When IP telephony first hit the enterprise radar at the turn of the century, the talk was all about cost savings. Innovators had gotten over the introspective technology talk and carriers started to come to terms with this threat to their traditional wire-line cash cows, and together they went to market selling savings. ICM/Vanco research indicates cost reduction has been the number one priority for CIOs since our formal market analysis began (and probably for every prior year). However, although the market was offering what enterprises wanted at the time, it was still not as much as IP telephony could offer.
Cost-reduction arguments were based on “free calls” across an IP network verses “expensive” minute rates. The reality is that analog minute rates have come down in price dramatically as carriers respond to the threat of IP telephony. However, the real sticking point is in the changeover costs. Analog telephones cost roughly $38 per user, and most businesses, rather perversely, have them coming out of their ears. Many have written off the cost of these handsets, and often a large part of the analog network that supports them. Some companies had as many as 2,000 unused PSTN ports about which they knew nothing.
Meanwhile, IP telephones continue to cost approximately $285 per user. Add to this support costs of about $19 to $28 per user per annum plus the expense of retraining staff at the outset and the cost-reduction arguments for IP telephony fall flat, even for companies that already have an IP data network in place. However, big equipment vendors are making significant concessions on the capital cost of the phones to win new business, which they hope to recoup on the support contracts. This has altered the return on investment calculation somewhat.
Occasionally, a genuine ROI argument exists for greenfield or remote sites, and in these cases enterprise customers have started to see financial benefits on a small scale. Adopting IP telephony in greenfield environments will usually make sense, but then it becomes important for the service provider to be able to integrate that with the existing systems. The complexity of this integration requirement has stopped many companies from moving to this technology even when there is a business case to do so.
Thus, a compelling but non-financial business argument will be needed to pull IP telephony into enterprise companies in some sort of magnitude. I use “pull” rather than “push” because enterprises will only see the benefit if they look carefully at the business case instead of just believing in the hype.
The IP telephony message is evolving to one focused on improved functionality, efficiency and integration with cost being driven out as a result of these factors rather than being the justification in its own right. Enabling true “hot-desking” and improved customer service through integration of calls and computers are two of the common examples cited. These bring business benefits but will ultimately reduce costs, whether the cost of employee moves, adds and changes, or the cost of delivering a certain level of customer service.
While more and more enterprise customers are seeing the upside of IP telephony through focusing on these user benefits, they must also be aware that new technology always has a downside, also based on user experience. Traditional voice remains exceptionally reliable, having had 100 or so years of monopoly state-sponsored support in almost every country. These combined regional networks form a tremendously strong and dense voice network designed specifically for the job.
Despite technological advances, running voice traffic over IP is not just a case of swapping over phones. To run voice traffic reliably on an MPLS network, it must be able to configure all of the necessary queuing and traffic prioritization on the customer premise equipment, as well as configure prioritized bandwidth in the core itself. The big factors affecting voice performance across the IP network are the COmpression and DECcompression (CODEC) used to compress the voice traffic itself, and the network latency/jitter performance. This isn’t just important at the time of implementation – the network must be carefully monitored to ensure that these parameters remain acceptable over time.
However, these technical problems are being solved. Carriers’ regional MPLS networks are technically capable, while global Virtual Network Operators (VNOs) like Vanco are connecting these networks and providing Class of Service re-marking, consistent Quality of Service scoring, and global SLAs to connect the carriers and provide a harmonized service to enterprises. Globalization via collaboration is not something for which the carriers, acting in a competitive environment, are renowned. Meanwhile, enforced global standards are highly unlikely in a marketplace that is already scrambling, not for the next technology innovation but for the one after the one after that.
The good news for enterprises is that it is the next IP telephony innovation that will deliver the real cost savings, and the even better news is that it is already well advanced. The bad news is that, as usual, companies are protecting their technology-dependent revenues as they try to recoup massive financial outlays on the last round of technology. However, this time it is not the wire-line carriers but the mobile operators and their networks.
This is because IP connectivity to mobile providers will be fundamental in creating the cost savings that the majority of enterprises will need to see before making the leap. Here’s why: 70 percent of enterprises’ analog voice calls are to company mobiles and 45 percent of that (so just over 30 percent of all analog calls) are to mobiles being carried by people sitting in offices. If offices are enabled to connect these mobiles to the IP network eliminating the voice-minute charges, it creates big savings for enterprises. Also, considering mobile-to-mobile conversations that are taking place within offices, the enterprise doubles its savings.
This is the single most persuasive reason for enterprises to switch to IP telephony.
And it is happening now. Hybrid GSM-WiFi (News
) phones like the Nokia (News
) 6136 have this functionality that will eventually lead to one phone number anywhere, GSM out of the office, and wireless connection to IP in office and at hotspots. Mobile operators dislike the threat to their networks and are not giving up without a fight. However, whatever they do will only delay the inevitable and I expect them to be left like King Cnut as hybrid phones become price-competitive and the ROI for mobile over IP becomes compelling for enterprises.
Where does this leave everyone – the enterprises, carriers (mobile and fixed), and the VNOs?
Most enterprises will not want to train teams of IT staff at great cost, as this will reduce the savings that are at the forefront in driving the move to IP telephony, and this will continue to happen as technology moves on and the next round of upskilling takes place. Carriers will continue to invest in technologies, infrastructure and assets as they compete for a slice of the globe along their chosen technology roadmap, investing their shareholders’ money and sweating their assets to get it back.
Meanwhile, VNOs will continue to sit between the carriers and enterprises, understanding customer needs and assisting enterprises in selecting, integrating, implementing and managing technologies that suit customers’ business requirements.
The mobile space remains as fragmented as fixed line – many operators have evolved from the domestic fixed-line carriers, so their footprints are usually limited to their “home” country. Despite some consolidation through M&A activity of the big players, the impact has in many cases been more that of a marketing agreement. Again, just as in the fixed-line space, a huge challenge exists for a global enterprise organization that wants to take advantage of fixed-mobile convergence but operates across many countries.
And again, the VNO approach offers a better answer.
As service providers, VNOs define a solution rather than sell a device. As mobile over IP becomes a very real proposition for enterprises, the potential for cost savings and business value will be found and banked. However, it will be in the proactive management of multiple technologies and carriers, for IP telephony and beyond, that enterprises really see (or should it be hear?) the difference.
Ted Raffetto is U.S. CEO of Vanco (www.vanco.com and FTSE: VAN), the pioneering virtual network operator (VNO), which provides enterprise clients, directly or through partners, with cost-effective, optimized and fully managed network solutions, as well as helps carriers extend their off-net reach. Raffetto, a former senior executive at Bell Atlantic and Calix, joined Vanco in 2001.