Making the Case for VoIP

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1 TCO Report Making the Case for VoIP Executive Summary For AT&T, deploying VoIP across our own company has resulted in employee productivity improvements and compelling cost savings in capital investment and operations. By keeping a focus on quality while leveraging leading edge technology, AT&T has been able to realize financial paybacks that have helped to accelerate VoIP deployment. AT&T went through rigorous steps to identify and prioritize locations where VoIP would provide the most benefits initially, followed by a migration plan that will deliver these benefits throughout the entire company. This paper will take you through AT&T s experience and show you the elements that created a winning business case. Introduction AT&T has played a major role in driving Internet Protocol (IP) technology and Multi-Protocol Label Switching (MPLS) since the inception of the Internet, recognizing the potential of IP to deliver a whole new standard for enterprise productivity, enabled by networked applications. Today, after years of internal testing by AT&T,Voice over Internet Protocol (VoIP) technology has reached a tipping point: the scale and operational advantages impacting the financial case have strengthened.voip provides powerful Total Cost of Ownership (TCO) savings and return on investment (ROI) across the entire company. AT&T is now fast-tracking the implementation of VoIP within its own business. The Challenge Joining Customers to Meet the Challenge AT&T recognized early on that using IP to converge voice and data applications onto a single network had the potential to deliver significant value to enterprises. VoIP was the first application to emerge in this market. Like all companies, AT&T faces two fundamental and ongoing business challenges: find ways to help employees work more productively and cut costs.the company saw the potential in VoIP to both strengthen the productivity of its employees and reduce TCO well below the costs of legacy technology. Two strategic initiatives championed by Hossein Eslambolchi, President of AT&T Global Networking Technology Services and AT&T Labs,AT&T CTO & CIO, were also driving AT&T toward solutions like VoIP: Concept of One SM (do it once, do it right, use it everywhere) and Concept of Zero SM (zero defects, zero cycle time and automate where possible). AT&T leaders believe strongly that AT&T should use the very same business solutions that the company offers its customers. Nothing teaches as effectively as direct experience. So the company challenged itself to become a test bed for VoIP, put the technology to work and learn from the inside how to help customers use VoIP to deliver maximum business value.

2 AT&T began its first implementations of VoIP to support internal operations AT&T installed a new boardroom and executive offices in N.Y.C., served entirely by VoIP 40% of AT&T users outside the U.S. were using VoIP Virtually all of AT&T will be using VoIP services delivered via the MPLS-enabled AT&T IP Network Late 1990's January Planning and Implementation Testing and Proving the Value of VoIP In the late 1990s, under the leadership of Andy Daudelin, Vice President of IT Operations, AT&T began initial implementations of VoIP. Daudelin s team first trialed VoIP in their own department. Says Daudelin, We started with IT so that we could learn how the technology worked outside the lab. Was the quality there? Did it meet our feature/function needs? Could we manage it? What happened when there was an outage? Along the way, we had some false starts. So we learned, and changed direction. As AT&T moved ahead, it became clear that some VoIP implementations delivered stronger ROI than others.the specifics of a business location domestic or international, new or existing site triggered the decision to go or not. Implementations at new facilities and locations outside the U.S. were the first scenarios to deliver a solid, positive ROI. New Sites VoIP delivered a strong financial payoff where there was no existing infrastructure. Even a few years ago, the decision to install an IP PBX at an AT&T location to support multiple sites made financial sense. As to performance, AT&T s confidence in VoIP was strong. In January 2003 the company installed a new boardroom and executive offices in New York City, served entirely by VoIP. Existing Non-U.S. Sites VoIP in AT&T locations outside the U.S. significantly reduced TCO, due to the high rates charged by in-country service providers.voip avoids much of that cost by routing voice calls over AT&T s virtual private network (VPN). By 2004, some 40 percent of AT&T users outside the U.S. were using VoIP. Existing U.S. Sites For many of AT&T s U.S. locations, the economics supporting VoIP did not become compelling until The TCO calculations for VoIP payoff depend in part on the vintage of the existing system. In a location equipped with a relatively new PBX, it may make financial sense to keep that system and upgrade it to support VoIP calling. When an older system is replaced,voip economics rule. Because AT&T was outsourcing PBX services, however, the timing to replace a system depended more on contract specifics than equipment age. The VoIP solution ramped up quickly and its performance has been every bit as good as the legacy systems. The flexibility of an IP platform has given us a much better solution for keeping my 70 agents in Bratislava fully integrated into the global operation. Steve Coffey, Director, Managed Services Delivery, Worldwide Customer Service Equipment and Transport Costs Early on, the high cost of IP telephones (around $500 each) made it too expensive to replace legacy PBX s, plus the steady decline of U.S. long distance rates undercut the VoIP toll-savings advantage. Today transport costs have stabilized, while the cost of IP phones has dropped from $500 to $350 or less. Mobile and home-based employees use a $50 IP softphone, cutting equipment costs even more.the aging of AT&T s legacy phone systems has provided added incentive, since most of those systems are now reaching the end of their useful life. 2

