[image: Business Week Online] <http://www.businessweek.com/>
<javascript:self.close()> Close Window <javascript://> JULY 10, 2006
CEO Guide to Technology By Rachael King
Internet Telephony: Coming in Clear Companies are upgrading old phone
networks to reduce bills and add features. But cost savings can take time,
and IP systems aren't risk-free
When Robert Fort took charge of information technology at Virgin
Entertainment Group in North America, he was dazzled by the company's array
of music, movies, and gamesand the hip in-store kiosks customers could use
to sample the wares. What he found decidedly less dazzling: the
communications system that connected those stores.
It was expensive, cumbersome, and couldn't deliver sample content to
would-be buyers. So last year Fort made a radical move. He scrapped the old
phone network altogether, and, with the help of SBC Communications (now AT&T
(T <javascript: void showTicker('T')> )) and Cisco Systems
(CSCO<javascript: void showTicker('CSCO')>), he moved the voice
traffic from the fifteen
U.S. Virgin Megastores onto the company's data network.
CALLING ALL DATA. He relied on a technology called Voice over Internet
Protocol (VoIP) that can reduce costs and increase calling flexibility by
delivering voice communications in much the same way e-mail travels over the
Internet or a corporate data network.
The result? Virgin expects to save $700,000 a year, mostly in long-distance
phone bills, on a network that cost $330,000 in the first year and will
ultimately carry a price tag of $1 million. Best of all, the new network
also lets Virgin stream content250,000 CDs, 11,000 DVDs and 7,000 gamesto
any kiosk in the store.
Like Fort, a lot of IT executives are taking the VoIP plunge, ditching
dated, feature-poor phone systems called private branch exchanges (PBXs)
that send voice calls over copper wire networks. By the end of the year,
there will be 14.7 million enterprise IP telephony lines, about 21% of the
North American installed enterprise base, according to Gartner
(IT<javascript: void showTicker('IT')>). That's up from 11% in 2004.
Global sales of enterprise IP telephony gear
are projected to reach $4.9 billion this year and more than double to $10.6
billion in 2009, according to Synergy Research Group.
The number of enterprise VoIP vendors is growing, too. In the past two weeks
alone, Microsoft (MSFT <javascript: void showTicker('MSFT')> ) and Vonage (
VG <javascript: void showTicker('VG')> ) have announced plans to enter the
fray. They're angling for a slice of a market dominated in the U.S. by
Cisco, Avaya (AV <javascript: void showTicker('AV')> ), Nortel
(NT<javascript: void showTicker('NT')>), NEC, and Mitel.
WIN SOME, LOSE SOME. Why the increasing interest in IP? Many are drawn to
VoIP systems by their potential to slash long-distance phone bills. Indeed,
the move can reduce operational costs by 21%, not including troubleshooting,
according to Nemertes Research in New York. And big savings come when
employees move desks. With conventional PBXs, moves are a hassle, often
requiring a costly visit from a service technician. But workers can plug in
their IP phones anywhere.
Still, costs for equipment, network upgrades, and professional services can
eclipse near-term savings. For some, it can take anywhere from six months to
several years to see a return on the investment. On average, companies with
fewer than 1,000 users can expect to spend $887 per user on capital
equipment such as IP phones and switches as well as planning, installation,
and troubleshooting, says Nemertes. That figure drops to $563 in cases of
more than 1,000 users.
And businesses need to be prepared for some cost increases as well. "An
outage on a Voice-over-IP network takes one to three times longer to isolate
and fix," says Robin Gareiss, executive vice-president and senior founding
partner of Nemertes. Executives will also need to spend more time planning
and installing VoIP. Costs associated with planning, installation, and
troubleshooting increase by about 20%, says Gareiss.
ADDED CONVENIENCE. With cost advantages uncertain, at least at the outset,
many users find that the biggest benefits are some new capabilities that
come with routing calls over the same network that runs business
applications and data. For instance, employees can set up spur-of-the-moment
audio and video conferences without reserving a conference bridge in
advance. Another feature: they can use so-called presence awarenesssimilar
to the feature in instant messaging that lets a user know if someone is
online and availableto know whether a colleague is traveling or in a
meeting before picking up a handset or dialing a number.
