The reality beyond the hype

Johannesburg, 23 May 2005

"Because of technological developments, there is no longer any difference in the transmission of voice, video and data; therefore it is no longer necessary to prohibit the provision of voice by VANS."

With these words, communications minister Ivy Matsepe-Casaburri set in motion the events that ultimately led to the legalisation of VOIP on 1 February, causing many players in the local ICT industry to begin licking their lips at the prospect of cheaper call rates and true competition for telecoms monopoly Telkom.

However, she then backtracked on 31 January, saying that - despite recommendations by the Independent Communications Authority of SA (ICASA) to the contrary - she had never intended to allow value-added network service (VANS) providers (the main beneficiaries of the new VOIP ruling) to provide their own infrastructure. This hamstrung the roll-out of real competition the day before it was due to come into legal effect.

Despite this announcement turning the expected "big bang" into more of a damp squib, and the regulatory uncertainty that exists, a lot has been taking place behind the scenes. Companies are tentatively moving into a market that still has much potential.

According to Grenville Payne, consulting practice manager for global infrastructure services at Unisys Africa, VOIP is much like the Yin and Yang duality in Chinese philosophy.

"With the right levels of investment and the right business environment, it offers organisations many benefits and great returns (Yang). However, if implemented in an inappropriate environment it has the potential to cost large amounts of money while returning little benefit (Yin)," he says.

VOIP companies to watch:

With experience on their side, these companies will be among those that will take advantage of VOIP`s legalisation.
* Skype: The world`s largest VOIP service provider.
* Vonage: The world`s largest VOIP service provider in terms of paying customers.
* AT&T: With its CallVantage service and various marketing alliances, AT&T is pushing hard to switch to VOIP technology.
* Cablevision: The cable company with perhaps the most aggressive VOIP roll-out strategy.

* Cisco Systems: A major VOIP hardware provider.
* Nortel Networks: Another big VOIP hardware provider
* Lucent Technologies: Late to the VOIP hardware market, but working hard to catch up with the competition.
* Juniper Networks: A major VOIP hardware provider.
* IBM: Big Blue is aggressively helping major enterprises design and implement VOIP technology.
* Microsoft: The software giant could make quite a splash in the VOIP pond, if it decides to jump.
* SunRocket: A VOIP service provider start-up, launched by ex-MCI executives, which offers an innovative flat-fee pricing strategy.

Therefore, he says it is important that companies do not simply jump onto the VOIP bandwagon merely because now that it has been legalised, it is "the in thing to do".

"Rather, organisations should approach it cautiously and implement only when they are absolutely certain that the technology will benefit them and provide the desired level of return.

"Organisations can ensure their experience of VOIP is predominantly positive if they first gauge their requirements and then establish a solid business case. They also need to assess the readiness of their existing infrastructures. If the infrastructure is not capable of running VOIP, experiences could turn sour."

Regardless of the reasons for considering VOIP, says Payne, organisations must first be certain that:

* It is something they need.
* Their infrastructure can handle it.
* They realise all the benefits it enables.

Requirements and infrastructure

In terms of the requirements, Payne says that if the business environment consists of distributed, autonomous, high-availability business units, characterised by high intra-company communication, then there is likely to be a solid business case for VOIP. The investment in the technology infrastructure to make it voice-capable, though, should not exceed the saving from directing the voice traffic over the company`s own infrastructure.

"However, if your business operates normal business hours, is centralised and the cost of communicating between your branches is minimal, then VOIP can be an expensive undertaking that will provide little immediate return on investment (ROI)," he says.

According to Mark Baptiste, director of service providers for Cisco Systems, integrated voice and data networks do have the potential to add significant value to business competitiveness and productivity. However, business should have a network infrastructure that is ready to carry such traffic while delivering an appropriate level of service.

"For once, it is not a bandwidth issue, but rather one of network design and specification, since packetised voice uses less transmission bandwidth than conventional voice - so more can be carried on a given connection," he says.

"However, packetised voice has a price. While network designers are familiar with quality of service (QoS) requirements for specialised data applications like online transaction processing, packet voice has more stringent QoS requirements.

"If the network is not properly conditioned to meet these requirements, the quality of the speech may be impacted, rendering the VOIP service essentially useless."

Noel Wait, business development manager at Business Connexion, believes that when assessing the readiness of a company`s infrastructure for a VOIP implementation, it is essential to bear in mind that voice over the data line has a significant impact on network architecture. And more often than not, a network upgrade will be required to accommodate it, so companies must weigh up this cost against the business benefit.

