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Voice of IP grows louder
What's the main reason driving enterprise migration to IP for voice - surely not just the replacement cycle?

By Simon Marshall

Published: Wednesday 10 September 2003

Long billed as the future of telecoms, IP telephony has struggled to take hold in the enterprise. But as Simon Marshall discovers, falling costs, aging equipment and a new range of managed services are enticing businesses to take a second look.

You’ve heard this story before: IP telephony uptake is accelerating and it represents the sort of modern, money-saving technology your business shouldn’t be without. Except this time it’s true. Recent developments mean that transporting voice traffic on an IP network alongside data is becoming a commercial reality rather than wishful marketing huff and puff.

"I think IP telephony growth is really accelerating," says Simon Boyle, senior consultant at systems integrator Dimension Data. "Everyone now accepts that it’s a case of 'when' and not 'if', and I think that’s because the business environment is picking up a bit and enterprises are driving for efficiency as well as cost savings."

Still, despite a prevailing wind, it’s not quite plain sailing for an enterprise looking to integrate IP telephony into its communications strategy. Along the way, they can still expect budgetary, technical and operational challenges.

And, with budget, one of the final hurdles – the price of IP handsets - may have just fallen.

"When we launched the current generation of IP handsets in August 2001 we only had high-end product, and it was only shipping in low volumes," says Tim Stone, manager of voice Solutions EMEA at Cisco Systems. "So we found that account teams selling into enterprises that only had a basic requirement weren’t having much luck. Now we’ve got a range of handsets and we’ve reduced the prices." For example, he claims handsets costing $600 two years ago now retail for around $130.

In technical terms, beginning to integrate IP telephony either as a hybrid IP-PBX-based solution, or a full-on software-driven call server approach, has always scared the willies out of enterprises. They’ve long seen it as a slippery slope towards business disruption, expensive network performance and troubleshooting issues. Then there’s the threat of leaving themselves exposed to a ferocious technology learning and upgrade curve, and possibly having to justify replacing existing kit on brownfield sites with many years of service left in it. Yet the annual PBX replacement rate is around 12 to 15 per cent of companies.

"A lot of organisations we deal with have PBXes and are not in a position to just throw them away, so we are seeing a hybrid approach where their PBX is connected across different sites using an IP VPN," says Howard Ends, IP Services marketing manager at Kingston Communications. Once they get used to this arrangement for sending data, enterprises then use the same infrastructure to send voice, so minimising possible disruption.

"We have to provide a migration path," explains colleague Paul Bulmer, IP product line manager at Kingston. "It’s often between six and 12 months before voice can be integrated into the WAN, especially if it’s an MPLS-based network, because that’s still such a new technology."

This arrangement can be used to give remote sites access to the same directory facilities and call features of head office colleagues. Boyle claims about 20 to 30 per cent of the UK market is making a decision to integrate IP telephony based on access to this added functionality alone.

By contrast, the argument for greenfield installations is now considered by many to be a no-brainer.

"If enterprises are refurbishing or moving into new premises, they always go for IP telephony," claims Dimension Data’s Boyle. "The logic of a single infrastructure and the associated cost savings have already been acknowledged but, of course, there are not really that many greenfield sites right now."

However, couple added functionality with the traditional ROI argument and new developments such as managed IP telephony services, and the proposition is compelling for both new and existing offices. Generally, businesses taking managed services can go halfway with a hosted call server and manage their own router, or plump for a fully outsourced IP telephony service.

"A big part of the hosting decision is that it’s strategic to the business," says Boyle. "One of the main benefits here is that you are not tied-in to a technology and you can have all the latest services delivered to you."

Kingston’s Bulmer agrees. "There does seem to be a willingness from businesses to outsource," he says. "We offer the ability to manage a particular area if there is no in-house skill, because we think it’s less attractive to offer a totally outsourced approach when a company may only have certain skill gaps."

Service providers, systems integrators and vendors are now aligning themselves with this demand in the market and partnering with one another to deliver the goods. Enterprises now generally have the choice of specifying and purchasing their own equipment, and then getting it hosted, or leaving it all to service providers such as BT or Cable & Wireless, or integrators such as Dimension Data, EDS and IBM.

"It’s fair to say that a lot of our biggest deployments have been in the managed environment," says Cisco’s Stone. "We’ve put a lot of effort into developing service providers as a channel to market."

He cites Abbey National, Heinz, Lehman Brothers, Lloyds of London and Surrey Council as recent examples of this type of approach. General interest still appears mostly from the public, healthcare, financial, manufacturing and then retail sectors, in order of magnitude but an impending return of budgets may see more commercial blue chip activity. According to Stone, this market is however only about 10 per cent of annual IP kit sales, showing it still has large scope for development.

In terms of operational decision-making, enterprises at last seem to be coping with the challenges that convergence kicks up.

"I’m happy to say that the roles of CTO and CFO are becoming converged into a CIO title, and so this potential split in decision making is now declining as an issue," says DiData's Boyle.

All of which leaves many brownfield as well as greenfield enterprises ready and, in an increasing part, willing, to take the plunge. Now, all they seemingly have to do is to convince their accountancy departments.

"A lot of PBXes were replaced in 1999 because of Y2K issues, and a lot of enterprises depreciate these assets over seven years," explains Cisco’s Stone. "So if they are seen to be throwing them away early, they have to account for it as a capital loss…and maybe that’s why managed IP telephony services are set to become more popular."