Understanding How to Use and Adopt IP Telephony

By CIOinsight  |  Posted 10-01-2004

Understanding How to Use and Adopt IP Telephony

Like a relentless tide of misfortune, the patients pour into the University of Kentucky Hospital Emergency Department complaining of everything from dehydration to gunshot wounds.

Like every ER in the country, the U.K. Hospital is overused and understaffed.

As the only trauma center for all of eastern and central Kentucky, the hospital administers emergency care to a constant stream of the afflicted—an average of 40,000 a year—with a staff of little more than 200. Overwhelmed nurses and doctors bounce from bed to bed treating patients amid the chaos.

But the U.K. Hospital is a little less chaotic today than it was just a year ago.

The unnerving pages that blare through the typical emergency room have mostly stopped. Frantic nurses no longer run the halls chasing down doctors. Pagers and cell phones have been relegated to the locker rooms.

That's because in April the hospital began using a voice-over-IP communications system that allows nurses and doctors to contact each other instantly, without ever leaving a patient's bedside.

Now, employees wear a two-ounce communicator clip on their lapels that uses speech recognition to contact other employees, and then opens up a two-way conversation that's carried over the wireless LAN the hospital already had in place.

"I just press the button and say the name of the person I want to speak to," says Nurse Manager Maggie Borders. "It's ridiculous how much trouble we used to go through for those quick communications, those one-word answers."

The University of Kentucky Hospital represents a rare example of the potential for IP telephony to redefine the workplace. But the truth is that few companies currently evaluating the technology have looked beyond the technology's ability to save some money on long-distance phone bills—a short-sighted benefit that may not exist for much longer anyway.

While everyone seems to agree that VoIP is a powerful technology that will eventually render traditional phone service obsolete, few can articulate the kind of effect it will have, if any, on strategic business processes and strategies. All of which is conspiring to dampen the sense of urgency that vendors of IP telephony equipment have worked so hard to create.

It is still early, however, and it may be that the full potential of IP telephony is still poorly understood.

"When television first came, the early shows had people just standing up in front of a microphone, basically doing radio on TV," says Joe Glynn, vice president of product strategy at Qwest Communications International Inc., a Denver-based telecommunications carrier with more than four million long-distance customers in its 14-state service region.

"They weren't taking advantage of the new platform, they couldn't even conceive of the possibilities. That's largely where VoIP is right now."

Next Page: Call waiting.

Call Waiting

Call Waiting
When consumers switch from traditional phone service to VoIP, the risk is negligible and the benefits are readily apparent.

All you need is a broadband Internet connection, a small router, and $30 a month for unlimited local and long-distance calling. Which is why Baby Bells are losing subscribers to traditional services at an alarming rate—4 percent a year, according to the Precursor Group Inc., a Washington, D.C.-based market-research firm—and why cable companies are fast jumping into the VoIP market.

The Yankee Group, a consulting firm based in Boston, predicts that consumer VoIP subscribers will balloon from just 130,000 in 2003 to 17.4 million in 2008.

But the issues facing the enterprise market are far more complex.

Ironically, the one benefit of VoIP that most companies are attracted to in the retail market—cost savings—turns out to be something of a red herring. The key selling point of the technology to date has been the potential to circumvent the local exchange carriers, or Baby Bells, and route long-distance calls over the Internet for free (or relatively cheaply).

Who wouldn't want to stick it to the Baby Bells after all these years? But the telecom world is changing rapidly as the Baby Bells themselves switch their backbones over to IP—so rapidly, in fact, that the price of a long-distance call over what's known as the Public Switched Telephone Network has fallen dramatically, from 15 cents a minute in 1997 to 9 cents in 2002 (the most recent data available).

Even the VoIP equipment makers are toning down the cost-savings rhetoric.

"People started looking at this technology strictly to cut costs by avoiding the LECs," says Jorge Blanco, vice president of marketing strategy at Avaya Inc., a Basking Ridge, N.J.-based IP equipment maker.

"But those rates have dropped, so trying to justify IP telephony based solely on that is a fruitless effort."


Phone Industry Faces Upheaval As Ways of Calling Change Fast: Cable, Internet, Wireless Hurt The Value of Old Networks,Threaten a Business Model

By Ken Brown and Almar Latour, The Wall Street Journal, Aug. 25, 2004

New Communications Improves Patient Care
By Amy Gilliam, University of Kentucky Public Relations, April 2004

Web Site

FCC resources on VoIP

In many cases, the drop in prices is enough to discourage, or at the very least delay, CIOs from making the considerable investment in IP telephony, particularly since they're already using one of the world's most reliable communications technologies.

"The zeal to get into VoIP comes back to earth pretty fast when you realize the PBX you just spent $5 million on will work perfectly well for the next five years," says Jon Arnold, VoIP program leader at Frost & Sullivan, a New York-based market consulting firm. "The things just work too damn well."

