the standard to H.323,” Namovic explains.
Avaya’s Miyamoto sees H.323 as a useful call set-up protocol for “quite a while to come.” But, he notes that “SIP, in a total IP-enabled world, clearly is a lot more open and offers a wider potential range of application services than H.323.”
Cisco’s Moran says “H.323 will fade, but it’s not going to drop off the face of the earth.” He notes that some Cisco engineers believe that with SIP, it may be possible to have a master minimum set from which pieces can be pulled depending on the type of device and where it sits on the network.

The most salient questions about VoIP at this point are: What will the applications be written for? And, with that question up in the air, combined with the indecision over how much intelligence is at the endpoints, will we see a slowdown in application services, which is the part of the process that the user sees?

And, finally, what about true convergence? What is out there on the horizon a decade or two out? According to Moran, “We’re edging towards a ubiquitous device that understands location and presence, which allows you to mix media depending on what you’re able to do at that point in time. The network will be smart enough to understand what’s available from a resources perspective and be able to identify the device and what’s needed on that network.”

Miyamoto turns to the old Marshall McLuhan saying to sum up his vision, “The medium is the message.” And, indeed, that would sum up Pierson’s vision as well.
“VoIP is a migration step toward true converged communications,” he says.

“There will be a vast deployment in the next few years with multimedia capability and we’ll move seamlessly between voice, chat and video. I really view IP telephony, as we know it today, as another transition toward wireless with unified communications. Ultimately, the backbone will be optical. Between LAN and WAN, public networks and private networks, voice and data and geography start to disappear, and you can communicate how you want, via the media you want.”

Phil Asmundson is deputy managing director, Technology, Media & Telecommunications Group at Deloitte & Touche LLP. For more information, please visit the company online at

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