VoIP: Crossed Wires

Companies have been reluctant to carry voice calls over their local-area networks or wide-area networks. But there are clear benefits to running on...
Anthony SibillinJune 1, 2001

How many times have you picked up a phone in your office and found no dial tone? Probably rarely, if at all. How many times have you tried to surf the Web while at work only to find the network is down? Probably once a week. If you are lucky, that is.

This, in a nutshell, explains why companies have been reluctant to carry voice calls over their local area networks (LANs) or wide area networks (WANs), despite the clear benefits of running one communications network instead of two.

The traditional public branch exchange (PBX) equipment that most companies use to route calls has developed what engineers call “five nines” reliability. That is, PBXs are 99.999 percent reliable, and on average, only one out of every 100,000 phone calls will experience a problem. By contrast, even the most advanced network using voice-over-Internet protocol (VoIP) — the practice of slicing voice signals into tiny packets of ones and zeros that are then sent around an IP network like any other piece of data — can promise only 99.996 percent reliability, or two calls dropped out of every 42,000.

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VoIP Void

This is hardly surprising; VoIP is relatively new. It took PBX makers decades to achieve the levels of reliability that VoIP — or IP telephony — aspires to after less than five years of research and development. Yet even at this early stage, pilot projects under way across corporate Europe are proving that VoIP is not something to be dismissed out of hand.

But the small number of companies willing to entrust their entire voice infrastructure to an IP network shows that most are wary. Though most equipment vendors report triple-digit growth or thereabouts in VoIP-related sales, this is still less than a single-digit share of overall telephony revenues at these companies. Even that figure is distorted by including the proceeds of thousands of small pilot programs in Europe.

Peter Hall, a principal consultant at Ovum, an analysis and consulting firm, reckons that with 75 percent of their communications relying on the PBX, companies are cautious about swapping their tried-and-tested system for one that will account for less than 1 percent of calls made in Europe this year.

And while Probe Research Europe, a technology analysis firm, expects 25 percent of all long-distance calls by 2006 to be made with VoIP, even 3Com (, the world’s biggest seller of VoIP equipment, advises companies to look before they leap. “Don’t effectively go a few stages backwards just to use VoIP,” warns Peter Williams, a manager at the company’s UK voice division.

Other vendors says this understates the progress made. In a controlled environment such as a company LAN or a private WAN, “there are no inherent quality of service issues for voice anymore,” claims Paul Di Leo, enterprise solutions director for EMEA at Cisco Systems ( The US networking giant and others have developed “intelligent” routers that can prioritize voice traffic and prevent delays in packet delivery. It is these delays, caused by congestion on the public Internet, that result in the stilted speech and echoes familiar to those who have experimented with VoIP at home.

In any case, VoIP has generated enough interest to catch the attention of companies, especially those in the process of deciding whether to buy new PBX equipment. Industry watchers like Frank Stinson of InfoTech, a research firm, think a number of end users delayed purchasing a new PBX in 2000 “because of fears that new IP telephony solutions might make their investment obsolete before the end of their useful life.”

The truth of the matter is that many companies don’t want to be saddled with obsolete technology for another decade. But they also don’t want to put their communications systems at risk by implementing technology that’s still immature.

It’s a dilemma that might not go away for a while. For guidance, however, companies might want to look to the major telecom carriers. Many of the carriers have begun using VoIP as an alternative to the public switched telephone network (PSTN), enabling them to route voice calls along the same broadband pipes over which they transport data. In doing so, they need only a single infrastructure.

Another benefit is that an IP call requires a bandwidth of 12 kilobits per second (kbps) compared with 64 kbps for a conventional telephone call. All this has led John Marcus, vice president of global IP services at Probe, to conclude that VoIP has been a big factor behind the 30 percent decline annually in typical long-distance rates since 1998.

There’s another reason why VoIP is attractive. As convergence expert Floris Van Den Broek concludes in Management of International Networks, in terms of both manpower and equipment, the cost to run a single, converged network is up to five times less than the cost of running two separate networks for voice and data.

Consider MasterBit ( ; in German). The German systems integrator recently replaced a standard Alcatel ( PBX system at its headquarters in Kloster Arnsburg, just outside Frankfurt, with a VoIP product from Avaya (, the telephony supplier spun off from Lucent Technologies last year.

