Home EMEAEMEA 2006 The changing IP Telephony business model

The changing IP Telephony business model

by david.nunes
Allen TimpanyIssue:EMEA 2006
Article no.:11
Topic:The changing IP Telephony business model
Author:Allen Timpany
Title:founder and CEO
PDF size:380KB

About author

Allen Timpany is the founder and CEO of Vanco. He is the pioneer of the asset-light approach to networking. Mr Timpany coined the term ‘Virtual Network Operator’, which has become an industry standard. Allen Timpany has previously built a number of IT companies, including the largest IBM desktop-support business in the UK. Companies previously founded by Mr Timpany include: Wakebourne Limited, specialising in the installation and maintenance of PCs and LANs; Tycom Limited, a UK-based PC manufacturer; and Guestel Limited, an Apple Computer dealer. Mr Timpany graduated from Bath University with a First Class Honours Degree in Electrical Engineering – Thermodynamics.

Article abstract

Virtual Network Operators pay to use excess capacity on existing networks and sell fully managed solutions, customised for each client, under their own names. Since they do not invest in infrastructure, they can provide services cheaply. Internet telephony’s claim to fame has been its low, at times free, per minute costs, however the cost of handsets, support and training eliminate much of this advantage. Currently, the true value of IPT comes from the advanced business support applications it makes possible.