3 Network equipment costs have dropped, and that has changed the financials to deliver a much stronger return on investment (ROI), says Daudelin. The technology is mature at this point. And our legacy equipment is reaching the end of its life, which reinforces the financial benefits. Becoming the Standard The payoff today is dramatic and VoIP is becoming the standard at AT&T. The company is now extending VoIP-enabled phones to more than 20,000 employees. By the end of 2006 virtually all of AT&T will be using VoIP services delivered via the multiprotocol label switching (MPLS)-enabled AT&T IP Network, delivering hundreds of dollars of savings per employee annually. My VoIP service has made it easier for media contacts to reach me. I can easily program different reach numbers and specify which calls will receive a priority treatment.this helps me be responsive to media inquires that can come in any time.voip gives me the tools I need to be more productive and phone tag is a thing of the past! Gary Morgenstern, AT&T Public Relations Director In addition to changing the way the company communicates, AT&T s experience with IP communication has paved the way for AT&T Dynamic Network Applications SM or DNA, an integrated portfolio of Network-Based IP services AT&T is delivering to customers. AT&T s internal end-users have helped the company better understand how to design new end-user interfaces for their award-winning customer portal AT&T BusinessDirect. They also have helped prioritize feature development for AT&T IP services. Network equipment costs have dropped, and that has changed the financials to deliver a much stronger return on investment. The technology is mature. Andy Daudelin, AT&T Vice President, IT Operations Results A Global Payoff AT&T s deployment of VoIP is delivering significant benefits by increasing productivity and helping cut costs. New Sites Existing Non-U.S. Sites Existing U.S. Sites 1 year payback The VoIP Payoff 1 to 1.5 year payback 1.5 to 3 year payback Years Increased Productivity AT&T is seeing productivity gains in both system administration and management, and with end users: Single reach numbers for mobile workers allows calls to be received regardless of where they are Single voice message system eliminates need to forward calls to outside lines VIP calls reach users immediately, even when out of the office Speed New VoIP installations go in fast. We deployed IP call centers in Bratislava, Slovakia and Singapore, Daudelin says. We were able to turn those up in six to eight weeks. We estimate the onetime deployment costs were 50 percent of what they would have been with legacy technology, and the time to do it was less than half. Control With VoIP communications, users can program their own special calling features, such as call forwarding and speed dialing, and much more. A 6,000-port system the company is about to deploy for AT&T Labs users in Middletown, N.J. is capable of providing on-demand video conferencing. 3

4 Mobility IP softphones give mobile users high-end telecommunications functionality from anywhere. VPNs enable remote users and travelers to access features, such as multi-user conferencing and voice messaging. Softphone users on a wireless local area network can take calls on their PC and move from their office to a conference room. Cost Savings Daudelin estimates the savings produced by easier moves, adds and changes (users simply move their own phones) at $50 per user per year. On-demand audio conferencing is cutting conferencing costs in half and saving $96 to $120 per user each year. For virtual office workers,voip cuts telecommunications costs 60 percent. Because all calls are carried on net over the AT&T MPLS network, there s no need for an additional POTS (plain old telephone service) line for home-based workers. That saves, conservatively, $20 a month per employee, Daudelin says. Toll costs also come down. Softphones that cost $50 enable employee s laptops to double as full-featured phones. If users are satisfied with the functionality, Daudelin will replace desk phones with softphones and save several hundred dollars per user. By helping remote workers perform more productively, VoIP supports AT&T s drive to cut costs through remote office or telework arrangements. AT&T estimates it is saving $180 million yearly through telework, including $34 million yearly in reduced real estate costs. Some 30 percent of AT&T managers now work full-time in a virtual office. For offices outside the U.S.,VoIP cuts the long distance bill by 20 percent to 50 percent, depending on local conditions and tariffs. In new installations, eliminating separate telephone cabling can save $40 to $90 per user.voip enables AT&T to reduce the average number of ports allocated per user, delivering a 25 percent saving in that area. Average Annual Savings: $500 $1000 per user $500 $400 $300 $200 $100 0 Conferencing Service Maintenance Moves/Adds/Changes Remote Worker Service $120/year/user $180/year/user $50/year/user $500/year/user The AT&T Equation: Where to Find the Strongest VoIP Payoff New Sites Existing Non-U.S. Sites Existing U.S. Sites Transport Same as existing sites 20%-50% Cost Reduction Breakeven Capital/Lease Expense 25% lower to deploy (due Varies by situation 35%-50% higher for equipment; to reduced cabling/switch cost) 30% savings in ports Yearly Operating $500-$890/user $690-$1070/user $500-$890/user Expense Savings Net Payback 1 year years years 4

