Project Guide: Is It Time for VOIP

 
 
By Baselinemag  |  Posted 2005-12-14
 
 
 
Two years ago, pulte mortgage, the Englewood, Colo.-based lending subsidiary of homebuilder Pulte Homes, found two sound reasons to move to Internet-protocol telephony.

First, its previous phone system was failing under heavy loads at peak weekday calling periods—a big problem for Pulte Mortgage, which processed 35,232 loans worth $6.7 billion last year.

"Obviously, the business can't have the phone system go down," says Sean Kelly, the unit's director of infrastructure, architecture and engineering.

Second, Pulte Mortgage was then in the process of opening a new loan processing center in nearby Centennial, Colo.

Kelly's team had already decided to install new Cisco Systems Catalyst 6500 data switches, which have the necessary features to support IP phones.

Those switches provided power over Ethernet wiring—so phone sets don't need separate power supplies—and a feature called quality of service, which guarantees voice traffic will get priority over data so phone conversations aren't affected by activity on the data network.

After an evaluation period, the company decided to adopt Cisco's CallManager and related software to distribute calls to 800 service agents, as well as 300 other administrative staff and executives.

An IP telephony system breaks up a call into "packets," which it sends over a data network, and then reassembles them at the other end of the line.

By contrast, a traditional phone system establishes a dedicated physical circuit for every call.

Expectations at Pulte Mortgage were low, Kelly recalls: "All the business side wanted was a reliable dial tone."

The system has provided that, and then some. Kelly says he saved money on cabling because each desktop is served by only one wire, an

EXECUTIVE SUMMARY: Internet-Protocol Telephony:

WHAT IT IS: Systems that transmit voice calls over Internet-protocol networks, plus the telephone sets (or software that runs on desktop or laptop computers) used with them. Related products include systems for storing and retrieving voicemail; managing call-center activities; and providing desktop videoconferencing.

KEY PLAYERS: Alcatel, Avaya, Cisco Systems, Inter-Tel, Mitel Networks, NEC, Nortel Networks, ShoreTel, Siemens, 3Com

MARKET SIZE: $2.1B for enterprise IP phone systems, 2004 (Dell'Oro Group)

WHAT'S HAPPENING: IP phone systems continue to displace traditional circuit-switched systems, although the older technology still represents about 80 percent of all systems in use. Some companies in vertical industries, like hospitality and health care, have adopted new phone-based applications that integrate data. Giving employees mobile handsets that work over Wi-Fi data networks is increasingly popular.

ONLINE RESOURCES: Pulver.com provides news, research and blog commentary by industry consultant Jeff Pulver; FierceVoIP.com offers a free biweekly newsletter on the industry.

Ethernet cable.

And customer service agents now are able to work outside the corporate call centers, since the Cisco system can send calls over any IP network.

In fall 2005, Pulte Mortgage opened a new call center in Charlotte, N.C., to serve East Coast customers, and outfitted the location with Cisco telephony gear.

Kelly's team configured the network to route calls across the country if the Colorado centers go down. Says Kelly: "IP telephony has helped us save money, and it's given us business-continuity capabilities."

Today, many large organizations feel comfortable that Internet-protocol telephony has become as rock-steady as traditional voice systems.

The Boeing Co., for one, is in the second year of a 160,000-phone rollout with IP telephone equipment from Cisco; Boeing expects to complete the project by 2011 (see "Jumbo Overhaul").

Still, analysts say most enterprises are using IP phone technology selectively—in a new office building, for instance.

About 20 percent of all enterprise phone systems were IP-based in 2004, according to research from the Telecommunications Industry Association trade group.

Consider the experience of Southern Co. The Atlanta-based power utility has deployed IP telephony at 50 of its 500 remote office locations since 2001. Typically, the company's telecommunications connections are split 50-50 between voice and data traffic. In certain offices, the voice half wasn't being used efficiently.

By sending voice over a single data pipe at its IP telephony locations, Southern avoided having to upgrade to faster lines as more and more data was transmitted over them, says Tom LaCorti, the company's principal information-technology architect.

"We wanted to use our network bandwidth better," he says.

Separately, Southern has also installed 600 desktop IP phones from Siemens in its new downtown Atlanta headquarters, which opened this fall.

Why not cut over every office to IP telephony? "It's a time and resource issue," LaCorti says. In other words: For most of Southern's employees, the benefits of the technology don't fully justify the expense.

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: Leap to IP a Tough Call

    Tough Call">

    Internet-protocol telephony can be a difficult sell, because its major advantages are often invisible to employees—from the rank-and-file up to the CEO.

    IP phones may not appear to work any better, or differently, than the old ones. As a result, few companies view the technology as a bust-the-budget innovation that will give them a jump on the competition.

    "For the most part, IP phones have been used as just another phone," says Zeus Kerravala, an analyst with Yankee Group.

    "The value proposition for IP telephony right now isn't strong enough that companies will take a two-year-old legacy phone system and throw it out the window."

    He points out that the growth of IP telephony sales closely matches the rate at which organizations replace their old circuit-switched systems.

