December 23, 2003

By Jason Deign, News@Cisco

Fire breaks out in a municipal building. A worker tries to call emergency 911 to raise the alarm but is beaten back by flames before he can give the location to the emergency services.

In many cities, firemen would be powerless to halt the calamity without another call - but not in Mississauga, Canada.

Earlier this year, the city's administration spent US$3.3 million on an IP telephony system that incorporates Enhanced 9-1-1 (E911) - a service that automatically gives the location of a caller's phone to the emergency services.

In addition, if someone moves or there are changes or additions to the directory, the E911 function discovery service automatically changes with the new location. There is no need for any reprogramming or system entry to have the E911 service follow the new location of the IP phone.

The City of Mississauga was the first Canadian enterprise to launch this feature, but all across Canada and around the world, businesses and governments are hurrying to introduce the technology in the place of traditional PBX (private branch exchange) telephone systems.

IP telephony is now rapidly becoming established as the new global standard for voice communications - to the point that Gartner earlier this year predicted the imminent demise of the traditional phone system.

"By the end of 2007, traditional enterprise telephony system manufacturers will have ceased development ... and announced their intention to discontinue support for their TDM-based PBX and contact center systems within five years," said the analyst group in March 2003.

This is a far stretch from the situation barely half a decade ago, when IP telephony was considered risky and unreliable.

"We found there was a lot of uncertainty in the market about IP telephony," recalls Tim Stone, Cisco marketing manager for Voice in Europe, the Middle East and Africa (EMEA).

"The main issues were around the quality and reliability of the service, lack of standards and applications and the consequences of the downturn in the economy after March 2000."

The year 2000, however, was when Cisco presented what Stone calls "a really credible product set", leading to a rash of early large-scale orders worldwide - a turning point for the market. IP telephony has subsequently gone from strength to strength.

Cisco alone has shipped more than 2 million IP phones (over half of which were in the last year) and has 10,000-plus IP telephony customers worldwide. In excess of half a million contact center agent posts rely on Cisco IP telephony technology.

This growth, however, has been far from even in different regions. Whilst the biggest market for IP telephony is - as one might expect - the US, early adopters of the technology hailed from all over the world.

One of the largest IP telephony installations of 2000, for example, was an 8,000-phone project for the Ministry of Social Policy in New Zealand. The Middle Eastern Dubai Internet City development took another 2,000 phones at around the same time.

By 2001, IP telephony was even being taken up in places such as Mexico, where i-Next, the data division of Operadora Protel, was among the first Latin American companies to adopt the technology.

Since then, there has been a vast difference in the way the IP telephony market has evolved in different regions.

In North America, for example, multi-site and multinational enterprises have led the charge for IP telephony, seizing upon the return-on-investment advantages of carrying voice and data over one network.

This is in marked contrast with the European experience, where small and mid-sized companies were the first adopters - or Asia, where telecommunications service providers have been the ones to lead uptake.

They include China Unicom, which has the largest voice-over-IP network in the world, measured by size, capacity, traffic and the number of cities it reaches, equipped with a range of Cisco technologies including Cisco 12000 Series routers and AS5800 Series Universal Gateways.

According to Stone, in Europe, "Early systems went to mid-market customers because they found it an easy technology to adopt. In the enterprise sector, we saw a lot of pilots - say, of 50 to 100 phones for tele-workers - which are now turning into full-scale deployments."

These include the Swiss healthcare company Roche, which is now implementing a worldwide IP telephony strategy based on Cisco technology, or Diageo, the premium drinks manufacturer, which last year bought 2,000 IP phones for its new global headquarters.

The public sector has also come around to the technology in a big way, with significant installations including the Royal Borough of Kingston in London, UK, with 2,000 IP phones, and Landspitali University Hospital in Iceland, with 2,400 phones.

The latter is one of a growing number of examples of IP telephony working in mission-critical environments, laying to rest previous fears over the reliability of the technology.

Landspitali's IP telephony system covers 29 locations with a service level agreement-guaranteed 99.997 percent uptime. Elsewhere, York Hospital - in the UK - has had a 1,600 phone network covering its accident and emergency departments for the last two years.

The scale of these projects has helped make EMEA the second-largest market for Cisco IP telephony equipment after North America.

The region has gone from representing 18 percent of voice revenues two years ago to 30 percent at present - and there is still plenty of room for growth. Stone believes EMEA lags between a year and 18 months behind the USA in terms of IP telephony adoption, but it is catching up.

