Telephone systems are shuttling down a one-way track toward Internet technologies. But most companies, unless they’re chucking out archaic voice systems, are adopting Internet Protocol telephony gradually rather than upgrading all at once.
That’s because packets make better use of bandwidth than circuits. In conventional, “circuit-switched” calling, the full bandwidth of a connection is dedicated to a given phone conversation even if no sound is being transmitted. By comparison, with IP telephony, every phone conversation is sliced into tiny snippets. Multiple calls, in the form of those snippets (which are data packets), can then be carried simultaneously over the same pipe.
But in reality, the economic justifications for IP telephony aren’t so tidy. The costs to implement an entirely new IP-based voice infrastructure often produce a time-to-payback that’s unrealistically long, says George Hamilton, a senior analyst at The Yankee Group. “Companies that move to IP telephony based solely on cost-savings are almost never happy with the results,” he says.
It’s still early in the adoption curve for this technology, though the scene is shifting. Last year, IP-enabled voice systems represented 31% of the total enterprise-telephony market by line shipments, up from 16% the year before, according to consulting group InfoTech.
The most common path to IP telephony today is either to install a private branch exchange (PBX) system that can service both traditional circuit-switched phones and IP models, or else upgrade an existing PBX to handle IP. Research firm Current Analysis estimates that at least 85% of existing PBX deployments use a mix of IP and circuit-switched phones, as opposed to IP alone. The alternative to this, of course, is to start from scratch with an IP-only phone system from vendors such as Cisco Systems or 3Com. Less typically, a company may procure Internet-based phone service from a telecommunications provider such as Vonage; analysts expect such services to grow after the Federal Communications Commission settles on the extent to which it intends to regulate them.
Unlike the jittery, malfunctioning IP phone systems from years gone by, today’s offerings have matured into stable, full-featured products. When St. Michael’s Hospital in Toronto first IP-enabled its Nortel Networks PBX a year-and-a-half ago, it had some problems with poor call quality, says chief information officer John Wegener. Those issues were fixed in subsequent upgrades, he says: “Now it doesn’t make any difference whether I use the analog or IP phone—they both work the same.”
Most businesses that have adopted IP telephony use it to connect phones within a building over an IP network, or to link multiple offices over dedicated network links to avoid paying long-distance charges among their own facilities. In some cases, IP telephony provides off-site or mobile employees access to a voice system at the home office. (See “When To Stuff Voices into Packets,” p. 96.)
The University of South Florida (USF), for example, last year installed an Avaya S8700 server to extend its existing Definity G3R PBX phone system over IP networks, a project that only cost around $80,000. “We didn’t have to spend a ridiculous amount of money to move to the new technology,” says Kate Nidasio, USF’s director of telecommunications. The university now provides IP-based voice service to 200 employees at 12 off- campus sites, where the phones work exactly as if they were locally linked to the Definity PBX.
Sometimes an organization’s phone systems are so ancient or decrepit that there’s no way to gracefully shepherd them into the world of IP telephony. It’s in such “greenfield” cases that Cisco, for one, has had some success.
The U.S. Department of Commerce wasn’t looking to save money when it rolled out 4,000 Cisco IP phones at its Washington, D.C., headquarters last year. Mainly, it was looking for a way to broadcast emergency announcements, so it needed to replace 134 obsolete telephone systems. “We had no modern phone technology,” says Karen Hogan, the department’s deputy chief information officer.
Still, IP telephony has the potential to slash expenses. Four years ago, the Minnesota Department of Labor and Industry was paying $21,700 a month for direct-dial Centrex phone service from the state’s central telecommunications agency. In July 2001, the department cut over to Cisco IP servers and wound up spending less than $10,000 per month in local-access fees because it routes its own calls internally. The total project cost $435,000, resulting in a time-to-payback of about three years. “The irony is that this did not start off being a money-saving project,” says Mary Benner, director of the agency’s computer center.
But the supposedly killer benefit many people expect from IP telephony—being able to skirt long-distance charges—doesn’t always materialize, except for companies that place a significant number of calls between their own offices in different regions, analysts say.
One reason: U.S. long-distance rates are so low, it’s almost a wash to replace legacy telephone service with voice-over-IP, especially factoring in the cost to upgrade the data network to adequately handle voice, says Ray Cowley, senior vice president for enterprise network services at KeyCorp. You’ve got a perfectly good, reliable voice network that’s cost-effective,” he says. The Cleveland-based financial services firm has implemented IP telephony at just 3% of its 900 branches.
IP-telephony vendors are hoping to soon provide more compelling selling points by linking traditional voice services with Web-based services. For now, though, these applications aren’t developed enough to turn heads, says Jeffrey Snyder, an analyst at Gartner Inc. “The move to IP telephony is inevitable,” he says. “But right now we’re in a transition phase.”