For executives, VoIP means greater control over calls. "The average
knowledge worker is interrupted every three minutes and it takes them eight
minutes to get back to work," says Howard Thaw, chief operating officer and
co-founder of iotum, an Ottawa startup that has created a service to help
executives prioritize phone calls based on where the workers are, what
they're doing and who is calling.
Another appeal of VoIP: letting companies take advantage of the many
on-ramps to the Internet. An executive traveling in Shanghai, for example,
can log onto the Internet from a hotel and make phone calls around the world
through the company network at little or no cost.
MOBILITY. The technology can also allow for more flexible work
arrangements. Alpine Access, for instance, uses 7,500 home-based agents to
handle calls for clients such as J.Crew (JCG <javascript: void
showTicker('JCG')> ), 1-800-Flowers, and Office Depot (ODP <javascript: void
showTicker('ODP')> ). Because quality and reliability are increasing with
VoIP, Alpine Access is planning to use the technology to route calls to home
agents in the near future. By using home-based agents, Alpine Access saves
on the overhead costs of operating a physical call center.
VoIP gives companies added leeway in managing other employees who operate
outside of traditional office settings. "Nearly 40% of the time, workers are
away from their desk," says Lior Nir, senior product manager in the
enterprise business group at Nokia (NOK <javascript: void
showTicker('NOK')>) Enterprise Solutions. Workers at Lowe's (
LOW <javascript: void showTicker('LOW')> ), for instance, use mobile
handsets from SpectraLink (SLNK <javascript: void showTicker('SLNK')> ) that
let them communicate over the company's Wi-Fi network.
Then there's the advantage of what's called unified messaging, which lets
executives manage voice, e-mail, and fax messages in one location. At Virgin
Entertainment Group, an executive traveling on business can check into a
hotel room, log onto the company's network and check voice mail and e-mail
messagesall from a Microsoft Outlook inbox. "My CEO came to me one day and
told me he loved unified messaging and then he came back later and said it's
the best thing I've done since I've been here," Fort says.
UPGRADING PITFALLS. If executives are hoping for similar kudos from
colleagues, they'll need to gird for the risks associated with making a
switch to VoIP systems (see BusinessWeek.com, "CEO Guide to VoIP: Tip
Sheet"<http://www.businessweek.com/technology/ceo_tipsheet/2006_3.htm>).
When companies move voice communications to a data network, suddenly they
are at risk for Internet security problems such as denial-of-service attacks
or rogue software being downloaded to handsets (see BusinessWeek.com,
6/13/06, "Is Your VoIP Phone
Vulnerable?"<http://www.businessweek.com/technology/content/jun2006/tc20060613_799282.htm>).
Dan York, best practices chair for the VoIP Security Alliance and an
employee at Mitel, recommends making sure the vendor supports encryption.
IT execs also need to ensure the new systems include safeguards, or
so-called quality of service, that give priority to voice calls in the event
of heavy network congestion. "Voice adds traffic and that traffic behaves
differently, so you will see new bottlenecks emerging," says Jeff Snyder,
research vice-president at Gartner.
Another challenge for companies upgrading to VoIP is making sure the network
can handle 911 calls. Because IP phones can be plugged in anywhere, it can
be much more difficult to find employees in the event of an emergency. Most
vendors have worked out solutions to this problem, but most require that
employees manually update location data each time they move.
But there's good news on the security and service-quality front. Enterprise
VoIP vendors have gone a long way toward addressing shortcomings in recent
years. "There were problems with system uptime, security issues, and
training employees to use new desktop phones," says Lisa Pierce,
vice-president of Forrester Research.
LOTS OF OPTIONS. VoIP providers also have wasted no time coming up with a
vast array of products and services (see Slide Show, "New Voices Mean Big
Business" <http://images.businessweek.com/ss/06/07/voip/source/1.htm>).
Generally, these can be grouped into two categories: enterprise hardware,
and software and hosted services.