Evaluating your company

Business Connexion suggests using particular criteria to evaluate an organisation`s infrastructure:
* Feasibility: The ability of the vendor to evaluate existing infrastructure and vet it for VOIP.
* Resilience: The ability of the system to withstand adverse conditions and recover after a catastrophe.
* Availability: Its capacity to handle current peak or "busy-hour" traffic in the present.
* Scalability: Its ability to handle "worst case" expansion (in terms of number of lines) over at least the medium term without requiring a major upgrade.
* Protocols supported: Support for SIP in particular is important, as SIP appears to be the protocol of choice for multimedia applications, including video.
* Clear product roadmap: In addition to the above, it`s important to evaluate the feature set, which can involve literally hundreds of features, most of which can easily be implemented at any time. This is not always possible in the case of conventional PBXs, where the addition of new features can be more complex.

"All networks and switches must support the 802.1p specification, which allows voice packets to be given priority, as without such priority, voice quality will suffer greatly from `jitter`," says Wait.

"All equipment that handles voice traffic, including the PBX itself, plus all the switches and routers between it and the handsets, must also be supported by an uninterruptible power supply so that the phones work when there`s a power outage, in much the same way as conventional phones function."

Brett Butler, solutions architect at Avaya Sub-Saharan Africa, points out that organisations wanting to deploy VOIP should seek to answer these three questions:

* How will VOIP perform on the current network?
* How will VOIP affect overall traffic and the performance of other existing applications on the network?
* What changes need to be made to the network with regards to QoS to achieve optimum performance for both the new VOIP traffic and the existing data traffic?

Advantages of VOIP

Choosing a service provider

Network reliability continues to be the most important factor when choosing a service provider, with 92% of respondents ranking it as very or extremely important. This has been the case in all similar surveys conducted in previous years. Overall, there was little variation between countries, though there was some variation in responses between the smallest company size segment (10 to 49 employees) and the largest (250 to 749 employees).
Although network reliability and response time to repair were the most important criteria for all company size segments, more larger companies rated these criteria higher than smaller companies. This is perhaps because of the impact that any downtime could have on the operations of a larger organisation.

"The implementation of VOIP technology provides the opportunity for organisations to reduce organisational costs across the board, as it requires less people to run a unified network than it does to operate separate voice and data networks, and it makes equipment support easier too, by providing one highly automated and virtual switchboard," he says.

Marcel Raath, group executive for marketing and sales at Sentech, agrees with this concept, pointing out that the real cost savings will be found in the bundling of services. There are the additional cost savings in terms of lower staff overheads and the like, he says, which will particularly benefit larger corporations.

"Big business will obviously benefit from these cost savings, and I believe operators will also gain from being able to resell their spare capacity."

Unison MD Craig Young is more circumspect about the advantages to be found in switching over to VOIP, although he agrees there are advantages in the long run.

"The exciting stuff that is associated with VOIP is still a few years away, because the real problem is that it is currently being sold as a technology, rather than as a cost-saving and quality service.

VOIP can be an expensive undertaking that will provide little immediate return on investment.
Granville Payne, Unisys Africa

"In the longer term I can see big corporations benefiting from this - once quality can be guaranteed - but at the moment I think there are still too many question marks around this topic. I know of players investing millions in VOIP equipment and technology, and then discovering after the fact that they`re actually only saving a few hundred rand a month on their phone bills."

Problems to be overcome

Key trends to follow

These are some trends to look out for when VOIP becomes more widespread:
* Consolidation: It`s highly likely that incumbent local exchange carriers and multiple system operators with their immense telecom infrastructure and financial resources, will eventually begin swallowing up small VOIP service providers. All that is unclear is how long this process will take and how many companies will be left standing after consolidation runs its course.
* Convergence: VOIP is beginning to change from a mere telephone technology into a multimedia service that provides CD-quality audio, full-motion video and other multimedia communications services.
* Voice over wireless local area network: VOIP`s next frontier will be the mobile market, placing the technology`s players in direct conflict with cellular carriers.
* Security: This is VOIP`s biggest weakness. Although there have been not yet been any major security meltdowns, the potential for disaster exists and will likely cast a shadow over the VOIP industry for many years to come.
* Spam over Internet telephony: This isn`t yet a major problem, but VOIP companies are worried about what spam did to e-mail.
* Emergency services: Remedies to the lack of VOIP emergency service exist, but VOIP service providers need to do a better job of working with solutions providers and national and local emergency authorities.
* VOIP in call centres: A potentially major market for VOIP service providers that`s just beginning to take off.
* VOIP regulation: Although the FCC in the US is promising to rule the VOIP market with a light hand, it has yet to present a firm strategy for regulating the technology.
* Open source PBX: This promises to be a big year for the Linux-driven Asterisk PBX, which brings open source IP telephony to enterprises.
* Pricing: How low can VOIP prices go? After a year of price-cutting, the consensus is that we haven`t yet reached bottom.
* Broadband access: Although it`s projected that 50% of US households will subscribe to broadband access by 2006, the nation`s broadband penetration rate still lags behind countries such as Japan and Korea. This poses an immense challenge to VOIP service providers that rely on broadband access availability to offer residential service there and in other countries.