According to MasterBit’s founder and CEO, Thomas Mueller, the company is saving E25,000 ($21,400) a year in administration costs, the equivalent of half a telecom engineer’s annual salary. “The PBX environment is proprietary and required a dedicated person trained in the vendor’s product. The IP environment is based on open standards that every network administrator knows,” Mueller explains. He adds that for many of MasterBit’s customers, which include Commerzbank and Deutsche Bank, the savings could be five to ten times that figure.

The Great Divide

Five to ten times the savings may also mean five to ten times the job cuts among corporate telecom staff. Which explains why many CFOs won’t find a lot of enthusiasm for VoIP among their PBX engineers. In fact, they might find a lack of enthusiasm on both sides of the voice and data divide, says Eddie Murphy, a senior consultant at Analysys, a telecom and media strategy consulting company: “The ‘data people’ do not see voice as part of what they do, and the ‘telecom people’ are not really comfortable with IP telephony.” But finance chiefs can change that. “CFOs should start asking questions today if they see their companies still addressing voice and data separately,” Murphy says.

Other experts see the cultural divide leading to a shortage of “hybrid” networking professionals, at least in the short term. Research group IDC predicts a shortfall of 600,000 networking professionals across western Europe by 2002, partly as a result of the demands of VoIP.

But David Prior, a director at The Phillips Group, a telecom consultancy, advises managers to look at this division within a company as an opportunity, not a threat. Generally, he observes, “network geeks” are great with computers and technology but often have trouble relating to commercial issues and people; telephony staff are more adept at relating to human issues and commercial necessity but don’t relate to data networks. Adds Prior, “There is an opportunity to gain from the strengths of both sides without adverse impact from the respective ‘weaknesses.’ “

Intelligent Networks

But while cheaper calls and the like are compelling enough, new and improved applications and services are what will ultimately swing the balance in favor of VoIP across corporate Europe, says Pyramid Research, a consultancy which is part of The Economist Intelligence Unit.

In fact, that explains why companies with large call centers are already among the most enthusiastic converts to VoIP. Just look at Banca Intessa, Italy’s biggest bank. It’s currently running a trial that lets 300 customers interact with call-center staff via the Web. Taking advantage of VoIP technology from an Alcatel subsidiary called Genesys (, agents and customers are able to speak directly via a standard PC without going near an ordinary telephone network.

According to Marco Doniselli, the firm’s multichannel services manager, the move is a money-saver for Banca Intessa because customers would otherwise contact agents via a toll-free number, which the bank is charged for. Perhaps more important, it also means both parties can share data, browse the Web together, even run a videoconference if the client has a camera and broadband Internet connection. Banca Intessa plans to offer a “Web chat” service to all its 600,000 Internet-enabled customers at the start of 2002. But despite his optimism, Doniselli expects no more than 10 percent of them to use the service, indicating that the real benefits of VoIP might lie elsewhere for call centers.

Liisa Hakoinen certainly thinks so. A vice president of Radiolinja ( , Finland’s second-largest mobile operator, Hakoinen is overseeing the rollout of an IP-based contact system for its three customer service centers. Though it will not be complete until the end of the year, she says Radiolinja is already benefiting from what she calls “skill-based routing.”

In the past, the automatic call distribution (ACD) system sent incoming calls to any agent — it couldn’t forward the call to the most appropriate person based on the customer’s own preferences and history. With VoIP, that’s all possible. “It means we can send E-mails or phone calls to the customer-service representative who is the best person to handle it,” says Hakoinen, who hopes the new IP-based system will boost agent productivity by 20 percent.

Nick McLean, marketing vice president for Europe at Eyretel (, a UK-based provider of call-center technologies that supplied part of the technology to Radiolinja, concedes that this sort of intelligent queuing is possible using standard PBX equipment but requires expensive, proprietary hardware and plenty of consultants to make it work. VoIP, he explains, means a lot of the functionality that used to reside in hardware can now become part of a more flexible software layer, sitting on top of an IP network based on open standards, and easily integrated with back-end CRM and ERP systems.

Integration and flexibility aren’t important just for call centers. For example, ever since MasterBit moved to VoIP, its team of 70 consultants have been able to use unified messaging (UM), which lets individuals access voicemail, fax, E-mail, and even SMS messages through a single browser interface.

Mostly working at client sites, MasterBit’s staff used to have both an E-mail account and a voicemail account. Mueller says he could never be sure which method of communicating with his staff was best. With UM, there is only one communication channel. The consultants simply log on to their personalized Web portals and have full access to all their voice messages, E-mails, and faxes from a single site.