Still, the resiliency of the traditional PBX is the only thing slowing the transition to IP-based voice communications, and the telecom industry's final, if temporary, saving grace.

As PBX equipment ages, companies are increasingly replacing the systems with IP equipment, sucking the life out of traditional local and long distance, which has long been the bread and butter of the Baby Bells.

Though slow to the game, the Baby Bells are beginning to wake up to their uncertain future, and have begun offering IP voice service of their own, both to consumers and companies. Qwest, Verizon Communications Inc., and even AT&T Corp., have all started offering IP telephony in the past year.

The other major unknown in the race to switch to VoIP is the Federal Communications Commission.

Faced with the prospect of severely crippling the $300 billion telecommunications industry by allowing Internet telephony to go unchecked, the FCC has begun exploring various options regarding VoIP regulation.

Experts agree there will almost certainly be some type of taxation or fee structure applied to IP phone calls, but how much it will cost remains to be seen.

To this point, FCC Chairman Michael Powell has been insisting that typical access charges that bedevil the ordinary circuit-switched network will not apply to IP telephony.

But social policy will likely have to be set—such as setting up a 911 call system, for example, or allowing the FBI to wiretap IP lines—and that will cost the consumer in the form of taxes and surcharges.

"In general, the commissioner believes that the service should be unregulated," says Michelle Carey, acting deputy chief of the FCC's Wireline Competition Bureau.

"But we are in an election year, so you can't always take everything the commissioner says to heart, because he may not be around in a few months."

According to Nancy Victory, former assistant secretary at the National Telecommunications and Information Administration, a division of the U.S. Department of Commerce that advises the President on telecom issues, the likelihood of the FCC levying fees on IP calls makes it impossible for companies to predict accurately the cost-savings of a VoIP rollout.

"There is a tremendous amount of uncertainty," says Victory, who is now a partner at Wiley Rein & Fielding LLP, a Washington, D.C.-based law firm.

"Odds are VoIP is not going to be as cheap as it is today. But how much so? We don't know."

Next Page: Taking flight.

Taking Flight

Taking Flight

Now for the good news: VoIP can save your company money, but not how you thought it would.

Analysts now recommend running the ROI numbers for VoIP based solely on the cost savings that will be realized through converging the voice and data networks, without including long-distance call savings.

The Boeing Co. announced in June that it would replace its entire aging phone network with 150,000 IP telephony nodes running over a Cisco Systems Inc. network, but executives at the Chicago-based aerospace and defense company don't even mention cheap long-distance calls when extolling the virtues of VoIP. To them, it's just another application to fold into the network.

"We look at it as investing in technology futures," says Cliff Naughton, Boeing's director of network services.

Boeing first started pilot testing of VoIP in 2001, after three years of studying and evaluating the technology. The test began with just 800 employees in a new office building in Issaquah, Wash., and it has since grown to about 4,500 employees in five states.

With offices in 48 states and 70 countries, the idea of saving money on interoffice calls was compelling. But of far more importance was the ability to get employees to collaborate by combining high-end video, data and voice.

"If you look at Boeing's core business, it's large-scale systems integration, bringing together very complicated systems," says Naughton.

"That requires heavy collaboration on a global basis."

Naughton says the company wanted to be able to hold design sessions that brought together employees from every division—design, manufacturing, sales—without their being in the same physical place.

Using the converged network, the sessions, it is hoped, will be far more productive than simple videoconferencing, because employees will be able to display designs, make alterations, and share data and graphs, all in real time.

End-to-end IP deployment

Enterprisewide IP, network management savings, advanced functionality, converged environment

Requires costly network upgrades and forklifting existing equipment
Hybrid PBX
Combination of TDM and IP lines

Easy to deploy, cap ex costs are incremental, ability to leverage existing equipment

Managing two networks, reduced features and productivity

Source: The Radicati Group

But the decision was by no means a no-brainer.

Lingering problems with the quality of VoIP service forced the company to upgrade much of its network equipment, and at huge cost. And the so-called "soft-client"—using a PC running phone software to place and receive phone calls—was troublesome due to the inherent limitations of the PC architecture.

But since the early pilot, Naughton says, a lot of the technology has matured enough that Boeing felt comfortable expanding the rollout company-wide.

Like the University of Kentucky Hospital employees, Boeing executives feel the technology will produce a massive cultural shift throughout the company. It envisions a design and engineering workforce that can work from home until their presence is required during final assembly.

Boeing also anticipates a work schedule that "follows the sun," as Naughton puts it, operating on a true 24-hour-a-day schedule. "I think it's going to have a great cultural impact."

