Over the past month I´ve spoken to over ten CIOs of F1000 concerns about their enterprise networking plans. Besides security, organizational changes and budget woes, understanding converged infrastructure with VoIP cost/benefits is becoming top of mind. Voice over IP, IP Telephony or IP Communications - pick your tag line; the moving of voice over IP networks is finally in the limelight and interest is cautiously high.

There are four ways VoIP will manifest. It will be implemented either from the carrier to the enterprise, as a managed service, from the enterprise to the carrier and/or a grass roots VoIP over a public Wi-Fi service.

1: From the Carrier to the Enterprise

In this scenario, service providers will deliver voice service over IP infrastructure rather than their current circuit-switched platforms. Here service providers would transition their circuit-switched voice switches to routers and soft-switches that deliver the voice features we all use today. While VoIP is routinely used in the public network core, don´t hold your breath for ILEC VoIP access projects. This approach was hyped three to four years ago when Chambers tried to sell the industry on free voice service.

2: Managed VoIP Service to the Enterprise

Managed VoIP is in essence the next generation Centrex service or, as some call it, IP Centrex, where a service provider delivers all the services and features that an enterprise would expect from a private PBX. WorldCom is offering such a service it calls its network-based Voice over IP Solution. WorldCom provides enhanced voicemail and on-net /off-net long distance calling, via Session Initiation Protocol (SIP). Access, in the US, is either Option 2 Frame or ATM, with dedicated Internet access available in the second half of 2002. This is a managed service where WorldCom supplies, installs, and maintains all routers and equipment associated with the service. Key to this industry segment is the target customer base, that being the 7.8 million small to medium sized businesses (SMBs). This is a key industry segment to watch, as it will be the first to recover from the IT depression since SMBs enjoy shorter decision cycles and closer customer interaction than the F1000. Over the next 18 months, look for many more services, as it provides a lower cost basis to deliver service.

3: Enterprise To The Carrier

Bottom line, this is the VoIP market with the strongest value proposition and subsequently measurable growth. The PBX market is some $30B large. These systems are very much closed proprietary systems with high barriers of entry and vendor lock-in. What Cisco, 3Com, Shoreline and a host of others with no installed base hope to do here is break the PBX apart with open systems made up of open protocols such as SIP clients, Ethernet, IP, Megaco, H.323, MGCP, H.248 and a host of other standards.

In short, the new voice vendors will be inflicting Moore´s law on the PBX. The incumbents such as Nortel, Avaya, NEC, Hitachi, Mitel, Alcatel, Fujitsu, et al have offered IP link and trunk cards on their PBXs in an attempt to slow down the onslaught of the newcomers. In essence, IP link and trunk PBX cards have given the voice manager some time to fend off the data guys who say the world is going to IP and so should the PBX.

But over the past six months a change has occurred, and a kink in the circuit switched armor is now apparent. The voice manager may be warming up to the data manager´s IP ideas. For starters, Hitachi has bowed out of the PBX business while others are waving at the door as they get a whiff of the open systems wind blowing in enterprise networks. The key turn of events has been the willingness, or survival instincts, of the incumbents to join the newcomers and eat their own by offering VoIP solutions from their circuit-switched offering to packet-switched voice architectures.

Case in point — I was at Nortel´s analyst meeting last week where Frank Plastina President of Nortel´s Metro And Enterprise Networks extolled the virtues of Nortel´s CSE MX, short for CSE Multimedia Xchange. The CSE not only ties Nortel´s PBX product line of M1, Sl-100, BCM, Norstar, CSE 2000/1000 into an enterprise IP network, it provides key interoperability services. These services include the support of analog, digital or IP phones and interoperability with key applications such as its CallPilot unified messaging system, IP contact center and its Symposium call center. It is Nortel´s willingness to provide a comprehensive transition to IP voice that is compelling here. Nortel´s position says this is the way the world is going and, rather fight it, we´ll protect our installed base and cannibalize the slower moving circuit-switched players. In short, the race is now on to transition the PBX to VoIP solutions.

Will enterprise users care? I think so, and many already do. The value proposition here is economic efficiencies in facilities and operational costs plus an enterprise productivity boost through unified messaging, all of which are good for EBITDA. Good news to a sagging economy and CIO´s who are now starting to report into the CFO rather than having a seat at the executive round table.

A comforting note to enterprise managers planning a transition to a converged infrastructure supporting VoIP is that they are not alone. Some VoIP installations have over 8000 IP phones installed, spread over multiple buildings and sites. Also, there have been more then 500K IP phones shipped to date. And just in case you didn´t know, Windows XP has a SIP client bundled with it, making every PC and laptop a VoIP client capable of voice communications. Installations are both small and large, with the bulk of new installations going into the SMB market place thanks to companies such as Shoreline, 3Com, Cisco and now Nortel.

