A bright future for IP telephony

In a report called An Exciting Year Ahead, consulting firm SeaBoard Group predicts that in 2005, voice-over-IP (VoIP) products and telephone company hosted VoIP services will go well beyond the early adopter stage and take off. In an interview with Susan Maclean, Toronto-based SeaBoard principal Brian Sharwood explains when and how investing in enterprise network convergence can bring competitive advantages.

IT Focus: You’ve been watching enterprise network convergence for quite some time. What have you been seeing?

Sharwood: There have been a lot of changes going on in the industry due to IP telephony. It changes not only the structure of how people communicate in companies but also often the structure of the companies themselves from their separation of IT departments from the telephony departments, which were often two different departments who rarely communicated.

IT Focus: What is your impression about what IT professionals think about network convergence?

Sharwood: Every IT manager in any enterprise of significant size probably has looked at VoIP phone systems in their office and converged voice and data networks. They may not have made the decision yet. If you have a phone system and it is working just fine, there’s no point in replacing it at this time. You have to figure out how [VoIP] adds value to the company.

IT Focus: Do you have call waiting or are you on an IP line yourself here? Your voice is breaking up.

Sharwood: It is an IP line. There was another call that came in that I didn’t take. We’re a small business here so we’re much more fault tolerant than when you’re dealing with enterprise phone systems. If I disconnect from you, it’s not going to cost me millions of dollars. It’s going to save me to have a phone system with all these cool features, like that person who called while we were talking, their voice mail is now in my inbox of my e-mail.

IT Focus: Do IT people understand the potential benefits of IP telephony?

Sharwood: It depends where they are and how connected they are to the marketing. Big companies have departments that spend time going to conferences, getting schmoozed by their sales reps from Bell, Avaya, Nortel. Most have either moved forward with a trial or are actually migrating some of their network to IP. If you’re a small widget manufacturer in some small town and a little older, you might not be quite so connected.

Often local [phone] resellers are also not as educated on new office phone systems and IP phone systems because they are phone guys, not data guys. They look at the stuff and say, “That’s data; that’s not me and I don’t understand it.” The suppliers to the resellers are starting to educate them.

IT Focus: Are the data people talking the business talk that the business leaders need to hear?

Sharwood: Yes. Back in the days when phones were boring, you bought a phone system, paid for it over a number of years and you didn’t try to figure out how to use the phone in your communication system as a competitive advantage. The introduction of digital phones opened up a whole new sphere of competitive advantage because you could do things like call routing and voice mail to replace receptionists and secretaries who took your messages. Some of the things you can do now with IP phone systems include using the line I.D. of a customer calling into your call centre to bring up a customer’s account immediately. That call centre rep is already aware of all your transactions.

IT Focus: What benefits made possible by converged networks are most tempting businesses to take the plunge? It used to be the lowered long-distance rates.

Sharwood: It depends on your business. I have a colleague whose company does outsourcing of IT engineering to India. The long distance [rates] to India can really rack you up a pretty big bill. They’ll use [peer-to-peer Internet telephony network] Skype, which is free. Long-distance running over the data network is much, much cheaper, if not free. You’re not paying by the minutes; you’ve rented a T-1 or T-3 connection and you’re charged by the width of the pipe, not the minutes.

Another big advantage of IP phone systems is security and disaster recovery. When we had the SARS crisis in Toronto, a big IT company moved a whole call centre out of the city. These people needed their phones to work and they couldn’t go into their office and perhaps be exposed to SARS. It was an Avaya phone system and Avaya immediately solved the problem of moving for disaster recovery. They just set up an office somewhere else. The phones were identical.

Moves, adds and changes were a big cost for companies: if you are a small company who uses an outsourcer or reseller, when a new employee arrives you call and request a new phone number. Some of the [IP telephony] management tools are easy to use. You can set up all those things on a simple, easy-to-use interface so that the $200 to show up at your door suddenly disappears. Another thing is the flexibility to create applications….Many IP phone systems have open platforms.

IT Focus: Have you an example of that?

Sharwood: I’ve seen an application written for an engineering company that has people remotely working on the same project all looking at the same thing with a conferencing application.

IT Focus: Are customers actually asking for the technology as opposed to vendors pushing it?

Sharwood: It’s a bit of both. Vendors will always push harder than customers will ask because customers tend to look at what they’ve got and say, “This works fine.” Most customers don’t know what they can do with their phone systems. Most of the Avayas, Nortels and Mitels basically tried to go all-IP right at the beginning, saying, “You should rip out your phone system and put in the IP phone system.” Companies balked at that: “It works just fine and really, what are you giving me here? Not a whole lot.” So the answer now is a dual mode phone. The phone I’m talking on now is the old Nortel Venture phone that goes in through a digital signal.

IT Focus: What is the adoption rate of IP solutions within Canadian enterprises?

Sharwood: Still very small. Right now my guess in terms of office phone lines, if you take a line as a seat or person, those that are IP phones are up around 150,000 to 200,000 in Canada right now. There are about seven million business lines in Canada, so in terms of business lines, it is a giant opportunity with plenty of room to grow.

IT Focus: We hear a lot more about it than the numbers would suggest.

Sharwood: The reason it is in the media a lot is because it is a fundamental change in how telecommunications is done. It changes how you communicate and how you do business. It changes the business model of the phone companies. They used to charge per phone, per line, per month. That doesn’t work in the IP world. Suddenly long distance is irrelevant. If you look at the long distance market in Canada, we’ve gone from an industry with long distance revenues of about $5 billion in 2001 down to $3.5 billion in three years. That same decline could happen with local phone lines.

The flip side is that an IP network is much cheaper to operate. You don’t need so many people. People will start giving up their phone lines, getting IP phones and buying data, which is much cheaper than voice in terms of packets.

IT Focus: What do you project as the rate of adoption of IP telephony?

Sharwood: In the business market my guess is 200 to 300 per cent growth this year. We’re going to be up to 500,000 to 700,000 business lines by the end of 2005.

It is usually the bigger companies that are doing it first. They come as very application-heavy — like banks, insurance companies — people that really…need the power of the phon

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