In addition, 70 percent of Cisco IP telephony EMEA revenues come from the top five countries in the region yet recent advances in product localization now make it possible to cover 95 percent of countries.

In the long run, however, there could be even greater potential in the current number three market for IP telephony - Asia Pacific.

The powerhouse for IP telephony in the region is Japan, which in recent years has seen impressive projects - including the use of voice over IP to speed the merger and development of communications applications following the merger of Konica with Minolta this year.

The benefits arising from this 1,200 phone implementation - which includes the development of the company's own IP Centrex system - have been heralded as a major boost for Konica Minolta Holdings.

Japan's UFJ Bank is currently embarking on a 10-billion-yen project - one of the largest in the world - that will see its core telephone network and some 40,000 phones switched to IP, cutting costs for call fees and PBX maintenance by approximately 1 billion yen a year.

Development elsewhere in Asia - as is the case in the rest of the world - has so far been driven by English-speaking countries such as Australia and New Zealand because of the lack of non-English language support until relatively recently.

Local language support has been more challenging in Asia Pacific than in other regions - phones need more computing power just because some of the character sets are so large, for example.

But with the development of simplified Chinese and Korean versions of the Cisco 7905 and 7912G IP phones, Christian Hentschel, Cisco director of Advanced Technologies and Solutions in Asia Pacific, believes 70 to 80 percent of the potential market is now covered.

"Our customers are keen to deploy these systems," he says. "Most of the countries here are seeing IP telephony take off - and we are talking about geographies that cover many millions of people."

One interesting feature of the Asian market is that - in the absence, in many cases, of existing infrastructure - there is real potential for new technology adoption to leapfrog the trends of more developed regions.

An example cited by Hentschel is the fact that notebook shipments in the region have recently overtaken PCs and there is already a high degree of wireless adoption, hinting that mobility applications could become a major driver for IP telephony.

Another region where leapfrogging could have an impact on market development is Latin America. "The range of organizations adopting our technology is extremely wide," says Alejandro Zabala, Cisco Latin America commercial manager.

Banks were among the first wave of early adopters in the region, but recently service providers have started to use the technology to offer more flexible systems and new value-added managed services to their customers.

"Mid-size companies and specific niche players have also realized of the benefits," says Zabala, "Especially in areas such as mobility, where IP telephony can greatly reduce travel costs.

"Another niche is call centers, where agents working from home can be integrated in one network as if they were in the office.

"We have even seen rural applications combining wireless and IP telephony to serve farm sites that might have otherwise been considered too dispersed to benefit from new technology."

One example of a Latin American business using IP telephony to great effect is ING Chile - the Chilean subsidiary of finance and insurance giant ING Group.

This year the company replaced all its traditional phone systems with IP across five corporate buildings, taking advantage of an estimated payback period of 28 to 36 months for the new technology.

ING Chile's communications and security manager, Rodrigo Ruiz, says: "We have been able to reduce telephone communications costs by eliminating billed local services between the corporate buildings.

"There has also been an increase in productivity thanks to unified messaging, the centralized directory and the use of intelligent IP phones. Furthermore, customer care has improved."

These views are consistent with a trend that is seen across the globe. IP telephony - which sends voice through the network in packet form, instead of using a circuit switching model - is being recognized globally as providing a range of important benefits, such as:

• Line for line, IP is more efficient at carrying information than circuit switching, so a business can get a much better return on its telecommunications infrastructure investment.
• Using IP telephony allows a business to put all of its traffic onto one network - an IP network - which again cuts the cost of infrastructure ownership and operation.
• IP technology is inherently less prone to obsolescence than circuit-switched voice networks, reducing future expenses.
• IP telephony allows computer applications to be integrated into voice traffic more easily. Enhanced 9-1-1 is one, potentially life-saving example. Many others are aimed at improving productivity - and have been shown to yield gains of more than five percent per employee.

Overall, the savings alone can bring the total cost of ownership of IP telephony systems down by 50 percent or more compared to standard PBXs.

The City of Mississauga, for example, estimates it will save up to US$700,000 a year using its IP telephony system, which is based on one of the technology's leading platforms: Cisco® AVVID (Architecture for Voice, Video and Integrated Data).

Jason Deign is a freelance writer based in Barcelona, Spain.