Say Hello to Your New Phone Company: You

By Tom Steinert-Threlkeld Print this article Print

Heinz, caterpillar and others will set the tone for business partners, because of economics.

AT&T and MCI may think that Vonage, Skype and other Internet-based suppliers of telephone service are the outfits they must worry the most about, as the cost of a minute of calling plummets toward zero.

The fact they won't want to face is that their best customers—large businesses—may soon be their biggest competitors. If you can't envision your company being a communications provider, read on.

Peek at the European operations of H.J. Heinz, the Pittsburgh condiments maker. The company has installed systems that handle voice calls on Internet protocols at eight sites in the Netherlands and five sites in the United Kingdom. The company has deployed 7,000 phones on the Continent that break calls into data packets, and another 1,000 at its U.S. headquarters.

Skip across the pond to Wigan, a town in the Lancashire region of England. Next door to Heinz' factory sits a partner named Wincanton Group, which moves Heinz' bottles of ketchup around the United Kingdom. When Wincanton built its distribution center next to the ketchup factory, the two companies paid 4.2 pence (about 7.5 cents U.S.) per minute for the privilege of talking every day.

So Heinz decided to bypass the public phone network altogether. It laid its own fiber line to the distribution center and put 100 packet phones on Wincanton's site. Now, Heinz' 70 managers pay nothing to talk to their logisticians. Both outfits save money.

The ketchup company even gave Wincanton a new main phone number and its own local data network. In effect, Heinz created an extranet for voice communications—but nothing will keep it from exchanging purchase orders, voice mail, video messages or just about anything else with its partner, as long as the data can be delivered in byte-sized chunks.

All told, Heinz has 37 sites across Europe. It can replace "buckets of contracts" with communications companies with as few as one master contract with an Internet service provider, if it so chooses. The economics can be very persuasive.

Let's say you want to connect 37 branch offices here in the States. At going rates, the cost of connecting them by a private frame relay service runs about $61,000 a month. But if you put the connections on the Internet and use virtual private networks to connect the sites, that fixed cost drops, to an estimated $39,000 a month.

Which could make large corporations the driver of how communications services get deployed in the future—and who controls relationships with small and medium-sized companies. Why wouldn't a company like farm equipment maker Caterpillar, for instance, want to put its trading network under its wing, if it can control costs, features and services under one master quality-of-service agreement with an Internet access provider?

In effect, Caterpillar—or any other company—then makes the day-to-day decisions. Call it IP Centrex or something else, but if the companies in the ecosystem agree to work with five-digit dialing, they can. Dial 7 for an affiliate, dial 8 for inside the company, dial 9 to go outside the network.

If you don't think a company like Caterpillar, with $22 billion in annual revenue, will undertake massive installations of Internet voice gear from outfits such as NexTone or Cisco, think again. And it won't be the first to try and tie in its business partners. Already employing this tack is the Brandon Regional Health Authority, which serves 180,000 patients in Manitoba, Canada. Because its 3Com-based Internet protocol network can expand to thousands of users, the authority now provides telephony services at no charge to 72 rural hospitals that hook into a province-wide data network. A private clinic has been offered voice service, for a fee.

Heinz has the goal of eliminating all charges, worldwide, from public telephone networks for internal calls. Who wouldn't want to cut $50 or $100 a month of cost per employee—and increase bandwidth at the same time?

You may not think of yourself, today, as a communications company. But if three years from now you're digging trenches, laying fiber, determining dial plans and charging fees for use of your network, you will be one.

This article was originally published on 2004-10-01
Tom was editor-in-chief of Interactive Week, from 1995 to 2000, leading a team that created the Internet industry's first newspaper and won numerous awards for the publication. He also has been an award-winning technology journalist for the Dallas Morning News and Fort Worth Star-Telegram. He is a graduate of the Harvard Business School and the University of Missouri School of Journalism.
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