5 Key Learnings Daudelin draws a number of key lessons for other IT executives considering implementing VoIP. As someone who can be working at up to 3 different locations during the week, it had been difficult for callers to reach me before I had my VoIP service. Now I have a single reach number and features that help me be productive no matter where I may be working. VoIP has simplified how I manage my calls, so I can focus better on the work at hand. Christine Ryan, AT&T Law & Government Affairs Manage Call Quality End-to-End In some of our early deployments we deployed solutions where we couldn t see end-to-end and weren t able to constantly monitor call quality, Daudelin says. People were experiencing poor quality; we didn t know until we did customer surveys. That s not where you want to be.you need to have sound end-to-end management where you can monitor not just the wide area network, and not just the premises equipment, but end-to-end call quality. That s critical. We ve done a lot of work in AT&T on both the network side and the IP telephony side to configure tools that are integrated to provide that view, Daudelin adds. AT&T automatically monitors such IP voice quality indicators as jitter, delay and packet loss. If call quality falls, an alarm sounds, and network administrators step in. Save to Re-invest Daudelin says that by picking the right places to start implementing VoIP sites where the TCO savings are greatest the CIO can start generating cash flow to fund the future deployments. For AT&T, the deployment of new U.S. sites, non-u.s. sites and virtual office users helped fund the next phase of VoIP deployments. Take It To The Net VoIP services can be provided using a dedicated on-site IP PBX or by a Network-Based solution, such as AT&T s Voice DNA service. We tried both approaches, says Daudelin, and I have a strong bias towards a Network-Based solution. In the end, it not only enables you to avoid an investment in premises equipment, but also minimizes your risk by enabling you to trial before deploying company-wide. Conclusion The Time is Now As the world s networking company SM, AT&T has taken a global lead in using the most advanced networking technologies MPLS and VoIP within its own operations. What AT&T executives like Andy Daudelin understand is you have to build a business case and prove in each technology investment. The first VoIP implementations to meet the TCO test were new locations and international sites. But today the economics of VoIP have grown far stronger, and every location is up for consideration.voip boosts employee productivity and provides compelling savings in capital investment and operations. As Daudelin and AT&T have learned, the time for VoIP is now. Number of Ports AT&T VoIP Utilization Statistics Non-U.S. Ports Year U.S. Ports For more information, visit 5

6 About the Series This is one in a series of TCO reports that is aimed at sharing the lessons AT&T has learned within its own business about how next-generation networking solutions can pay off enhancing productivity and reducing total cost of ownership (TCO). Our goal is to provide real world answers, based on real-life experience, that help executives deal effectively with today s business issues. Our own approach to enterprise networking is built on the principle that solutions must deliver value and enhance the performance of business applications. We begin with a vision set forth by President of AT&T Global Networking Technology Services and AT&T Labs, AT&T CTO & CIO, Hossein Eslambolchi. This vision is being realized through an aggressive program called the Concept of One SM which is the consolidation of our network into a single, global, MPLS-enabled network with consolidated operating support systems. And for enhanced customer experience, the Concept of Zero SM delivers process automation that enables us to serve customers with zero defects and zero cycle time. Starting with this clear vision based on the potential of networking, we have created a practical roadmap to guide our customers. Then we put that vision and roadmap to the test inside our own company, since AT&T faces the same business challenges as other enterprises. AT&T believes strongly that the solutions we provide our customers should be the same that we use across our own company. If a solution creates value for AT&T, it will for customers, as well AT&T. All Rights Reserved. Printed in U.S.A. 08/04/05 AB-0382