March 2002

Some Thoughts On The Future Of IP Telephony

BY RICH TEHRANI

As the VoIP market continues its torrid growth rate, we must realize that traditional PSTN communications is becoming legacy (read: yesterday�s) telecom while IP telephony becomes today�s telecom standard. At some point in the early 1980�s, corporations realized that buying a fixed-function word processor from a company like Wang made no sense. It wasn�t expandable and couldn�t grow with them and was limited in feature set. Similarly, two decades later the traditional PBX is following the same path towards becoming a relic. Purchasing a traditional PBX is like buying a cassette-playing walkman instead of an MP3 player. An MP3 player allows you to do so much more like skip quickly between songs, hold thousands of songs, and the quality of digital is better than that of analog tape.

This analogy continues into the workplace where a career-ending decision would be to buy legacy telecom instead of IP telephony, which can do so much more and will allow you to take advantage of your investment through the addition of new applications. At the recent Internet Telephony� Conference & EXPO (February 11�13, 2004 Miami), we assembled a leading panel of experts to discuss The Future of IP Telephony. The session was an amazing success, as the participants shared their visions for the future of our industry.
Before the event in Miami, however, I asked the participants a series of �warm-up� questions to get their creative juices flowing. This also allowed me to meet our production schedule for this issue, which was going to print the day the show began. What follows is a selection from among the answers we received before convening in Miami. For a look at the complete responses, and to get information about our next event in Long Beach (October 12�14) please visit our Web site at www.itexpo.com.


Pierce Reid, VP Marketing, Qovia


RT: How do IP telephony systems compare to legacy systems on a cost basis? Does it make financial sense to move from legacy systems to IP telephony? And what of the �soft� cost savings (productivity, ease of use)...? What impact does that have on the decision to adopt new technology?

PR: Cost has long been the rallying cry for VoIP. But costs come in many shapes and sizes. It definitely makes financial sense for a lot of enterprises to move to VoIP, not only as their legacy phone systems reach end of life, but to take advantage of the productivity increases that VoIP delivers. For enterprises (and this includes departments and branch offices) that are highly dependant on their phone systems and, especially, for government agencies, VoIP makes sense immediately. For the rest, as economies of scale bring the costs down, VoIP will make sense. Currently, there is probably not a single enterprise out there that isn�t at least considering VoIP as they look to upgrade their legacy phone systems.
The other thing that has to be taken into consideration is the long-term cost of owning a VoIP system. Like data networks, VoIP phones don�t just run themselves. They require the same �care and feeding� that complex data networks have long required � with the added complexity of the critical nature of voice. If your e-mail if five seconds late, it is irrelevant. If your voice packet is 1/10 of a second off, it is noticeable to everyone. As companies move to VoIP and put the responsibilities for managing the phone systems into the hands of their IT teams, the cost of reliability � and the greater costs of lack of reliability � are a key consideration.

RT: What are some of the specific steps the industry needs to take in order to ensure continued growth and user adoption of IP telephony? What are some potential pitfalls and how should they be avoided?

PR: Maintaining call quality and network reliability are critical. Internet telephony didn�t take off in 1995 because it was, essentially, an unreliable toy for Internet hobbyists who were happy to shout at their PC screens in order to get some free long distance. But that isn�t enterprise strength! This time around, the core equipment from key vendors like 3Com, Cisco, Nortel, Avaya, NEC, and others is up to the task. But VoIP networks don�t just run themselves and the creation and availability of tools to manage those networks is key.
The industry is also going to have to manage its relationship with the regulatory community. So far, it has dodged bullets through the successful resolution of the Vonage v. Minnesota PUC court case and through Michael Powell�s FCC declaration that they were giving VoIP room to grow. Treating VoIP like the Internet is a good thing for the industry right now and we need the room to grow and establish a foothold without a patchwork of regulation across the U.S. However, regulation will keep coming up. Unlike the �traditional� Internet which moved into virgin territory, VoIP is moving into one of the most regulated areas of American Society: telecommunications. With Federal, State, Municipal and even Local regulatory boards covering the phone system, the industry should be prepared to work with the regulatory agencies to ensure its long-term success. One area that the industry should pursue: Federal preemption to have VoIP regulated only at the Federal level, so we don�t have to face a patchwork of legislation. Remember, government can do things for you� or do things to you. The industry needs to work with government to make sure we everyone wins.


