SIP, Hosted VoIP, and the Future of Voice Communications

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1 SIP, Hosted VoIP, and the Future of Voice Communications A Technology Briefing Presented By: Dave Dyson CEO

2 There are a series of trends that have developed over the last couple of years in telecommunications that make this a great time to be discussing the future of voice communications within your enterprise. We will discuss the overarching trends in the communications industry and how they are impacting traditional landline voice services in the enterprise. We have reached the tipping point on the big shift from traditional TDM based voice services to IP Telephony, Hosted Voice Over Internet Protocol (HVoIP), and Session initiation Protocol (SIP). The Trends There has been a conflagration of factors that have come together in the last couple of years in telecommunications that have led us from the edge of the shift from traditional TDM to VoIP to the current state of rapid adoption and new standards and technologies. Let s take a closer look at the contributions of each: 1. Big carriers no longer want to be in the game of supporting TDM and the copper infrastructure AT&T and Verizon have consistently had attrition of over 500,000 landlines a month for a number of years as customers adopt new technologies or flat out decide to go without a home phone entirely. Very quietly on December 21, 2009 AT&T, the largest provider of traditional copper TDM services in the U.S. asked the FCC for assistance in setting a firm deadline in decommissioning the copper network. This was similar to what the FCC had just done in fostering the switch from analog to digital television. In their filing, AT&T called the copper network a relic of a bygone era 1 and cited the tremendous costs associated with maintaining the network as it exists mainly for the benefit of CLEC competitors that buy the capacity wholesale. In May of 2009, Verizon took the process from rhetoric to action, selling off several states worth of copper lines to Frontier Communications. Verizon sold roughly 5 million landlines worth of customers to Frontier in order to more narrowly focus on fiber services that can deliver higher broadband speeds and home entertainment. 2. Improvement in the standards and technology of VoIP and the lousy call quality of cell phones We forget that VoIP is a fairly new technology in the grand scheme of things and as such many of us still have fairly fresh memories of early adoption and the pain that went with it. The first VoIP system I installed for a client in 2000 was ripped out after six months, because the CEO didn t like sounding like he was in a dumpster when he was on the phone. Since that time two things have happened in concert: 1. VoIP technology and standards have been improved to the point where most of the early- stage call quality problems have been resolved and 2. Cell phones have become the primary phone for most people over the last decade. With cell phones, we have traded the expectation of hear a pin drop toll quality calls for the 2

3 convenience of a mobile Figure 1 Crossing the Chasm device. The human ear is a remarkably efficient tool for measuring call quality and can pick up jitter, echo, or noise easily. Ten years of dropping calls and having shaky quality on our cellular phones have reduced the expectations of what we believe a good call sounds like. Crystal clear phone communication expectations have been replaced with can you hear me now. These changes have allowed us to jump the gap of the technology adoption curve 2 (Figure 1.) and we are now at the stage of majority adoption of the pragmatists and conservative buyers. 3. Broadband adoption, decreasing costs of bandwidth, and the advent of application management The last decade has brought about a huge change in how we purchase and use bandwidth. At the turn of the century, DSL was a nascent technology and Frame Relay at DS1 or below speeds was the predominant networking technology. MPLS, with its ability to define priorities for applications and packets has become the new network. Cable and DSL broadband with ever increasing speeds have reached a 70%+ penetration point in metropolitan and micropolitan areas 3 and easily accommodate voice services on a small scale. The carriers have engaged in a ten year war of attrition that has driven the costs of enterprise-type synchronous bandwidth down by 80-90%. $10/mb of bandwidth or below is the rule not the exception. Given the small amount of bandwidth that a typical VoIP call takes (30kb- 80kb depending on the compression used) and the increase in bandwidth, it is easy to see why many organizations are simply putting their voice services on their data network. 4. Voice is just another application The aforementioned increase in bandwidth has made it easier to layer additional applications onto the network without compromising any application. The application management of MPLS and the sheer raw size of bandwidth available for a low cost have made the single pipe proposition a reasonable and practical one. Companies can either have a traffic cop ensuring the right traffic gets through when they need it to, or just build a bigger highway, letting everyone through with the pedal to the metal. Home users have led the charge in the move to voice as an application with massive adoption of new platforms like Skype, Vonage, and Magic Jack that layer over cable or DSL connections. This has made the traditional landline nearly obsolete. These applications are often times more economical and feature rich than traditional TDM services. It is possible to make a free face-to-face video call from Chicago to London via Skype whereas a call to a mobile phone from a corporate ISDN PRI line may costs $.30/ minute or more. The savvy enterprise is using its increased bandwidth to reduce costs on traditional expenses like phone lines and long distance charges. 3

