Monday, July 04, 2005

ROI is the secret

See my comments in Bold. (Patrizia's)

IP telephony - why the debate? David Yip and Siân Tudor Jones investigate why UK businesses have yet to fully embrace the potential of IP telephony.

The claims
IP telephony (IPT) has been threatening to be one of the most important emerging trends in telecommunications for the last few years. IPT is the application that moves voice traffic around in the data network utilising the Voice over IP (VoIP) protocol.

These terms are often confused - VoIP has been with us for many years.

But in the beginning it was practically unusable: too expensive hardware and too lousy voice quality.

Carriers have successfully deployed international networks using VoIP to carry public telephony calls.

Just big carriers could afford expensive hardware and be well repaid charging slightly less for what cost them almost nothing (see: they buy Junk and sell Antiques)

IPT, however, has not broken the dominance of traditional voice switching systems within the enterprise space, be they
PABXs or carrier class switches providing centrex (hosted telephony) services.

Just in the very last years we began talking of application on VoIP.
Companies will like VoIP not only for the saving on telephone calls, but for what it offers and most of all for what IT WILL OFFER IN A NEAR FUTURE.

In 2003, the world's analysts were quoting '50 per cent penetration of IP telephony'. Slightly more conservative estimates placed the 50 per cent penetration threshold during 2004.

Today in 2005, the optimism has been watered down somewhat. A recent study claims that 44 per cent of corporate telephony will be IP-based by 2008. In corroboration, Gartner estimates that, by the end of 2007, traditional enterprise telephony system manufacturers will cease development of traditional systems. This suggests we are at least two years away from widespread acceptance of IPT into our corporate lives.

VoIP is still not fully ready will all the possible applications.
For example Video on IP (a good Video quality) will drive most of the corporate traffic towards VoIP.

So why is it that amongst the UK's leading organisations there is not the actual or planned widescale deployment as predicted? Why has deployment not taken off for a technology that has been around for years?

The case for change
The answers ultimately lie with the case for change.

All enterprises have a voice system in place. This has usually been developed and maintained over a number of years. It is usually reliable and costs for maintenance have reduced since deployment. It is likely that such systems are nearing full depreciation and are operating sufficiently well giving little cause for concern.

In today's governance structures, the modern enterprise will not introduce new technology without a compelling business case and ultimately cost plays a significant role.

The case for implementing IPT must then rely on tangible additional benefits.

Or at least to keep the actual benefits with the same quality at a lower cost.

To date, business flexibility, cabling simplicity and the ease of moves, adds and changes rank as the key benefits of IPT. Offset against this, the main user concerns are security within a converged network environment, VoIP quality and interoperability between voice systems.

Significantly, the user is unlikely to see any additional functionality at the basic telephony level.

Implementing IPT can be costly, even though IPT itself can appear attractively priced. Whilst it is an application sitting on a data network with user licensing structures not dissimilar to any other user-based application, what is frequently overlooked is that IPT places specific time sensitive performance demands on the data network and IP handsets are significantly more expensive than normal units.

But the price is enormously rewarded by the fact that IP to IP calls are COMPLETELY free.
In a company which has branches all over the world that means to repay the whole hardware in a very little time (one week in certain cases).

It is the same with cell phones.
To sell them they offer free traffic for the amount of the phone ($300) but everybody knows that this is a real CHEATING. (or everybody should know)

Classes of service, voice prioritisation and powered Ethernet are all demanded from the enterprise data network over and above standard user application hosting. So it's not only the legacy telephony infrastructure one has to consider but the entire data infrastructure also. If the current data infrastructure is not up to scratch, is it worth performing a complete upgrade just to add telephony?

What could be more promising than "company owned infrastructures"? With a very small investment a company can have gatekeepers that act as gatekeepers, gateways, IPphones, PBX, and could create infrastructures among all company's users, avoiding totally the TELECOMS' Monopoly...
Couldn't there be something better than this?

So, unless the enterprise is developing greenfield sites, the case for implementing IPT here and now appears weak, regardless of any views on technology maturity.

I guess the article's writer completely missed the point.
Why writing about something and not telling the real advantages?
May be this could be the reason why.
Companies do not yet know all the advantages of VoIP and the actual players on the market beware to explain...because it is convenient that they do not know...

However, making a spot investment decision is very different to making strategic choices and one must consider where the suppliers and service providers are heading before writing off IPT deployment now.

Supplier push
Many traditional enterprise telephony vendors, including Siemens, Nortel and Avaya, continue to pour their investment budgets into developing evolutionary IPT solutions, allowing the upgrading of existing equipment to provide IP functionality. This incremental approach to IPT implementation benefits the enterprise by reducing capital expenditure, protecting legacy investment and minimising deployment risk. It is obvious that investment in standard enterprise switch (PABX) technology is being reduced significantly.

Coming from the enterprise data provider end, Cisco have been developing an all-IP communications solution since 1997 and claim more than 14,500 organisations are now using their IPT offering.

According to various analysts, Cisco is the market leader in IPT enterprise sales, recently shipping their four millionth IP phone. Avaya seem to be the second placed provider with Nortel third currently.

Big suppliers have prices that only big companies can afford.
It is like the first cell phones, they were so expensive a few could pay for them, but with the lower price there arrived the number...

