Voice over IP (VoIP) is finally becoming capable of replacing circuit-switched systems. On managed networks it can match or even better voice quality, according to Margaret Hopkins, author of a recent report on VoIP for consultancy Analysys.
"It already carries an estimated six per cent of international traffic on routes where competition is limited. It is now a serious consideration for corporate communications managers because of expected savings in capital, costs per call and system management," she said.
Put simply, VoIP turns voice calls into packets of data, allowing businesses to 'piggy-back' voice traffic onto existing data networks. Strictly speaking, it can be defined as voice traffic over a wide area network (Wan) between existing conventional circuit-switched voice networks, known as PBXs.
Replacing PBXs altogether and running phones directly from the local area network (Lan) is called IP telephony. However, many issues are common to both technologies.
Assuming that their networks are up to it, VoIP users can obliterate charges on phone calls between their own offices and reduce a host of other costs by running one network instead of two.
VoIP and IP telephony kit tends to be slightly more expensive than conventional equivalents, but the other savings can be significant, especially for organisations which are geographically dispersed.
"Usually a system will pay for itself in a couple of months and the savings on telephony costs alone can be considerable," explained Ralf Ebbinghaus, vice president of sales and marketing at IP telephony vendor Swyx Communications.
"A current Swyx customer is saving £4,000 a month by running IP telephony over a virtual private network between the UK and the US."
Flexibility and scalability are further benefits of the technology, because extensions can be added and moved around more easily. VoIP networks can be extended to include teleworkers, customers and trading partners.
Applications have been less of a driving factor, but VoIP-enabled applications are starting to become popular. VoIP can support virtual working and unified messaging, allowing voice calls, voicemail, email and data to be accessed via a single connection.
Websites can be voice-enabled, allowing browsing customers to call a sales agent directly from the website. Call centres and customer relationship management can be integrated, allowing users to call customers' numbers automatically, and 'screen-pop' their data if the customer calls in.
Video conferencing and white boarding (sharing the same application remotely) are made easier too.
VoIP is being taken up by corporates and small to medium sized enterprises alike, although corporates predominate because they tend to have more offices and more to gain from convergence.
According to Denis Murphy, Europe, Middle East and Africa managing director at VoIP vendor Clarent, key sectors include government, education, retail and finance, as well as oil companies, cruise lines and defence organisations.
However, despite this upsurge in interest, VoIP is far from being commoditised, and the prospects for expert resellers remain strong.
"It's still early days," said Andy Shepperd, general manager for networking and storage at distributor Computer 2000.
"It's taking time to educate end-users about the benefits. Some specialist resellers are making serious inroads into VoIP, but the products and the market are still in the development stage and some resellers are going to make reasonable profits before VoIP reaches a commodity level.
"VoIP is certainly not a box sell. It's a long-term return-on-investment sell and one that can't be forced on users. They have legacy telephony systems in place and don't want to throw that investment away.
"You have to prove the case with VoIP and be able to integrate the solutions with existing structures and allow those different systems to co-exist."
Any perception of commoditisation stems largely from ignorance, according to Darren Boyce, managing director of Nortel reseller Applinet.
"Many of the existing solutions are being sold as a box offering by people who see them as a quick sell and may be unaware of some of the complexities involved," he said. "Often this is because they are unable to cross the voice and data divide and fully understand the impact, especially in a multi-site environment."
VoIP is a classic converged market, requiring skills in both voice and data networking and, as VoIP vendors look to build up their channels, resellers without experience in at least one area need not apply.
Tim Giles, a market analyst at VoIP recording vendor Thales Contact Solutions, said: "Resellers without Lan or voice expertise are unlikely to make progress to higher value business, and would not be sought as channel partners by most significant VoIP vendors."
Currently, voice resellers appear to have the edge. "All our marketing shows that IT resellers haven't had confidence and expertise in this technology, and have been slow to see the market opportunity and explain the benefits to customers," warned Dilip Mistry, managing director of VoIP vendor Multitech. "Telephony resellers have 80 per cent of the market, while data resellers have only 20 per cent."
Survival of the fittest
IT resellers feel they are facing increasing competition from voice resellers, in a market where only the fittest will survive.
"Initially Lan resellers sold VoIP, but in future I see more telephony companies involved in both VoIP and networks," said Steve Whitby, business manager at reseller Cogent DSN. "The strongest in either sector will have to diversify to become the leaders in what will become a single sector."
Boyce believes that partnerships could be the solution. "Neither voice nor Lan resellers will have all the necessary skills needed if they are simply providing digital PBXs or have a primary focus on Layer 2-3 switching," he said.
"These are necessary elements but not the only basis on which to build VoIP and its integration with other systems. The approach will be one of 'co-opetition' and not competition, where the enemies of today become the allies of tomorrow."
Vendors are beginning to build this into their channel strategies. "Our channel strategy is to develop a flexible partner programme: sales-only partner, specialist support partner, or full convergence partner who can sell, install and maintain full converged networks," explained Paul Rowe, manager for succession enterprise marketing at VoIP vendor Nortel.
"This enables data channels to partner with voice specialist support partners, and vice versa."