    Another inhibitor: Wide-scale rollouts require big capital outlays. Average IP telephony hardware costs for companies with 1,000 or more employees were $488 per user, according to a 2005 survey of 65 information-technology executives by Nemertes Research, a business and technology consulting firm in New York.

    So where does IP telephony make sense? Such systems can, and do, save money. They can cut telecommunications bills by eliminating the need for separate voice lines from a service provider.

    Other operating costs can be reduced; for example, moving, adding or changing an IP phone is simpler than with traditional switches, because an IP phone switch automatically reconfigures itself whenever a new set is plugged into the network. (To figure your own estimates, see "Calculating Costs," p. 74).

    Also, because IP phone systems run over standard, ubiquitous Internet-protocol networks (including the Internet itself), the technology lets phone systems extend way beyond corporate offices.

    For instance, a salesperson in a hotel room hundreds of miles away from headquarters could set up a phone to make and receive phone calls from his own extension—and also avoid running up long-distance charges.

    For the Clark County School District, which covers 7,900 square miles in Nevada and includes Las Vegas, moving to the new technology has helped keep a lid on costs while giving more teachers access to phones.

    The 291,000-student district expects to spend about $15 million on its three-year IP telephony project, slated for completion in early 2006, which will use 27,000 Alcatel phones.

    Chief technology officer Phil Brody first considered IP telephony when the school district decided to roll out a fiber-optic network with gigabit-per-second feeds to 317 schools.

    The idea: Run voice over that network, eliminating phone charges among schools. "We were looking to expand our phone system," Brody says, "and we said, 'You know, the best thing for us to do is ride this huge new network we're building.'"

    But IP-based phones, which include processors to convert audio into data packets, can be pricey—at least $100 each.

    To keep costs down, the district has deployed mostly traditional circuit-switched phone sets (typically one-tenth the price of IP models). Gateway switches at each school convert calls to IP before sending them off-site.

    The assumed savings have been borne out: Brody says the district has reduced monthly charges from its phone provider, Sprint, to $3 per phone from $14.

    Plus, the district is increasing its phones to 27,000 from 9,000, with most of the new units going into classrooms for teachers to use.

    The other big area of savings, according to Brody, is in support.

    The district's staff of 12 field technicians can service three times as many phones because most management tasks, such as reassigning phone extensions to teachers, can now be handled remotely:

    "We don't have to send someone out in a van to the school as much as we did previously," he says. Brody estimates total annual savings on communications and labor costs at $1 million to $2 million per year.

    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: No Killer App, But Lots of Small Enticements

    Lots of Small Enticements">

    Analysts say there's no single "killer application" for IP telephony akin to the spreadsheets and word processors that drove the adoption of personal computers in the 1980s.

    But industry watchers expect new voice applications—tailored to specific industries—to start taking on more starring roles.

    Wynn Las Vegas, the sprawling 2,700-room luxury hotel and resort that opened earlier this year, is using 4,000 Avaya color-screen phones across its property to act as information kiosks for guests.

    For example, the phones let guests browse events scheduled at the resort, then press a button to connect to a ticket agent and book a reservation.

    Other companies have used Internet-protocol telephony to improve business process efficiencies—sometimes in ways they didn't anticipate.

    Two years ago JCB, a farm equipment manufacturer with U.S. operations based near Savannah, Ga., picked an IP telephone system from Mitel Networks mainly because it just needed a new phone switch; the company had hit the maximum 200-line capacity on its old Lucent Technologies system.

    Only later did Paul Limon, JCB's U.S. manager of information systems, discover that the phone switch could easily pass Caller ID information for calls coming in to a customer-service number to the company's SAP R/3 enterprise resource planning system.

    The SAP system looks up a customer account, determines the customer type—for example, whether it's a dealer or a retailer—and instructs the Mitel switch to route the call to the appropriate support group.

    The SAP system can then show JCB's service reps, for example, the exact equipment models a caller has recently ordered.

    "It's really streamlined our customer service," Limon says. "Instead of the customer service guy writing down serial numbers on sticky notes and running around, it's all tied into our database."

    Meanwhile, Erlanger Health System in Chattanooga, Tenn., has sped up nurse response time to patient call requests between 30 percent and 50 percent with IP telephony, according to network director John Haltom.

    The 803-bed hospital system provides 400 wireless IP-based SpectraLink phones to its 1,500 nurses.

    When a patient presses the nurse-call button, the phone of the nurse on call for that unit rings and the patient can describe what he or she needs.

    Previously, such calls were picked up by staff at a nursing station, who then had to find the right person to send to the patient's room.

    That has cut nurses' response time an average of five to seven minutes, says Haltom, who adds, "It also saves a ton of walking."

    But Erlanger is taking its time in moving the entire organization to IP telephony. It runs a phone system from Nortel Networks that handles both IP-based and traditional phones.

    To date, it has switched over only 1,000 desk phones and those 400 wireless phones, with 8,000 still running in circuit-switched mode.

    For each IP-based phone the organization deploys, Haltom estimates his group saves $40 in administrative and infrastructure costs (for example, only one wire needs to be strung to each workstation).

    Even so, Erlanger is expecting to convert to IP phones only when a given area is under renovation. "Especially in a public hospital," he says, "if it ain't broke, you don't fix it."

    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?