Internet telephony: Boon for disaster- Recovery efforts

By Maria Trombly | Securities Industry News | July 8, 2002

Computer enthusiasts have long known that one sexy application of the Internet has been to make free long-distance phone calls by using a computer's microphone and speaker as a makeshift telephone. This is known as voice over IP (Internet protocol), and it can work over an intranet as well. This is where it gets interesting for the enterprise.

After Sept. 11, Merrill Lynch-which is located directly across the street from the World Trade Center site-discovered that voice over IP (VOIP) phones make moving people to new offices a snap.

"Voice over IP is a powerful enabler," said Merrill Lynch CTO John McKinley. "It really helped us recover from Sept. 11." According to McKinley, the brokerage was able to move staffers to locations in New Jersey-along with several thousand IP-enabled phones.

"We plugged the phones in, they found the network and we had a dial tone," he said.

Merrill Lynch is a customer of Cisco Systems, but other big players in the voice-over-IP space include Brampton, Ontario-based Nortel Networks and Avaya, headquartered in Basking Ridge, N.J. All three claim to have a large percentage of Wall Street firms as customers, but are not able to release specific names because of confidentiality agreements.

Gartner Group analyst Kathleen Simpson confirmed that most Wall Street firms are already experimenting with VOIP. The reason, she said, is because VOIP is an inevitable progression from traditional circuit switching.

"It's not a question of if is there going to be IP telephony but when," she said, adding that Sept. 11 was a wake-up call to many Wall Street firms.

"When the voice communications went down, it took more than a few days to get some of these folk up and running using traditional telephony," said Deborah Kline, an Avaya spokeswoman. "And when companies had to scramble to find new locations to run operations out of, that's when they started seriously considering IP telephony because of business continuity.Ease of deployment was almost instantly recognized as a benefit and that's why many companies are coming to it today."

For example, a 5-channel voice-over-IP network that runs within a virtual private network and is well suited to road warriors and telecommuters takes only 15 minutes to set up, according to Tony Pereira, marketing leader for enterprise business networks at Nortel Networks.

A larger, 5,000-channel system takes about half an hour, he added. The cost ranges from $1,000 on the low end to $50,000 for the largest installations.

With the network in place, remotely-located employees can now use the high-speed Internet access in their homes, hotel rooms or remote offices to use all the features of the telephone system back home-including voice mail and teleconferencing.

"It's such a high return that that's where a lot of departments initially go to," Pereira said. Other companies ease into voice over IP by installing Internet telephony gateway (ITG) cards into existing PBX systems. "You don't lose any features or applications," he added.

That, Pereira said, was the route chosen by one Wall Street investment bank, which wanted to take two or three years to convert its entire telephone system to voice over IP one step at a time.

"They didn't want to take all of the existing network out, they wanted an evolvable solution," he said. The reason that so many companies are experimenting with voice over IP is that it enables a whole host of features that are difficult, if not impossible, over traditional telephone lines.

"The technical advantages of voice over IP are tremendous and the strategic advantages are enormous," said Paul Strauss, research manager in enterprise networks at Framingham, Mass.-based International Data Corp. "In the long run, there is enormous potential for close integration of telephone systems and databases, thus making for intelligent telephone systems."

If an employee moves between several locations, for example, it is relatively straightforward to move his phone number around with him on VOIP-even if he's at an overseas office.

For example, if a Wall Street firm has a Paris office and a high-speed data connection between the two locations, then voice could be funneled over that network as well, said Craig Cotton, manager of product marketing for enterprise voice and video at San Jose, Calif.-based Cisco Systems.

A manager temporarily at working at the Paris office could log in to the IP-based telephone system and have, in effect, the same phone he has in New York-including the New York telephone number. Moreover, the phone in Paris, the phone in New York and, say, a cell phone, can all ring simultaneously when a call comes in.

"This is relatively easy and straightforward to set up in the IP world but very challenging to do with the old PBX," Cotton said.

Because VOIP works over network servers, it is as reliable as the network itself-if one server goes down, the traffic is automatically rerouted to other servers. This distributed nature of VOIP networks lends itself to the needs of modern companies, Simpson said.

"Companies are becoming more person-centered," she said. "Where I am is more important than where my office is. This also gets to business continuity and business-recovery planning-IP telephony makes it easier and quicker to install new phones."

However, she added, many companies were thinking about business-continuity planning before Sept. 11, using traditional networks. For example, after the San Francisco earthquake, some firms began looking at installing extra voice line management capability.

Similarly, some other features of VOIP networks-such as routing calls to temporary offices-can also be achieved with traditional networks.

While VOIP has already gained a 10-percent share of the revenue of the global enterprise telephony market, there are still some factors holding it back. Once those factors are addressed, growth will shoot up sharply, analysts say.

First of all, IP telephony still doesn't offer quite the same breadth of advanced call processing features as traditional PBXs, said Simpson. In addition, VOIP networks have the same reliability problems as the data networks-they are susceptible to viruses and network outages, she said. Finally, the standards aren't all there-vendors use different approaches to convert voice to a data stream, and all the approaches aren't compatible with one another, making it difficult to mix and match vendors.

Simpson estimates that industry standardization for voice over IP is still 18 months away, and that customers going ahead with VOIP should ask vendors to sign a contract that they will convert the VOIP networks to the common standards when the standards become available.

Security is also about 18 months away, she added. The security must be powerful enough to keep people who are in the data network from listening in to voice conversations and vice versa, while at the same time being fast enough not to add lag to the VOIP conversations.

"The industry is just starting to address that concern," she said.

As a result, while waiting for the technology to catch up to business needs, Simpson said, Wall Street firms are using VOIP networks as backups to existing voice networks.

One of the more popular claims of voice over IP vendors is that the technology will reduce the cost of long-distance conversations. But businesses have to crunch some numbers to make sure that this is true in their particular cases, Simpson said.

First of all, not all data networks are equipped to carry voice-some may have to be upgraded to handle more volume, and most have to be adjusted so that they give priority to voice over data.

"If you're a large institution, you have a volume discount," she said. "Say you're paying 3 cents a minute; if it's going to cost you half-a-million dollars to update your data network, why would you do that? Your payback period is a very long time."

Today, the IP telephony market is about $900 million globally, according to IDC's Strauss. This compares to more than $10 billion for the traditional enterprise telephone system market. This year, IP telephony will see about 65-percent growth, to $1.3 or $1.4 billion, he said.

But after standards are agreed upon, the market will start to take off, he said. "It will start taking off next year, or maybe late this year." By 2006, it should grow to around $5.7 billion, or about half the total spent on systems and telephone sets, Strauss added.