October 2001

Enterprise Internet Telephony

BY GREG GALITZINE

To get a feel for the health of Internet telephony as regards the enterprise market, we sent a short list of questions to some of the leaders in that field. The responses are presented below. In general, it can be said with some confidence that the enterprise market is healthy, due to any number of factors. The increased reliability of VoIP equipment, the promise of lower costs and increased efficiency, the gradual fading away of the issues that stigmatized Internet telephony (such as quality of service)... Couple that with the fact that the current economic climate is being viewed by some as a compelling reason to try these promising new technologies, and all the signs point in a positive direction.

Where once my inbox was filled to the point of overflowing with announcements and press releases introducing brand-new startups and heralding new breakthroughs in technology, a quick perusal of the e-mail I receive today finds a great many announcements proclaiming partnerships, increased sales, and other tales of technology deployment. There may yet be technological issues that need to be ironed out, but it appears that the increased focus on the deployment of Internet telephony bodes well for the industry as a whole.

- Greg Galitzine

INTEL
The market for enterprise Internet telephony has always been promising. If you went to an IP telephony conference in 1998, you could hear presentations about using the company Intranet to place branch office to branch office phone calls or about using an IP PBX replete with IP phones. You could even attend sessions about using IP-enhanced and full IP call centers to enable wonderful new applications never attempted before. Come to think of it, if you go to an IP telephony conference in 2001, you will probably hear similar presentations.

But one thing is different today. There are now actual installations and success stories for all of these examples. From my perspective, the enterprise market for IP telephony has always been less "forgiving" in that this market demands the same level of functionality and uptime as currently exists. Most businesses cannot really experiment and deal with poor voice quality, poor latency, or unreliable systems, so most businesses have been reluctant to install systems.

So as the IP telephony products improved with age, the enterprise market was not forgotten and in fact quietly thrived. Additionally, some businesses experimented with dual systems to see if the IP telephony promise of reduced total cost of ownership could in fact be reached. And much was learned and improved upon.

Today I see much promise in this market, and I believe in 2002 we'll start to see a much higher level of installations and success stories. I also believe the economic downturn could in fact be a potential bright spot -- businesses will be forced to "do things differently" and this inflection point may cause even more businesses to look toward IP telephony as the solution.

- Jim Machi, director of Product Management, Intel's Telecommunications & Embedded Group

CISCO SYSTEMS
Over the past two years, Cisco has seen a steady increase in both the number of customers who have installed IP telephony solutions and the average number of lines per site (phones) these customers are purchasing. There are multiple contributing factors that have led to these increases including: the maturity of IP technologies and products; increased deployment knowledge about channel and customer solutions; an ever-increasing number of both traditional PBX and IP-derived features; and customer-driven initiatives for combining data and voice together as one communication common strategy.

More than 250 of Cisco's largest 500 customers are implementing a Cisco telephony solution with the Cisco Architecture for Voice, Video and Integrated Data (AVVID) infrastructure as the converged transport. Some of these customers include The Dow Chemical Company, Merrill Lynch, the New Zealand Ministry of Social Policy, NASA, and the University of Arkansas at Pine Bluff.

Of most significance with these customers is the growing understanding that voice becomes a hosted application when deployed across IP. A common transport can be leveraged and the same best practices can be applied to any mission critical application such as online transaction processing. Many Cisco customers have realized that voice treated in this manner offers cost savings with equipment and administrative and network connectivity because these best practices can be leveraged across multiple similar application fronts. Additionally, customers are beginning to marry data and voice together as unified communication applications with the consolidation of voice and e-mail store, one in-box for reading messages, and Web-based driven rules engines for customized call re-directing. These applications are making employees more productive.

Regarding voice quality, a majority of Cisco voice customers have implemented quality of service policies and have experienced PBX voice quality when handled across private WAN lines. While the public Internet continues to hold promise for low cost voice, quality remains a concern. As a result, Internet-based voice connections are similar in behavior to cell phone quality.

- Bill Erdman, marketing director for Cisco's Voice, Video Business Unit.

MULTI-TECH SYSTEMS
Describe the general state of the enterprise market for Internet telephony.
The enterprise telephony market needs to be discussed in two sections: Branch or remote office add-on equipment and enterprise-wide infrastructure systems. The former represents products that work with existing legacy routers and PBXs without expensive hardware upgrades, and the latter represents extensive systems
that often require equipment replacements and network redesigns. With many of our enterprise customers the first implementations of voice and fax over IP were
in remote and branch offices. Of particular interest to multinational companies were the potential savings associated with connecting such offices at international locations. Remote and branch office implementations that worked with legacy PBX and router equipment tested the technical concept and proved the savings
without undue costs in equipment. The second step, or "deployment phase," of using branch or remote office equipment throughout the enterprise network is proceeding cautiously.