For those with existing PBXs, change is inevitable. PBXs are typically depreciated over a 7-year period. That means every year approximately $4.2B of the PBX market is ripe for replacement. That doesn´t mean that every enterprise will transition their PBX over the next seven years. Many have kept their PBXs for well over 15 years, simply because they just keep working. Also, there are issues with VoIP that need to be overcome. One issue is in-line power, which is just starting to ship within some vendors layer 3 switches, including Cisco and Nortel, in the fall. Another issue is presence-based messaging. Say you need help and dial 911. The police or fire department need to know what floor you are on and your approximate location on that floor so they can provide assistance. Logging of transactions is another key issue. There are some 40 million lines of code in a PBX that provide many functions beyond convenient features. It´s this intellectual property that has staying power unless it is housed in a different form factor. You can bet on that.

4: Grass Roots VoIP over Wi-Fi

While enterprises will be busy implementing VoIP solutions, a host of new service providers are building public Wi-Fi infrastructure for both Internet access and VoIP services. Service providers such as VoiceStream, HereUare, WIFI Metro, Boingo, iPass, Sprint (with its service relationship and investment in Boingo) and AT&T (to announce next year) are building out ?¬¢‚Äö?ᬮ??¨hot spots?¬¢‚Äö?ᬮ¬¨?? in places such as airports, hotels, coffee shops, parks and other public meeting places where you can sit, open up your laptop and connect to the internet or make an internet voice call at 11Mbs or faster for a fee between $20 to $75/month. Data point: there are approximately 1000 commercial hot spots today, with 5,000 projected by the end of the year. That number is projected to grow to 41,000 by 2007, generating some $3 billion, according to the research firm Analysys.

There are now 802.11 VoIP phones from companies such as Symbol et al that could be used while in a hot spot to place a phone call or simply plug in your earphones and microphone to your laptop and use the SIP client in Windows XP. Over time there will be other device options as well. In the next 5 years, 91 million devices such as handhelds and laptops will ship with a WLAN port embedded. Hopefully before then, security will be solid, tight, impenetrable and integral to these products, eliminating the current porous nature of Wi-Fi offerings, a major must-happen event for this scenario to unfold.

Hot spots are far less expensive to build than 3G systems and offer far more bandwidth, prompting nearly all IXCs to view Wi-Fi as a back door into the ILEC voice market. AT&T, Sprint and WorldCom/MCI are all exploring hand-off arrangements so that when you´re in a hot spot you can use Wi-Fi to place a call, but when you leave the hot spot you jump on-to their wireless network. And while airports, parks and public spaces may make up only a small part of the ILEC voice revenue market, by 2007 Analysys projects there will be 21 million users accessing public Wi-Fi systems. Then there is the voice revenue that will be siphoned off by enterprise VoIP and WLANs in both SMBs and homes. WLANs, which use the same technology as public Wi-Fi, are the fastest growing networking products being consumed by the SMB, with the home market right behind them. According to IDC, by 2004 there will be 4.2 million homes equipped with WLANs. Bottom line, there is only one-way to go for voice over Wi-Fi access and that´s up. This has the RBOCs trying to figure if public Wi-Fi is friend or foe. Here´s a hint - It´s a foe. If I were an ILEC, I wouldn´t feel comfortable with this thing out there.

So VoIP will manifest itself in three ways: 1) from the enterprise out, 2) via managed services and 3) public Wi-Fi access. The managed VoIP service ties into a major trend that is occurring due to the economic downturn and IT depression. The CIOs I talk to all have a common theme: they are under pressure, either to keep budgets constant or to reduce them while increasing services. They are looking for new approaches. Service providers typically generate $18K of annual dollars if they sell connectivity solutions versus $250K of annual dollars for managed services, according one ILEC who chooses to remain anonymous. Managed services may offer enterprises, especially the SMB, a new way to deliver voice service at a reduced price to the enterprise while at the same time delivering what the service providers need; increased revenue. This approach works all the way up to large enterprises where the weight of paying six figure salaries to the small army of staff that designs, builds and operates corporate backbone networks is becoming to heavy to carry. Managed services may just be the CIO´s best friend during this frugal business cycle.

Most enterprises over time will employ all three VoIP approaches. While enterprises build their intranet VoIP networks, managed services will connect them to remote sites. Public Wi-Fi services and other remote access technologies such as VoIP over VPNs over Cable/DSL will connect the home worker. If you thought that the telecom crash crushed VoIP, think again. If anything, this downturn has accelerated converged infrastructure plans and the willingness to change the status quo to reap productivity and cost dividends.

Posted 2 May 2002 at 6:37 pm under Lippis Report, Enterprise Mobility. You can follow any responses to this entry through the RSS 2.0 feed. You can leave a response, or trackback from your own site.