Firms Turn to Internet Telephony for Flexibility, BCP

By Maria Trombly | Securities Industry News | Jan. 27, 2003

All the interviews for this article were conducted using an Internet telephone. But before you start to feel sorry for the folks I talked to, you should know that there was no echo, no lag, no dropped calls and no problems with sound quality.

In fact, the only way to tell that I was on an Internet phone is the absence of long distance charges.

Since I'm a technology columnist, I have to be on the cutting edge of developments, but many Wall Street firms are choosing Internet telephony for the same reasons that I did.

First of all, Internet telephones are more flexible than traditional systems. In my case, that means I can get voice mail (not even an option from my local provider), Web access to messages, and e-mail reminders when new voice mail messages arrive. I can also pick up my phone and take it with me on the road. I plug it into any Ethernet jack anywhere on the planet and-tada-I have the same exact functionality that I do back at my desk.

For the enterprise customer, Internet telephony (also known as VoIP, or voice over Internet protocol) also means that setting up new phones or moving phones around is unbelievably easy and inexpensive, and that employees can take their telephone numbers with them when they travel to remote locations or when an emergency forces them to vacate their old offices.

For example, Barclays Capital's Kingsley Poulton, director of information technology, said he decided to go with the IP-based IQMX trading platform from IPC Information Systems because it allows free seating, "which gives traders the ability to access individual IQMX desktop settings from any trading position on any trading floor."

Internet telephony really paid off for Merrill Lynch after Sept. 11, for example, when the company was able to move its employees over to a New Jersey location, plug in their Internet telephones, and instantly get a dial tone.

Second, Internet telephony saves money. It saves money when a company doesn't have to send technicians out each time an employee changes cubicles, and it saves money in long distance charges.

For example, if a company has extra capacity in its data lines, it can route voice calls through those same lines to locations around the globe.

In addition, by moving voice traffic to a data network, a company no longer has to maintain a separate voice network.

Third, Internet telephony allows for more resiliency.

"A lot of organizations are looking at deploying the core of the system in an out-of-town data center and providing a very thin user interface layer, and using IP as a way of linking the turrets back to the data center," said Simon Pritchard, senior product manager at Fleet, U.K.-based Syntegra.

He explained that this is known as "thin building architecture"-the users of a network are in one location and the back-office equipment is somewhere else. Data processing facilities are already frequently located at other locations for security reasons, especially after Sept. 11, and the same reasoning holds true for voice communications as well.

"In the event the main office is unavailable, it's very easy to re-route the IP connection to an alternate office," Pritchard said. "A lot of organizations are looking at thin building architecture or have been talking about it as being a main goal."

Currently, it's still a pricey option, he said, but as the cost of bandwidth continues to drop thin building architecture will become more attractive.

Finally, putting voice traffic onto a data network opens up a number of new possibilities such as unified messaging and combined voice and video.

This year, vendors are working on implementing new standards and offering new features but the technology is already ready for prime time.

The big challenge, according to Mark Slaga, national solutions director for IP telephony at Reston, Va.-based Dimension Data, is making sure that end-users know what to expect.

"The technology is there and is solid," he said. "It's about how you implement it. If you treat an IP telephony project the same way you would a network project, you may end up with end-user satisfaction issues."

In a typical network project, he said, all the work is done on the network side and the end-users aren't directly affected, except for the fact that they may see high network speeds or less downtime. With a VoIP project, however, the users will probably get new telephone sets, and may have to learn how to use new features.

"It's all about managing user expectations," Slaga said.

Dimension Data currently has done about 250 VoIP projects worldwide, about half of them in the financial services vertical.

For example, the company recently designed and implemented a VoIP network for SNL Securities LC, based in Charlottesville, Va.

"Our current telephone system was no longer able to support a unified voice network in multiple buildings, and distance limitations meant we could no longer connect all of our offices with traditional business telephones," said SNL Securities president Mike Chinn.

Switching to VoIP meant the company could improve customer service, create a single converged network, improve communications between offices and lower total IT costs, he said.

VoIP is already widely used on Wall Street for internal voice communication. This year will see the beginning of VoIP's growth into new areas, including video and extranets.

"We're still talking about islands of VoIP," said David Passmore, research director at Salt Lake City, Utah-based Burton Group research and consultancy. "Each company has its own IP network and if you're with one financial institution and I'm with another one and we're both using VoIP, what happens is you're part of a VoIP island, I'm part of a different VoIP island, the only way we can connect the two today is using the good old public switch network-which, if you think about it, is a pretty inefficient process. We're missing a universal directory that would allow direct VoIP phone calls to be made between organizations."

Projects are already under way to solve this compatibility problem, he said, including a standard called ENUM, which will convert Internet addresses to telephone numbers.

"There will be huge cost savings for companies once it does happen because they can get rid of all that expensive conversion from [data] packet to [voice] circuit and back to packet," he said. "They can get rid of their voice circuits to the public switch and improve performance."

The big move away from traditional phone systems probably won't come until 2004 and 2005, however. That's when all the phone systems installed in anticipation of Y2K will finish depreciating and firms will start looking around for new equipment.

Until then, Internet telephony will be popular for pilot projects, in new buildings, in renovations, and for companies where cost savings are most important. Many Wall Street firms fall into one or more of these categories.

"Wall Street firms are much more in tune with return on investment and costs of ownership than firms in other verticals," said Craig Cotton, manager of product marketing for enterprise voice and video at San Jose, Calif.-based Cisco Systems. "Some firms wouldn't even consider walking away from a solution that wasn't fully depreciated, but a Wall Street firm would factor it more readily into their ROI calculation. They're a bit more in tune with staying competitive and gaining competitive advantage."

This coming year, Cotton said, Cisco plans to expand on its VoIP offerings. It just recently tripled the scalability of its CallManager software from 10,000 phones to 30,000 phones, and will increase scalability even further.

In addition, Cisco plans to enhance security and add video conferencing applications.

"The feedback from Wall Street firms has been very strong," he said. "They've been asking for desktop video support for quite some time."

But even if you don't yet have a VoIP phone on your desk, you may already be making VoIP phone calls. According to Washington-based TeleGeography, wholesale carriers and global business voice and data providers already convert about a tenth of all international long distance traffic to IP and back again to reduce costs and improve efficiency.