The coming together of voice and data expertise can be as much of an issue within customer companies as in the channel, and resellers must be sensitive to this.
"Many voice people are concerned about a migration of their responsibilities, and equal numbers of IT personnel resist the additional responsibilities of supporting voice systems - an area where their skill sets don't match," warned Johnny Rollett, technical director at Nortel reseller Unified Networks.
"Before starting to convince a prospective customer to converge IP voice and data, resellers shouldn't underestimate the importance of getting buy-in from all the key 'influencers' and decision-makers within the company."
The opportunities for selling brand new VoIP networks are limited. "Unless a company is locating to a green field site or preparing a network for future applications, replacing an existing voice system with a VoIP solution isn't likely to make financial or business sense," said Rollett.
"The average PBX has an investment term of about 10 years, whereas data networks are usually replaced or upgraded every three to five years. Resellers need to be sensitive to these differences to be successful in proposing a converged solution."
Instead, there will be a gradual migration of voice services onto existing data networks, which is something in which competent resellers with data and voice expertise will be ideally placed to help.
"VoIP is about delivering tailored telephony services, and resellers can offer a greater degree of managed services to end users [than vendors can]," said Rashmi Tarbatt, business development manager at Cisco reseller Damovo.
"This can include selling, implementation, support and the strategic expertise to ensure that end users are making the most of their investment by integrating it effectively with other technologies."
There is plenty of scope to add value. "The opportunities for resellers to upsell are really good," claimed Jon Weatherall, Procurve Networking business manager at Hewlett Packard.
"There are the usual value-add services such as configuration, site audit, planning and project management. Resellers could also offer a monitoring service to make sure the solution is working properly.
"Potentially, they could audit a company's Lan infrastructure to ensure it can handle VoIP, and then take advantage of the infrastructure upgrade opportunities."
One of the reseller's most important responsibilities is configuration. Early VoIP implementations had a reputation for indifferent voice quality, poor reliability and limited functionality. The industry claims to have fixed most of the glitches, but only if the technology is properly implemented on network infrastructures that can cope.
"The quality of VoIP calls depends entirely on the quality of the underlying network," said Hopkins. "On a managed network, VoIP can match or even better traditional voice quality."
But many end users' networks are not yet up to the job. "Currently, very few network infrastructures are ready to handle voice, multimedia or streaming applications," stated Rollett.
"The belief has been that throwing in extra bandwidth can solve the problem, but this isn't a long-term solution. Careful consideration of all network components is imperative to ensure that latency on real-time applications won't be an issue."
A VoIP-capable network requires two things. First, it needs enough bandwidth to cope with data and VoIP traffic. Voice calls are not bandwidth-heavy, unlike some associated applications such as video conferencing.
Second, it must have quality-of-service software, which ensures that real-time traffic such as voice and video - where latency of a few tenths of a second is highly irritating - receives priority over simple data traffic such as emails and file transfers.
Part of the initial bad press for VoIP stemmed from the fact that it was often used over the internet, where bandwidth and priority could not be guaranteed. Over managed IP Wans, quality is much improved.
Interoperability between different vendors' products can be a problem, both between VoIP and traditional PBXs, and between VoIP kit based on different standards.
The longest-established VoIP standard is H.323. However, the newer, HTTP-based standard Session Initiation Protocol offers extra features such as instant messaging, while the signalling protocol Media Gateway Control Protocol is also used.
But overall, resellers at the sharp end seem satisfied with the current generation of VoIP products.
"As of today, voice quality and reliability are the same as a traditional PBX," explained Whitby. "Functionality is still in the growing stage, but in real terms VoIP can still make, transfer and hold a call as well as any traditional switch on the market."
VoIP is predicted to grow strongly in the future. Analysys expects it to account for at least 15 per cent of the European corporate voice market by 2007, making sales of the technology worth €2.5bn, compared with €236m this year, of which the UK could account for nearly €400m (€51m this year). If VoIP really takes off, it could gain 40 per cent of the market, according to Analysys.
John Blake, head of VoIP at BT Ignite, said: "Obviously [vendors will] support their legacy base, but there won't be any new developments.
"Companies such as Cisco, for example, are really driving the adoption of VoIP as part of extending the adoption of IP and their own technology across their customer base. It is clearly at the top of many vendors' agendas at the moment."
- Voice over IP offers significant cost savings, improves scalability and flexibility, and facilitates applications such as virtual working, voice-enabled websites and video conferencing.
- VoIP is still a specialist market, with lots of added value opportunity for resellers. However, it requires them to have experience of both IT networking and voice telephony.
- Voice resellers dominate the market now, but in the long term VoIP vendors will be seeking both voice and Lan skills from the channel.
- VoIP usage will grow, but by gradual migration, not wholesale replacement, requiring resellers to have integration skills.
Applinet (01635) 848 900
BT Ignite (020) 7356 5000
Clarent (01483) 721 884
Cogent (01633) 290 909
Damovo (0870) 420 6000
Hewlett Packard (01344) 360 000
Multitech (0118) 959 7774
Nortel (01628) 432 000
Unified Networks (0118) 982 1700
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