Have we moved beyond the "technology phase" to a "deployment phase?" Are we seeing a pick-up in the adoption rate of enterprise level solutions?
We get the sense that the enterprise market knows the value of VoIP from the experience of implementing it in remote and branch offices both domestically and internationally for toll bypass. We see continuing interest in this level of equipment from the enterprise as evidenced by an increase in the number of vendors supplying such gear. So this level is certainly moved somewhat beyond the technology level into the implementation level. We believe the deployment phase for this level of equipment will continue well into the future regardless of how large-scale deployment fares because of the large amount of legacy PBX and router equipment that will continue to need VoIP upgrading.

On the larger side of the business we see spotty announcements of major companies adopting the technology on an enterprise-wide scale, but we suspect these are more attempts by the larger suppliers to create an aura of interest than they are evidence of wholesale implementation by large numbers of companies. We believe that large scale deployment is still in the technology phase and the jury is still out as to when it will move to the implementation phase.

How is the economy affecting the deployment of Internet telephony solutions for the enterprise market?
Certainly the downturn in the economy has hurt the large-scale deployment of enterprise telephony, but it also has spurred its deployment at the branch office and remote office level. With a down economy it is simple economics that implementing large scale VoIP is too expensive while branch and remote office deployment will save expenses without much risk. Keep in mind that many of our customers use voice and fax over IP implementation to solve a specific expense problem area. By dropping in two VoIP boxes connected to legacy router and PBX equipment costs will immediately drop for both voice and fax communications. That is a strong argument for the technology in hard economic times.

What does the future hold for this market?
With the implementation of more sophisticated IP gateways, gatekeepers and IP PBXs, we believe telephony will evolve into a more IP oriented world. In such an environment there could be an enterprise level soft IP PBX where even the Central Office (CO) is in a form not apparent today. Voice and fax calls would be IP from one point to another with a CO-like function in between that knows everything from TCP/IP and H.323, to SIP, and MGCP and knows what to do with it. IP enterprise telephony promises a universal soft-IP network in the future. That means IP phones, IP PBXs, and an IP network where the functions of the CO and PBX are mixed in a "Centrex-type virtual environment." With that kind of future promised by a technology, which enterprises barely have started to implement today, it is easy to appreciate why decisions on implementing large scale VoIP are not easy to make.

- Hari Arimilli, engineering manager, Voice over Net Products, Multi-Tech Systems, Inc.

TEKELEC
Describe the general state of the enterprise market for Internet telephony.
Many of the early adopters of Internet telephony have been in the enterprise space. While we don't have hard numbers to substantiate the penetration, I think the success of companies like Cisco and Clarent in selling media gateways and H.323 gateways indicates that there is a great deal of activity in this space.

Have we moved beyond the "technology phase" to a "deployment phase?" Are we seeing a pick-up in the adoption rate of enterprise level solutions?
I think companies have moved beyond technology to deployment. We are beginning to see large-scale implementations. Dow Chemical just announced that
in October of this year it will turn-up its converged network to which 50,000 of its employees worldwide will be connected. And, as we move toward pure packet, end-to-end networks based on protocols like SIP, the technology will become even more attractive for the enterprise market.

How is the economy affecting the deployment of Internet telephony solutions for the enterprise market?
It's reducing the number of external options available to the enterprise market. Before the downturn in the economy, competition was fierce for this business. CLECs were going head-to-head with established carriers and competing by offering their service at a substantially lower price. CLECs are now struggling to survive and the pressure's off the incumbents to lower prices or rush to create new services.

This economy may very well increase VoIP penetration into enterprise. Like most other businesses, companies in this space are being pushed to reduce costs. Enterprise businesses can leverage their existing data networks by running voice over it and reduce the external billed voice minutes from external carriers.

What does the future hold for this market?
I think we'll see VoIP take hold in the enterprise space. Windows has announced that it will support SIP on its 2000 and XP products. Microsoft's NetMeeting already supports VoIP, but it's H.323-based and doesn't support features like multi-leg calls and caller ID. I believe that Windows support of SIP will be a catalyst for the adoption of Internet telephony in this space.