Full Article

Virtual Network Operators, VNOs, do not own infrastructure, they procure it from the most appropriate providers to deliver fully managed solutions customised for each of its clients. Unlike companies that have chosen to invest in IPT, Internet Protocol telephony, technologies, or not, as the case may be, VNOs have a product-independent view of this perennial hot topic. When IP Telephony first hit the enterprise radar at the turn of the century, the talk was all about cost savings. Innovators had got over the introspective technology talk and carriers started to come to terms with this threat to their traditional wire line cash cows, and together they went to market selling the savings from IP. Not a bad decision, you might think, especially when an ICM Research study indicates cost reduction has been the number one priority for CIOs since this formal market analysis began and probably before as well. However, while they were selling what enterprises wanted, they were not selling what IPT offered at the time. Cost reduction arguments were based on ‘free calls’ across an IP network verses ‘expensive’ minute rates. The reality is that analogue minute rates have come down in price dramatically as carriers respond to the threat of IPT. However, the real sticking point is in the changeover costs. Analogue telephones cost £20 per user and most businesses, rather perversely, have them coming out of their ears. Many have written off the cost of these handsets, and often a large part of the analogue network that supports them. One new IPT customer, previously networked for both traditional voice and data by a national carrier, was found to have 2,000 unused PSTN ports it knew nothing about. Meanwhile, IP Telephones are still around £150 per user. Add to this support costs of £10 to £15 per user per annum plus the expense of retraining staff at the outset, and the cost reduction arguments for IPT fall flat, even for companies that already have an IP data network in place. However, it should be said that the big equipment vendors are making significant concessions on the capital cost of the phones to win new business, which they hope to make back on the support contracts, and this has altered the Return on Investment, ROI, calculation somewhat. There is, occasionally, a genuine ROI argument for greenfield or remote sites and, in these cases, enterprise customers have started to see financial benefits, albeit on a small scale. Adopting IPT in greenfield environments will usually make sense, but then it becomes important for the service provider to be able to integrate that with the existing systems. The complexity of this has stopped many companies from moving to this technology even when there is a business case to do so. Thus, it is a compelling but non-financial business argument that will pull IPT into enterprise companies in some sort of magnitude – and I use ‘pull’ rather than ‘push’ because enterprises will only see the benefit if they look carefully at the business case rather than just believe in the hype. The IPT message, then, is evolving to one focused on improved functionality, efficiency and integration, with cost being driven out as a result of these factors, rather than being the justification for IPT in its own right. Enabling true hot-desking and improved customer service through integration of calls and computers are two of the common examples cited. These bring business benefits, but IPT will ultimately reduce costs, whether through the reduced cost of employee moves, adds and changes, or the cost of delivering a certain level of customer service. While more and more enterprise customers are seeing the upside of IPT through focusing on these user benefits, they must also be aware, based on user experience, that each new technology comes with a downside. Traditional voice remains exceptionally reliable, having had 100 or so years of monopoly state-sponsored support in almost every country. These combined regional networks form a tremendously strong and dense voice network designed specifically for the job. Despite technological advances, running voice traffic over IP is not just a case of swapping over your phones. To run voice traffic reliably on an MPLS, Multi-protocol Label Switching, network, it must be able to configure all of the necessary queuing and traffic prioritisation on the customer premise equipment, CPE, devices, as well as configuring prioritised bandwidth in the core itself. The big factors affecting voice performance across the IP network are the compression and decompression, CODEC, unit used to compress the voice traffic itself, and the network latency/jitter performance. This is not just important at the time of implementation – the network must be carefully monitored to ensure that these parameters remain acceptable over time. However, these technical problems can be, and are being, solved. The carriers’ regional MPLS networks are technically capable, while global VNOs are connecting these networks and providing Class of Service re-marking, consistent Quality of Service scoring, and global SLAs, service level agreements, to connect the carriers and provide a harmonised service to enterprises. This is an important role as, unlike the government-controlled voice networks, globalisation via collaboration is not something the carriers, acting in a competitive environment, are renowned for. Meanwhile, enforced global standards are highly unlikely in a marketplace that is already scrambling not for the next technology innovation, but for the one after the one after that. The good news for enterprises is that it is the next IPT innovation that will deliver the real cost savings, and the even better news is that it is already well advanced. The bad news, I guess you knew it was coming, is that, as usual, companies are protecting their technology-dependent revenues as they try to recoup massive financial outlays on the last round of technology. However, this time it is not the wireline carriers but the mobile operators and their networks. This is because IP connectivity to mobile providers will be fundamental in creating the cost savings that the majority of enterprises will need to see before making the leap to IPT. The reason is this – 70 per cent of enterprises’ analogue voice calls are to company mobiles, and 45 per cent of that, or just over 30 per cent of all analogue calls, are to mobiles carried by people sitting in offices. If offices can connect these mobiles to the IP network, eliminating the voice-minute charges, the user companies will obtain very big savings. What is more, when you factor in the cost of the mobile-to-mobile conversations that are taking place within the enterprises’ offices, you can double that already very big saving. This is the single most persuasive reason for enterprises to switch to IPT. It is happening now. Hybrid GSM/WiFi phones like the Nokia 6136 have this sort of functionality that will eventually lead to a single phone number that can be reached anywhere using GSM out of the office and wireless connection to IP in the office and at hotspots. However, the mobile operators do not like this threat to their networks, to their earnings, and are not going to give up without a fight. However, whatever they do will only delay the inevitable as hybrid phones become price competitive and the ROI for mobile over IP becomes compelling for enterprises. So when the tide comes in, where does this leave everyone – the enterprises, carriers, both mobile and fixed, and the VNOs? Most enterprises will not want to train teams of IT staff at great cost, as this will reduce the savings that are forefront in driving the move to IPT. Nevertheless, this will continue to happen as technology moves on and the next round of skill upgrading takes place. Carriers will continue to invest in technologies, infrastructure and assets as they compete for their slice of the globe along their chosen technology roadmap, investing their shareholders’ money and sweating their assets to get it back. Meanwhile, VNOs will continue to sit between the carriers and enterprises, understanding customer needs and assisting them in selecting, integrating, implementing and managing the technologies that suit their business requirements. The mobile space remains as fragmented as fixed line – many operators have evolved from the domestic fixed-line carriers so their footprints are usually limited to their ‘home’ country. Yes, there is some consolidation through the M&A, merger and acquisition, activity of the big players, but in many cases this amounts to little more than a marketing agreement. Again, just as in the fixed-line space, there is a huge challenge for global enterprises, for organisations that want to take advantage of fixed-mobile convergence but operate in many countries. Again, the VNO approach offers an answer to this. A service provider defines a solution rather than sells a device. As mobile over IP becomes a very real proposition for enterprises, the potential for cost savings and business value will be found and banked, but it will be in the proactive management of multiple technologies and carriers, for IPT and beyond, that enterprises really see, rather than hear, the difference.

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