4 5. It s the economy, stupid! (Not you, the guy next to you. You re reading this, and as such must be brilliant) The economic collapse of late 2007/ early 2008 led to three major trends in communications purchasing: 1. Reducing expenses at all costs As corporations went into the bunker at the beginning of the recession, most budget holders were given a command cut your budget by X%. I don t care how you do it, but it must be done 4. This caused many IT leaders to review the way they were spending their telecommunications dollars. Many strategies were employed (optimization, contract renegotiation, etc.) and converging voice onto the data network for the first time was a sensible method for reducing costs quickly. 2. CAPEX vs. OPEX As in most downturns, stricter financial controls were put in place at most organizations and as a result, capital dollars became rare. IT leaders needed to figure out ways to turn business needs into operational expenses. The million dollar phone system of the past became the $10,000/ month hosted voice system of the present. As is often the case, nimble competitors quickly filled this space, providing robust solutions for the end user. 3. Technology shift It s undeniable that when the crisis hit, it was the straw that finally broke the camels back for traditional voice services. This trend was most visible in the home user market where users abandoned landlines en masse for cell phones 5, but was also clearly visible in most enterprise IT budgets, where telco costs were reduced by 20% while enterprise mobility costs grew (and continue to grow) at a rate that often marks them as the fastest growing line item in an IT budget. 6. The Cloud By statute, I am not allowed to write a technology brief without referencing the cloud, so here goes. The cloud is on everyone s mind right now and for good reason. The way we think about information and computing is undergoing a radical shift. Every enterprise is discussing what this means to them and how, not if the cloud impacts the future of their business. For some reason, the telco companies have not caught onto the power of the cloud conversation. But in essence, what is happening in telephony is Cloud Telephony. Carriers have called it Hosted VoIP, SIP plus, BVoIP, and many other bad marketing names, but the reality is that whether creating our own distributed telephony environment or leveraging one a 4

5 provider has built out, we are delivering voice as a service. Telephony has moved to the cloud, it s only a matter of time before it starts being talked about that way. The Way Forward We have clearly reached the tipping point in the mass conversion of voice from traditional TDM methods to an application to the data network. If you aren t having this conversation now, you will be soon. Best practices are evolving and there is no right way to migrate or adopt the new technologies. The landscape is changing dramatically and quickly. It is hard to keep track of all of the new vendors, technologies, mergers, and changes (unless you have Eclipse Telecom helping you). There are a series of methods enterprises are employing right now to migrate to the VoIP. The only way you can be sure you are doing it wrong is if you are doing nothing at all. The right way will vary depending on the unique situation and needs of your organization, but currently the approaches generally fall into one of the following categories: The great things about technology standards is that there are always so many to choose from 1. Command and Control with Centralized Hardware This strategy has some pros, particularly around control. If you are the sort of person who values being able to put your hands on the tangible assets and having 100% control, this may suit you best. Keep in mind that you will need to ensure that the brain is always reachable by the remote site so you will have to ensure that your core system resides in a highly resilient facility with multiple communication paths to ensure optimal results. This scenario would be the most capital intensive to build from scratch, but often times is a good approach for leveraging existing infrastructure. 2. Hosted Voice over IP Hosted solutions have matured from a small business solution to an enterprise class solution. While we would still exercise caution on hosted for something like a call center, it is ready for prime time in most business situations today. Hosted solutions truly deliver the vision of voice as a service and keep capital costs low, often by having you purchase only the handsets. The solutions are robust and the providers that are doing it well have built the resiliency and redundancy discussed above to a degree that would be cost prohibitive to 99% of all enterprises. Hosted solutions tend to be plug and play and very well supported by the providers which eliminates the need for traditional PBX specialists on staff full time. The providers handle software and firmware updates removing the traditional costs of PBX software upgrades as well. 3. SIP Session Initiation Protocol is the closest thing we have to a standard and its ease of configuration and deployment is allowing for myriad new ways to roll out voice over IP. All that is SIP requires is an IP address and call paths can be delivered quickly and inexpensively. SIP phone can be linked back to corporate UC platforms easily which reduces costs of usage dramatically. 4. Hybrid Solutions Certain providers are placing hardware on site at corporate locations but maintaining all responsibility for the gear, the software, and the maintenance while you pay a 5

