Information Age: News, analysis & insight for IT & business leaders

The year before last they were thinking about it. Last year, they thought about it some more. This year, according to a growing body of indicators, European businesses are throwing away their private branch exchanges (PBXs) and buying into the streamlined, cost-effective world of unified Internet protocol (IP) networking.

Certainly, an explosion in the number and variety of network providers, carriers, Internet service providers, telecoms providers and mobile and voice operators - both actual and virtual - onto the scene makes it an innovative and ground-breaking time to be in the telecoms business. But competition is fierce and services are often the differentiating factor.

New applications such as web conferencing, voice-enabled websites and presence technology are being aggressively promoted to businesses to compensate for the plummeting prices of traditional voice calls. While voice over IP (VoIP) calls are almost free, they carry a range of opportunities to increase the average revenue per user (ARPU).

In North America, market watcher Infonetics reported that VoIP service revenue topped $1.3 billion in 2004 and is expected to soar 1431% to a dramatic $19.9 billion a year in 2009, demonstrating the inevitable boost that these extra services will have for anxious telcos.

But it is not just the VoIP arena that will be layered with services. Converged networks also cater for video, data, multimedia, fax and email, which all offer numerous opportunities to raise the ratio of revenue per customer.

Services such as data storage, security, higher quality of service, remote access capabilities and scalability will all be offered to the customer at a premium or as add-ons, either as a managed/hosted service or as an in-house package.

Free time

Other communications options come in the form of online competitors such as Skype, which provides free telephony over the public Internet, rather than private IP networks, and with over 15 million end users is soon to launch a business version of its software. When it does, it will join a growing coterie of independent software vendors who believe voice-enabled and other multimedia applications will lead the next great trend in enterprise software investment.

"A battle for the enterprise desktop is looming between major IT and telecom vendors, and at the centre of it are innovative types of user-defined communications and the marriage of telecom-based convergence and IT-based desktop collaboration," says Tom Valovic, an IDC analyst specialising in VoIP infrastructure.

Judging from statistics from analyst group Dell'Oro, showing total PBX market revenues down by 8% in the first quarter of 2005 and IP PBX segment revenues growing by 18% in the same period, budgets are migrating towards VoIP equipment. But however much networking companies such as Cisco and Alcatel argue that converged networks are taking off, VoIP has simply not reached a standard comparable to the plain old telephone system (POTS), in terms of reliability, quality and security (see pages 22-23).

Why part with millions of pounds to throw away a communications system that is still fully functional? Unless companies are dealing with a green field site, implementing a converged network is really only applicable on a large enterprise scale, or if a traditional PBX is outdated, inflexible and in need of modernisation.

Big on benefits

BT estimates that a fully integrated environment has significant cost saving potential. For example, a typical company comprising 800 field engineers and 200 office-based/nomadic employees could almost halve its operational costs over a two to three year period. These savings come in three main areas: consolidation of applications and infrastructure; convergence of disparate networks; and finally, the extension of convergence benefits.

Across these three areas, it is possible, says BT, to make savings of up to 42% in travel costs by implementing audio and web conferencing technology, and up to 20% by utilizing fixed-mobile convergence, for example.

A good example of a successful migration to a converged IP network was Abbey National's 2003 project to update its IT infrastructure and telephone network - one of the biggest of its kind in the UK. The result was an eight-fold increase in bandwidth to all Abbey branches and the installation of an IP phone network.

This was done to reduce costs and to give the bank a strategic advantage through the ability to, for example, stream video clips to branches. The £125 million contract with BT to provide a managed service, combined with a £70 million desktop service outsourcing contract with Computacenter, resulted in a cost reduction of £57 million in 2004 alone.

And in 2004, Ford Motors signed a three-year deal worth approximately $100 million with SBC to provide and manage an IP telephony system for 50,000 business users across 110 Ford facilities in Michigan, USA, signalling that VoIP technology is slowly getting recognition as a reliable, cost-effective alternative to circuit-switched PBXs. The transition will make it easier to deal with employees moving between various offices, and will allow Ford to scale up or down its usage with minimal disruption - all part of a drive to maximise operational efficiencies.

The major barrier to customers switching to a converged network is the initial cost of deploying the technology, and the difficulty of quantifying the financial benefits of such an implementation.

The cost savings of web conferencing tools due to lower travelling costs are one way to estimate return on investment (ROI). For example, Aviva, now the UK's largest insurance group with nearly 50,000 staff worldwide following its merger with Norwich Union, chose a web conferencing tool from collaboration specialist Webex in a bid to cut down on international travel and says it saved £75,000 in the first year alone.

Chris Rechtsteiner, VP of marketing at enterprise IM vendor Parlano, likens ROI to outer beauty - it is all in the eye of the beholder. He says people latch on to the decrease in telephony and email storage costs, precisely because they are tangible numbers.

"It gets more nebulous when it comes to identifying business opportunities," he says. While it is difficult to put a price on the time saved as a result of a fully mobilised, converged network, the common consensus is that it is priceless.