Cutting Costs

By Baselinemag  |  Posted 2005-12-14 Print this article Print

Boeing will scrap 125 old phone switches as part of one the world's biggest IP telephony projects. Will the new system fly right?

; Admirable ROI">

Naughton's team figures Boeing's IP telephony project will have an IRR (internal rate of return) of 49 percent over seven years.

It means, in general terms, that over that period Boeing would save an average of 49 cents per year for every dollar invested.

That's a fairly high return for an information-technology project. But financial analysts say Boeing's seven-year time span indicates its biggest projected savings will come in the project's latter stages.

They also point out that IRR assumes returns can be reinvested into a project, which is not always the case. (Boeing declined to detail its IRR calculations.)

Boeing expects its biggest gains in the reduced cost of moving, adding or changing employee phones.

A Boeing worker moves an average of 1.7 times per year; that's 272,000 instances per year when a technician must help a person relocate his or her phone, a function the company has outsourced to IBM Global Services.

With IP telephones, in theory, moving is as easy as unplugging the phone, taking it to the new location and plugging it back in. Assuming—conservatively—that each MAC (move, add or change) in an IP telephony system would cost half the industry's standard estimate of $100 per MAC in a circuit-switched environment, that's a potential annual cost reduction of at least $13.6 million.

Second, Boeing anticipates reduced long distance costs once it's able to route phone calls among offices in the U.S. and abroad over the corporate IP backbone (though the company declines to provide a dollar figure).

A third source of savings is cabling, as the new system will require only one wire to go to every desk.

Naughton also estimates that maintaining a multivendor environment is 20 percent more expensive than using a single vendor for voice, data and video infrastructure.

"The general drawback with multiple vendors is you have to build a support organization around each environment," he says, adding that, at Boeing, "it seems like we have one of every phone switch that was ever manufactured."

But the company will be paying considerably more for the IP phone sets employees use. Traditional circuit-switched phones—analogous to dumb terminals that connect to mainframes—cost between $5 and $10 each; Cisco's IP phones start at around $100. "We're expecting that the industry will drive the cost down over time," Naughton says.

Story Guide:

  • Talking Points: After years as an also-ran, VOIP is in the front ranks of business tech.
  • Leap to IP is Still a Tough Call Despite advantages in cost and maintenance, it still takes a leap of faith to migrate, and a lot of determination to sell the idea to decision makers.
  • No Killer App, But Lots of Small Enticements Smallish efficiencies and the increasing number of apps aimed at particular businesses build up to make a good case for VOIP.
  • Boeing's Jumbo Phone-System Overhaul: Boeing moves 125 phone switches to IP, in what may be the largest corporate migration to date.
  • Non-Trivial Migration: 35,000 Users, 125 PBXs, Clusters, Servers…
  • Cutting Costs; Admirable ROI: 49 percent over seven years.
  • Unsupportable Optimism? Some analysts say Boeing and other companies may be ignoring potential downsides.
  • Cost Analysis: Functionality aside, do the costs justify a migration to VOIP?

    Next Page: Unsupportable Optimism?

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