Public network switching providers are also developing their IPT offerings in a bid for supplying hosted solutions. Lucent, Ericsson and Nortel have invested significantly. Their strategy is less aggressive compared to the enterprise space - traditional telephony PSTN switches will be with us for many years. This development cannot be neglected by the enterprise, as IP centrex functionality emerges and provides a realistic option for a hosted IPT solution. However, network based solutions will inevitably take longer to deploy and may be years in the making.

That is one of the reasons VoIP is not widespread today.
The Bigs are in front of a dilemma:
Loosing their wonderful revenues or loosing the train of progress...
In the meantime they do and do not do...

There are various trial implementations being undertaken worldwide. Lucent have made inroads in the US carrier market as well as in Australia. Ericsson have successfully implemented within Europe.

Service provider investment

The International Telecommunications Union (ITU) laid out their vision for 'Next Generation Networks' (NGN) providing carrier grade service standards relating to quality of service, reliability, scalability, simplified network operation and management. In the UK, this approach has been publicly embraced by BT and Cable & Wireless.
In April 2005, Avaya and BT jointly announced the signing of Avaya's supplier contract with BT, estimated to be worth up to £80 million over three years. Interestingly, this deal appears to support BT's immediate capability for hosted IPT solutions in the enterprise space. It is uncertain how this will sit alongside BT's current IPT offering, MMVoIP, their Cisco based service offering.

Alongside this enterprise focus, BT's major commitment to NGN comes in the shape of their 21st Century Networks (21CN) initiative. As part of a £10 billion investment, BT announced their strategic suppliers and selected Ericsson to provide the public IPT platform. This heralds the widespread availability of IP Centrex during 2008.

Cable & Wireless' plans for their NGN implementation include a £190 million investment to replace their 70+ carrier switches with 10 IPT soft switches. They plan to complete implementation by the middle of 2008 'ahead of BT'.

The landscape is therefore set for IP Centrex to be widely available during 2008 but, more significantly, the carriers are banking on convergence representing the future of telephony.

"The bigs will win". I do not believe it.
Major investments mean higher pricing and the same services or even less than a local provider could offer.
Don't they see that the people on the road expect better than a lousy calling center where they cannot help anybody but the one who is paid for the call?

User examples
Major deals in 2004 indicate that US enterprises are feeling less nervous and starting to embrace the possibilities of IPT. In July, Boeing Co. announced plans for an IPT rollout encompassing more than 150,000 users across 70 countries. This was topped less than three months later when Bank of America commenced a rollout to 180,000 desktops in 5,800 locations.

In the UK, IPT uptake has been smaller in scale and low key. However, one case study is often raised as the flagship for IPT - Abbey National.

Since the Abbey experience, no other multi-site IPT implementation has hit the headlines in the UK. There have been numerous single site case studies, most notably providing IPT to the RSPCA's new headquarters.

With the telephony suppliers investing significantly in IPT, the service providers committing to hosted IPT and widespread implementation in the US, why are we in the UK not fully embracing the potential?

Also here the point is missed.
The investments have been significant, otherwise we wouldn't be at this point.

So where now?
IPT technology is available now. Scalability, reliability and functionality are lesser concerns and experience suggests cost is the most significant inhibitor. A study recently commissioned by Nortel cited '48 per cent of firms unconvinced by VoIP returns'.

The common mistake has been to treat IPT as a standalone business case - it is not. IPT is part of a convergence business case requiring all data and voice infrastructure to be considered as a whole.

But it was till a little time ago.

Looking at each specific part of the convergence chain gives us the following often repeated outcomes:
Generally, migrating onto a voice ready wide area network (MPLS protocol base) will reduce bandwidth costs. However, your site router will need to be voice enabled although the bandwidth saving should cover any upgrade required.
IPT requires site local area networks (LANs) to be voice ready and, ideally, be able to support inline power to the IPT handset. Given that many UK enterprises have, over the last ten years, migrated from token ring to Ethernet and at the time were unlikely to take account of voice readiness, we encounter a major dilemma. The LANs work fine for data but need a complete replacement to support IPT - this represents significant cost.
Replacing the PABX with IPT also represents a significant cost. PABX technology is highly reliable, cheap to maintain and, because of its longevity, usually fully depreciated with minimal investment budgeted.

See above, VoIP brings the best ROI a company could dream.
And a company has to invest, hasn't it?

Based on the above it is easy to see why IPT in the UK has yet to take off.


However, indefinitely writing off enterprise convergence cannot be sustained. The suppliers and service providers are slowly leaving us no choice. Beyond 2007, our PABX technology will become obsolete. Service providers will provide hosted options. Analysts predict that IPT implementation costs will decrease significantly.
Tactically we can stick our heads in the sand but strategically, planning needs to start now. It seems likely that the options and costs will become increasingly attractive and the suppliers are providing risk minimised routes to implementation.

All this points to the conclusion that a change to IPT will become beneficial and almost inevitable - it is now a matter of strategy, timing and approach.

In 2003, Abbey contracted through an outsourcing deal with BT for a new IP virtual private network (VPN) that would also deliver 1.2 million public and 750,000 internal voice calls every month. The IPT rollout covered 746 branches and data connectivity was also provided to the main offices. The core technology for voice and data was Cisco based, provided through a full rollout of BT's Multimedia VoIP to all Abbey's branches within eight months of the contract being signed. The service is operating successfully today covering over 7,000 IPT extensions.

The authors
David Yip is a director of Xantus Consulting, where he advises central government organisations and FTSE 100 companies on infrastructure and services sourcing. Siân Tudor Jones worked with Barclays Bank and AstraZeneca for a number of years before joining Xantus in 2002.
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