In addition, the costs of running a converged network can be significantly lower than managing two separate communications networks.

Boeing estimates that moving employees from office to office, or hiring and firing—a process known as move/add/change, or MAC—can cost them hundreds of dollars per transaction on the circuit-switched network. With more than 150,000 employees moving, on average, a little more than once a year, the costs add up quickly.

With IP phones, the process requires only a quick data entry from the main control panel, which is virtually free. Factoring that in, Boeing estimates a complete return on its VoIP rollout—a five-to-seven-year project itself—will be realized in just three to four years.

Of course, all that convenience is going to cost you, especially in the near term. IP phones are expensive, sometimes as much as $800 per phone, depending on features. And IP PBXs can cost as much as 20 percent more than traditional PBXs.

All of which doesn't begin to address the bottlenecks that sending voice traffic over the network inevitably creates.

Like Boeing, more than 50 percent of companies deploying VoIP also need to perform some level of network upgrade, according to Paul Butcher, chief operating officer at Mitel Networks Corp., a leading manufacturer of VoIP equipment.

Next Page: Looking ahead.

Future Tense

Future Tense

That's why most analysts recommend a gradual approach to adopting VoIP.

Boeing is implementing a wholesale change only because 88 percent of the company's telecom equipment was at least seven years old. Otherwise, the way to roll out VoIP is one step at a time, starting with new office buildings, and eventually phasing out the older equipment over a five-year period or more.

"There hasn't been a lot of hard data right now that says if you switch out a lot of your traditional equipment, you will see an ROI, so a lot of companies are hesitant," says Ted Chamberlin, principal analyst at Gartner Inc.

"Right now I don't think there are any immediate needs to move to VoIP except in the local area, between office to office."

In other words, let's all take a deep breath and count to ten.

As the University of Kentucky Hospital demonstrates, making VoIP strategic within an enterprise requires some imagination. Unfortunately, that's exactly where most of the interesting applications of the technology still reside—in the imagination.

After expounding on one of the more compelling uses of IP telephony, one vendor suddenly realized that the customer for the service he was describing, alas, didn't actually exist.

Still, some concepts are more real than others—such as, for example, the virtual call center.

The idea behind the virtual call center is that customers can call a single number, and that call can be directed, based on a prescribed set of rules, to the most qualified available agent, anywhere in the world.

In other words, no more costly call-center buildings in India or Canada, phones beeping and electricity humming. Instead, call-center employees can work from home, and be spread throughout multiple time zones for 24-hour service.

To the customer calling in, it works just like any other call center.

JetBlue Airways Corp. is already doing this. And Cisco Systems is currently working with a bank, the name of which they wouldn't reveal, to set up a customer-service number that directs the caller to whichever bank branch is still open, and has the skill set the customer requires.

"Instead of just forwarding the call to voice mail, it figures out who is calling, goes through the rules engine and finds the most logical place for them to land," says Rick Moran, vice president of product marketing for IP communications at Cisco.

On the more conceptual side, Moran envisions a day when vendors will use IP telephony to deploy virtual sales reps to retail outlets around the world. Moran says that he is currently working with a large retailer to set up video kiosks inside stores, so that if a customer has a question about a particular product, he or she can initiate a real-time multimedia session with a customer sales rep from the manufacturer who could help close the deal.

The sales rep could demo the product remotely, or show video of the product in use, all the while maintaining an ongoing conversation with the potential customer.

Moran says that it would be a relatively cheap way for a manufacturer to differentiate its products in the ever-competitive shelf-space battles of retail.

"For less than 500 bucks you put an LCD screen on the shelf itself, drop a cable into the store's network, and you're up and running."

It's hard to imagine most manufacturers having enough sales agents to deal with every curious teen killing time at the local Best Buy Co., but when combined with virtual call centers—who knows?

Mitel's Paul Butcher detailed a similar concept for a bank branch with limited resources.

When a customer comes in looking for an expert in refinancing, say, or debt management, the branch directs the customer to a separate room and initiates a multimedia session with an expert at another branch.

If this all sounds suspiciously like videoconferencing, take heart. In the IP world, the term is "collaboration," which conveniently avoids the nasty stigma associated with the perpetually disappointing technology.

Though sexy and seemingly feasible, at present these concepts reside solely in the marketing materials of VoIP equipment makers.

Of course, the real-life examples of IP telephony are impressive in their own ways. At the University of Kentucky Hospital, the occasional page still blares out from time to time.

"There is some resistance to change," says Nurse Manager Borders. And the speech technology gets confused at times. But the improvements in customer service and productivity have been significant enough that hospital officials are looking at broadening the system to the entire hospital, not just the emergency department.

Tracking down wayward doctors is a full-time job, notes Borders. "I think we'll see even more value when you can reach a physician in the cafeteria."