The market for hardware and software is led by Cisco, which had 24.3% share
in the first quarter, according to Synergy Research Group. Avaya came in
second with 23.4%. Companies looking to make a conversion in one fell swoop
are likely to opt for what's known as an IP-only system offered by vendors
including Cisco, Nortel, 3Com (COMS <javascript: void showTicker('COMS')> )
and others.
This is the approach taken by Virgin and it typically involves installing
the Ethernet switches that connect computers in a given network and the
servers that run call-control software and IP phones. It also requires a
special capability called power over Ethernet for keeping the phones running
should power fail.
Businesses looking for something less radical can opt for a hybrid system
that uses a combination of VoIP technology and conventional telephone
network equipment. It lets companies migrate incrementally to IP telephony
and still use some existing voice platforms. It's ideal for companies
concerned about the price of an upgrade or that have already made
significant investments in conventional voice networks that haven't yet
reached end of life. For instance, Fossilbest known for its fashion
watcheshas been migrating to VoIP for the past five years, using VoIP
equipment from Nortel. The company has installed nearly 700 IP phones at its
headquarters in Richardson, Tex.
Microsoft, according to its late-June announcement, wants to add a third
approach that relies on the computing power of the end-device, whether it's
an IP phone or a computer, and doesn't require any special telephone
switches (see BusinessWeek.com, 2/1/06, "Voice over Microsoft
Protocol?"<http://www.businessweek.com/technology/content/feb2006/tc20060201_765368.htm>).
Microsoft plans to launch its Office Communications Server 2007 and a line
of IP phones that run Microsoft Office Communicator software by the second
half of 2007.
Hosted VoIP may work for companies that want integrated voice and data
communications without some of the hefty up-front costs or hassle of
maintaining and upgrading a VoIP network. Typically, a company would buy IP
phones but not the larger switches. The service provider manages all the
equipment and delivers the service for a monthly fee based on the number of
users. Typically these services are ideal for midsize companies or branch
offices.
Covad (DVW <javascript: void showTicker('DVW')>) now leads the market in
hosted VoIP services, but the company has plenty of competition. Last week
Vonage announced its entry into this market with an enterprise hosted
service for $34.99 per user. The service works with Vonage's V-Phone, which
retails for $39.99. Vonage Chief Executive Officer Jeffrey Citron is putting
his phones where his mouth is. Vonage is issuing V-Phones to employees,
replacing the existing Cisco IP phones.
INEVITABLE SWITCH. Whatever vendor they choose, most companies will
eventually move to VoIP, many analysts contend. "IP telephony is absolutely
inevitable, but the timing is up to each enterprise," says Gartner's Snyder.
"There's no reason to feel rushed to adopt that technology unless there's a
legitimate business case," he says.
Fort says he upgraded Virgin's network to stay ahead of the competition. "I
was doing this not only to save money, but to position us for where the
future was headed," he says. As more companies take a similar tack, the
business case is looking more legitimate all the time.
------------------------------
Rachael King is a writer for *BusinessWeek.com* in San Francisco
Advertising <http://www.businessweek.com/advertising.htm> | Special
Sections<http://www.businessweek.com/adsections/>|
MarketPlace <http://www.businessweek.com/marketplace/index.html> | Knowledge
Centers <http://knowledgecenter.businessweek.com/>
Terms of Use <http://www.businessweek.com/copyrt.htm> | Privacy
Notice<http://www.businessweek.com/privacy.htm>| Ethics
Code <http://www.businessweek.com/ethics.htm> | Contact
Us<http://www.businessweek.com/contact.htm>
[image: McGraw-Hill Cos.]
Copyright 2000- 2006 by The McGraw-Hill Companies Inc.
All rights reserved.
--
http://www.mediakonsumen.com/index.html
[Non-text portions of this message have been removed]
Yahoo! Groups Links
<*> To visit your group on the web, go to:
http://groups.yahoo.com/group/Indo-Linux/
<*> To unsubscribe from this group, send an email to:
[EMAIL PROTECTED]
<*> Your use of Yahoo! Groups is subject to:
http://docs.yahoo.com/info/terms/