6 per station cost. This feels like a hosted solution to the end client, but keeps the tangible assets on site which does lead to potential points of failure. One Big Glaring Question Why haven t the big telecom providers led the charge into this brave new world? This is a complex question, but I will give a couple of simple answers: 1. There is a reluctance to cannibalize existing revenues Even with the huge drop in subscribers, the big LEC carriers still generate a lot of working cash flow from traditional landline services. They understand that they are bleeding, but it is a proverbial papercut. They will act a little more urgently when they need to. 2. Why should we? If you are a big carrier, you are typically set in your ways. Introducing new technology and process can often times be a painful process. If you have done something a certain way for years or even decades, it can be a challenge to disrupt the status quo. Which leads me to 3. The companies that are doing the best are the ones you haven t heard of (yet) The traditional telco carriers are giant conglomerates who do a lot of different things. New technologies are always delivered best by focused upstarts who work in a very narrow band. These companies take the approach of We only do SIP, or we only do hosted VoIP, but it s all we do, so we do it better than anyone else. There are companies out there that are redefining voice communications in real time that you probably are unaware of, but you will be when they grow to a point of critical mass of adoption or.. 4. Get bought out by one of the big guys This goes back to the why should I of point two. The full sentence is why should I reinvent the wheel, when someone else is already doing it and I can buy them out in two years when they prove to be best of breed. Where Do We Go From Here? There is no right way for your organization to move into VoIP, and without a doubt, what is best today will change as we continue to integrate smartphones, tablets, person to person video and other solutions into the corporate environment. Our suggestion to you is to sit down and start to build a roadmap for where you are today and where you would like to be in a few years time. Understand what is being gained in terms of productivity, communication, and expense management as you move down the road and you will find the solution that best meets your unique needs. The changes of the last few years have led to more features for less money and the trend will continue for the foreseeable future. It s a great time to be thinking about how your organization communicates and how you can use technology to strengthen that communication. The right approach to communications that focuses on the needs of the business and that will provide you with a roadmap to success for many years to come. 6

7 1. 2. See COMMENTS NBP PUBLIC NOTICE #25COMMENTS OF AT&T INC. ON THE TRANSITION FROM THE LEGACY CIRCUIT-SWITCHED NETWORK TO BROADBAND December 21, 2009 See Crossing the Chasm Geoffrey A. Moore, 1991 Harper Business Essentials 3. See Industry Analysis and Technology Division- Wireline Competition Bureau Federal Communications Commission, July Your boss, See Wireless Substitution: Early Release of Estimates From the National Health Interview Survey, July-December 2008 by Stephen J. Blumberg, Ph.D., and Julian V. Luke Division of Health Interview Statistics, National Center for Health Statistics, Center for Disease Control May,

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