Mueller reckons that UM will be even further enhanced when third-generation wireless networks are up and running and more companies have begun using application service providers (ASPs).

While any company, particularly those with mobile workforces, can benefit from UM, it’s more straightforward for a small enterprise like MasterBit to put the IP infrastructure in place that makes it possible. In fact, 3Com’s Williams cautions against accepting vendor claims of scalability at face value. He says 3Com has a VoIP product that theoretically should scale to 20,000, but he admits that he wouldn’t be confident about going beyond a few thousand users for at least another 12 months.

Concerns over scalability and reliability lead many to predict that small and medium-sized enterprises (SMEs) will lead the big corporates to VoIP. The fact that SMEs have traditionally outsourced their phone systems means the risks associated with VoIP have to be addressed by their service provider, not themselves. It also means that, unlike larger companies, they have not sunk their own money into legacy equipment.

As a result, experts suggest that larger companies pilot VoIP projects at “greenfield” sites, where the benefits can be seen quickly. To do that, Cisco’s DI Leo suggests that firms set up the project at a “campus,” which could be a site or a department, and use a VoIP gateway to convert incoming analog calls into IP packets, then route the calls around the LAN to users’ IP phones. (An IP phone can be either a traditional handset connected directly to the LAN or PC, or simply a headset connected to a PC.)

According to DI Leo, this will give firms an idea of the “quick wins” possible with VoIP — not least, he says, because between 20 percent and 30 percent of calls to operators are staff asking for information. Using VoIP, the internal telephone directory can be accessed from a menu-driven touchscreen on the handset itself — hopefully wooing even the laziest employee.

DI Leo also predicts that this kind of approach to implementing VoIP will turn conventional thinking about VoIP on its head. He says that too many CFOs and their telecom colleagues treat a standard PBX as a “sunk” investment to be squeezed, while forgetting that their LAN infrastructure is also an investment that can be made to work harder. “As they look at leveraging the existing dollars they have spent on a data infrastructure,” he says, “for a nominal incremental cost they can get a PBX or an IP contact center.”

What DI Leo and other VoIP vendors are hoping is that as individual companies reach the point where they have to replace a legacy PBX, they will look to their other legacy investment — data infrastructure — and overlay VoIP on top of it instead. VoIP should become even more compelling as volumes increase and the price of that technology falls.

In the meantime, says Ovum’s Hall, vendors have only themselves to blame if companies aren’t giving VoIP the attention that many feel it deserves. So confusing are the messages coming from vendors that “at the moment, it is difficult for corporate managers to know what their options are,” he says.

But as these become clearer, European companies are certain at least to consider VoIP, if only because while a data infrastructure in the form of a VPN or some other IP network is compulsory, a separate voice infrastructure need no longer be. “We will end up with IP infrastructure as a common base of networking,” insists Alan Barr, vice president of Genesys. “The question is when?”

Anthony Sibillin is the technology writer for CFO Europe.

Of Protocols and Portals

As MasterBit’s Thomas Mueller sees it, there’s magic in the number five. The founder and CEO of the German systems integrator reckons that the key to making converged applications possible lies in a combination of no fewer than five technologies: voice-over-Internet protocol (VoIP), unified messaging (UM), application service providers (ASPs), broadband wireless (or 3G) and company portals.

Start with a business-to-employee (B2E) portal to give users access in one place to all of a company’s information systems — from E-mail to ERP. Now hand it over to an internal or external ASP so that it’s available over the Internet via an ordinary Web browser at any time. So if someone in your office wants to know how the Benelux sales team is doing, there’s no need to download big chunks of data to your local machine or a client copy of your CRM application to manipulate it. Thanks to the ASP, you can get to any piece of corporate information via any device that can decode HTML.

Fast-forward two or three years, to when the first 3G networks open for business. Suddenly everything you could do from your laptop (which, in this scenario, is already a lot) you can now do from your combination mobile phone/personal digital assistant — including futuristic applications such as mobile videoconferencing.

At this point, take a look at your business card. Thanks to these technologies, you can delete your mobile phone number, your fax and company switchboard number, and your direct line number, and replace them with a single number that sends calls and faxes to whatever device you choose.

Fast-forward another ten years, by which time every business contact is using VoIP, and you can dispense with that number as well. All you will need then is an E-mail address.

It might sound like science fiction, but it’s a lot closer to reality than many of us realize. Apart from the wireless technology and the ability to receive calls (rather than just voicemail) through a UM application, MasterBit employees are enjoying most of these benefits now. —A.S.