- Rob Ennis, director of Packet Telephony, Tekelec

INTECOM
Over the past several months, interest in Internet telephony soared as companies began looking at the cost savings offered by the technology. Voice over IP and other voice/data services can be used to provide a more cost effective, efficient, and flexible way to build networks. The promise of VoIP may well signal the future of networks. However, today there are issues with quality of service that are still being ironed out. In addition, large companies in particular have huge investments in their current network technology and moving to VoIP immediately would be an expensive project. The result is that companies are looking for ways to migrate toward VoIP while protecting their investments as well as ensuring voice and service issues. This has opened the door for a phased approach to VoIP such as Intecom offers, which allows enterprises to use their current networks while adding VoIP at their own pace.

While the economy has forced some companies to defer new investments, there is enormous potential for companies offering a phased approach to VoIP adoption. In addition, heavy merger and acquisition activity creates the need for integration of disparate systems. The migration of call centers to contact centers that support other forms of customer interaction (Web, chat, e-mail) in addition to voice will also create increased demand.

And trends affecting certain industries create new demands of customer service levels that make reliable, scalable voice infrastructure a must (for instance, utility deregulation creates choice which creates new requirements for expected levels of service to retain or attract new customers.)

- Charlie Henderson, director of Product Management, Intecom

QUINTUM TECHNOLOGIES
Describe the general state of the enterprise market for Internet telephony.
The enterprise market is getting stronger. I think a lot has to do with the education of the market. There has been quite a bit of experience with the technology in the market. Enterprises now have a better understanding of the "Risks and Rewards" of VoIP. There has now been significant experience with the technology, and enterprises are aware of the various alternatives for addressing some of the issues that have plagued VoIP -- such as QoS, ease of use and ease of integration. Enterprises also have a better understanding of the benefits of VoIP -- both in terms of the immediate cost savings benefits and the longer term need to migrate to a converged network to gain competitive advantage.

The enterprise has a substantial investment in its existing infrastructure and they want solutions that both leverage that infrastructure and support a migration to a converged future. They are interested in building toward a convergence future, but they do not want to restructure their entire network to accomplish it, and they want their systems to continue to meet the expectations of their users. There are now intelligent VoIP solutions in the market that address these concerns with unique approaches -- it is not just about converting voice into packets anymore.

Have we moved beyond the "technology phase" to a "deployment phase?" Are we seeing a pick-up in the adoption rate of enterprise level solutions?
I think we are now moving into the deployment phase. As mentioned above, many companies have experimented with the technology and now understand how they can best utilize the technology to save money and improve productivity. Also, many of the companies that were early to deploy the technology now provide excellent case studies for those that have been considering VoIP, but had been waiting until they had learned more about the technology.

As vendors have better addressed the implementation concerns regarding VoIP and demonstrated successful installations, we have seen not only more broad deployments, but more interest from what one might call the more "conservative enterprises." The interest in VoIP has certainly been there, along with the concerns about the risks. There are now more sophisticated VoIP systems that address the concerns surrounding QoS, ease of use, and ease of integration. Quintum products address the QoS concerns by actively monitoring QoS characteristics and then will transparently switch to the PSTN in the middle of the call if the voice quality becomes threatened. This system can be implemented so that users never know they are even using VoIP. These types of solutions are giving enterprises the confidence to deploy VoIP in their networks.

How is the economy affecting the deployment of Internet telephony solutions for the enterprise market?
Our experience has been that the economy has actually improved the market for VoIP. A year ago companies were still very busy with Web-based projects, and though there was a lot of interest in VoIP, it often did not make it to the top of the priority list. Now the Web projects have subsided, and the need to save money and create more efficient infrastructure is greater than ever! Not only are companies more interested in VoIP technology, they have the time to evaluate and deploy the technology.

What does the future hold for this market?
I think the future IS all that has been expected from the convergence market. The technology is becoming more sophisticated and more accepted by CIOs. There is a much better understanding about the potential that can be realized through a converged network infrastructure. Convergence makes too much sense not to happen, though many enterprises will be looking at migration approaches that allow them to leverage their existing infrastructure. Enterprises now see the vision of richer applications that integrate voice and data together. While the market will continue to be driven by the near term cost savings benefits, enterprises also understand the benefits of integrating voice into existing data and Web-based applications, and they do not want to be behind the curve in migrating to a converged network that will support such applications.

- Chuck Rutledge, vice president of Marketing, Quintum Technologies.

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