Barry Zipp, Senior Director,
Intelligent Services, MCI


RT: IP telephony�s market share is increasing. What are your predictions for continued growth of IP telephony in the Enterprise space? What about in the service provider space?

BZ: The pace at which IP telephony has developed from both a technological and end user acceptance standpoint has been remarkable. Much of the growth has been based on cost savings. However, we expect features and applications enabled through the convergence of voice and data on a converged IP infrastructure will further accelerate IP technology expansion. Applications such as messaging, conferencing, and contact center services will take on an increased significance for VoIP.
IP contact centers in particular represent a significant market opportunity in the IP telephony space. Features such as blended media (voice, instant messaging, e-mail, fax, and video), co-browsing, presence management, and click-to-talk applications will continue to be the most prominent enhanced applications. Other applications like network-based call waiting and virtual second line applications will enable even more enhanced remote agent capabilities.
Service providers today are faced with a set of formidable challenges: how to grow revenues and attract new customers while working within reduced capital budgets. Hosted voice (i.e., IP Centrex or hosted PBX services) will enable service providers to realize both objectives. There is a huge market opportunity in hosted voice. Studies in the SMB space have shown that most companies will outsource their services to a carrier if it enables them to scale affordably and reduces their need to manage CPE.
Because one size does not fit all, carriers will have to be able to support both premises-based and hosted solutions, thereby enabling customized solutions for all size customers. Ultimately, providers that educate, inform, and provide pragmatic solutions will be most likely to gain the trust and business of enterprise customers.

RT: How do IP telephony systems compare to legacy systems on a cost basis? Does it make financial sense to move from legacy systems to IP telephony? And what of the �soft� cost savings (productivity, ease of use)...? What impact does that have on the decision to adopt new technology?

BZ: The primary driver for IP Telephony has consistently been cost savings. Enterprises are realizing savings in transport usage, access, moves/adds/changes, equipment, and cabling. IP telephony also provides significant soft cost savings. The technology promotes staffing savings by combining IT and Telecom staffs. It boosts employee productivity with enhanced applications such as unified communication management, collaborative tools, and remote employee applications. Equally important, the technology enables the enterprise to quickly adapt to changing business conditions by adding/removing users, quickly modifying auto-attendants, voice mail platforms etc.
Hosted solutions in particular deliver even greater efficiencies by enabling enterprises to realize the benefits of next generation features and services without the hassle and expense of managing CPE. They also provide a more economical means to connect a distributed workforce with remote agent capabilities.
Both hard and soft cost savings should be included as part of the enterprise�s TCO analysis when contemplating an IP telephony deployment.


Chuck Rutledge, VP Marketing,
Quintum Technologies


RT: IP telephony�s market share is increasing. What are your predictions for continued growth of IP telephony in the Enterprise space? What about in the service provider space?

CR: The growth in both the enterprise and the service provider space has just begun. The industry to date has been largely driven by arbitrage opportunities and those early adopters validating the benefits of converging voice and data on a single network. Now that these benefits have been proven and are better understood, we should experience mainstream market growth.
The IP PBX has proven to offer substantial benefits to the enterprise particularly in the SME market. We will now see larger installations of IP-based telephony systems with broad deployments across branch offices. We will see companies not only deploying IP telephony as PBX replacements, but also expanding their existing voice networks based on VoIP while simultaneously phasing out the legacy PBX equipment.
In the service provider market we are beginning to see the move from VoIP being used to support low-cost calling-card applications to mainstream telephony services. As enterprises are deploying more IP telephony systems the service providers have the opportunity to add even greater value by positioning themselves to offer IP-based services and provide off-net VoIP connectivity. Also, telephony markets around the world are deregulating, opening the markets for competition. The next generation of telecom competitors will take be taking advantage of VoIP benefits in deploying their networks.

RT: How do IP telephony systems compare to legacy systems on a cost basis? Does it make financial sense to move from legacy systems to IP telephony? And what of the �soft� cost savings (productivity, ease of use)�? What impact does that have on the decision to adopt new technology?
CR: IP telephony systems not only offer the efficiencies of a single network for both voice and data, but they actually cost less � and in some cases, a lot less. Today�s IP PBX systems are becoming more cost effective as the technology matures. The call processing intelligence is moving toward software that will be run on a standard server or softswitch, and interoperable devices (VoIP gateways, IP phones, session border controllers�) are becoming competitively available from a variety of vendors. We will begin to see open source software solutions as well, offering both low cost and opportunities for innovation. Service provides can deploy a VoIP POP for a fraction of the cost of a Telco central office as is evidenced from the proliferation of next-generation service providers.
It is now well understood that IP telephony systems have the advantage of being managed as part of the data network infrastructure. The need for telecom specific personnel is substantially reduced or eliminated, providing a more flexible IT workforce. A VoIP network can centralize much of its intelligence so the management of the network can also be centralized � there is no longer a need to have diverse PBXs located around the country and around the world. A service provider can centralize the network operations and billing and remotely manage POPs anywhere.
Inevitably, the key driver for IP telephony will be productivity enhancing applications such as the ability to support remote workers, integration of voice and data for call center support, on-line feature provisioning, etc. The choice to deploy an IP telephony system in a greenfield environment is pretty clear � the advantages of VoIP easily outweigh traditional circuit switched systems. The more challenging question is what to do when there is an existing circuit switched system, yet there is a desire to take advantage of the benefits of IP telephony.


Christopher Labrador,
VP Business Communication Solutions,
Toshiba America Information Systems


RT: IP telephony�s market share is increasing. What are your predictions for continued growth of IP telephony in the Enterprise space? What about in the service provider space?

CL: With the economy turning around and enterprises looking to upgrade their systems, we will see continued growth in IP in the enterprise space. A primary motivator is the fact that a lot of enterprises were waiting to upgrade, and now they want the latest technology, which is clearly IP. As well, IP technologies are maturing, helping to eliminate some technological shortcomings, and this makes enterprise users more confident in making the move to IP.
In the service provider space, adoption IP is rapidly increasing. In the late 1990s/early 2000s, service providers significantly revamped their physical infrastructure. More of the incumbent service providers are now moving to IP technology to deliver the seamlessness their users want. We see service providers making an aggressive move to IP.
Because of these two things, carrier space acceleration and enterprises upgrading, we expect a move toward an end-to-end IP network. It�s a wholesale upgrade of the entire communications network.

RT: What are some of the specific steps the industry needs to take in order to ensure continued growth and user adoption of IP Telephony? What are some potential pitfalls and how should they be avoided?

CL: To succeed, IP telephony systems must deliver the features and functionality users expect. Users expect to get what they already have plus a lot more, but a pitfall of many IP telephone systems today is that they are delivering subsets of what the users have or expect. IP is, without question, the future of telephony, but we can�t ignore the richness of the applications on the voice side. We need to take it along with us as we move to IP.
You also have to help customers migrate. A strong migration program that helps customers protect their original investment in telephony is essential to being successful in upgrading the customer base.

RT: How do IP Telephony systems compare to legacy systems on a cost basis? Does it make financial sense to move from legacy systems to IP telephony? And what of the �soft� cost savings (productivity, ease of use)?? What impact does that have on the decision to adopt new technology?

CL: Initial costs for IP telephony systems have been traditionally higher than legacy systems, but now costs are coming down for IP. Differentiated IP products are now available at lower costs due to competitive pressures.
Enterprises can also see that IP systems have a lower total cost of ownership over the life of the system. Operating costs go down since administration is easier. For example, moves, adds, and changes costs virtually disappear since users can simply plug their IP phones into any Ethernet port and it works right away, requiring only the seconds it takes for the equipment to register on the network. There�s also the advantage of toll savings. While the delta between toll bypass savings vs. traditional long distance tariffs has decreased, there still is a savings.
A big productivity benefit to IP telephony is mobility. Since your phone can be on your laptop (using a softphone), and you can use an IP phone anywhere you have a cable or broadband connection, such as at home, your can work anytime, anywhere. This gives you all your office phone features remotely, yet you are answering your phone just like you would at work.
IP affords your phone to be more than a phone � it can be dynamic, read the news, provide alerts, and much more, since it can be tied to applications on the Internet. XML, HTML, JAVA supported phones let you leverage the Internet with your telephone without the need for any other processor. Your phone can literally be a dashboard for your business.

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If you are interested in purchasing reprints of this article (in either print or HTML format), please visit Reprint Management Services online or contact a representative via e-mail at [email protected] or by phone at 800-290-5460.

Contact the editorial director, Greg Galitzine, with comments or questions about INTERNET TELEPHONY�. E-mail (addressed to [email protected]) is always welcome.

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