There are still many problems to be overcome if VOIP is to truly realise its potential. Among these are:

* The issue of interconnection.
* The issue of facilities leasing.
* Access to undersea cables, numbering systems and black economic empowerment stipulations, which need refining and industry resolution.

"There is also the question of access to radio frequencies, while another significant local hurdle is bandwidth cost, as local bandwidth is expensive and the savings may not be that significant in the long run," says Desmond Seeley, GM for telecommunications services at T-Systems.

"Potential users of VOIP services should be aware of these limitations, because they could impact the completeness with which VOIP services can be offered currently."

A big worry for reputable VOIP providers is the fly-by-night operator, who promises incredibly cheap prices, but does not offer the required quality or service level agreements (SLAs) and then disappears without a trace.

"I think there will be quite a few cases of people being burned by this type of operator, as at present there is so much smoke and mirrors and snake oil available that a lot of companies are hard-pressed to tell the good from the bad," says Tim Parsonson, joint-CEO at Storm Telecom.

"There are also many hidden costs that players new to the VOIP game are not aware of. Things like the price of VOIP equipment and infrastructure and the expenditure in managing bandwidth and the IP link are all massive additions to the overall cost of VOIP."

He also points out that the concept of VOIP could receive a credibility knock if service providers do not deal decisively with issues like spam over Internet telephony (SPIT).

"It is very difficult to get VOIP right, but when you do, it is a fantastic service," he says.

Another worry, raised by Orion Telecom director Jacques du Toit, is that while clients may see some savings in terms of national and international calls, Telkom still controls the data link. This is currently charged at a flat monthly rate, and at the point where a call has to break out onto the incumbent`s network, customers are at risk of the telco manipulating the price of this link, which will dilute their savings.

"As long as Telkom controls the backbone or the connection and is protected by law, clients have no chance of realising the true value of VOIP. While the monopoly has control over the last mile, there will always be a problem, which is why it is so crucial for there to be a change in the interconnection laws," says Du Toit.

Hillel Shrock, a director at Internet Solutions, agrees, saying that until customers can terminate their calls on any network, it will not be a properly competitive market.

"The minister`s process is also as clear as mud at the moment, which makes it really difficult to commit resources and capital while there is still so little clarity. This in turn leaves the customers feeling unsure and creates further barriers to change, and therefore, to new competition."

Benefiting markets

Action plan

Implementation and roll-out of VOIP technology require adaptations to be made to the current operating environment and underlying architectures of the enterprise.
Prior to commencing a broad-based implementation and roll-out plan, senior IT executives should take the following steps:
* Assess: Ensure the telecommunications infrastructure (like networks, firewalls, virtual private networks) is capable of managing the additional requirements associated with VOIP. Common practices are typically in- adequate for handling VOIP traffic (like port allocation and control). Reviews of network capabilities that will affect the quality of service in environments handling multiple traffic streams (such as bandwidth availability, pathing, dynamic routing, latency) must be performed, and necessary actions taken, to ensure adequate post-implementation performance.
* Upgrade: Verify the necessary level and version of the base operating systems deployed in the existing telecommunications environment and, if required, ensure latest patches have been applied.
* Secure: Contain assets that enable remote access and reconfiguration of VOIP equipment to minimise vulnerability.
VOIP-enabled telephone defaults and passwords must be routinely modified. Remote-access features whose integrity cannot be fully contained and secured should be disabled. Rights granted to local administrators should be routinely scrutinised.
* Encrypt: Any VOIP streams to be transmitted over unsecured pathways (like the Internet) should be encrypted. Select and deploy appropriate encryption technologies in light of current architectures and requisite changes to functionality. You should also adopt and implement appropriate authentication methods and tools.
* Separate: Segment the telecommunications architecture (networks, virtual local-area networks) with regard to voice and data traffic streams and devices. Such bifurcation will enable faster problem isolation and resolution. Determine the appropriate selective sourcing strategy and engage outsourcers as required. Although justifications for implementing and deploying VOIP technology appeal to those seeking near-term cost-efficiencies, the risks associated with doing so in later phases of market penetration are different from those confronted in early stages. Senior IT executives should ensure they evaluate, mitigate and communicate risk parameters within the bounds of enterprise risk tolerance.
* Bottom line: Enterprises considering second-stage emerging technologies such as VOIP must assess the balance between likely rewards and potential impacts versus levels of risk tolerance and resiliency.
* Business impact: Lack of understanding and mitigation of the risks associated with technology introduction and integration increases vulnerability and diminishes value capture.

Standard Bank, one of the enterprise-level corporates that has been involved in the VOIP game for several years, has shown how a big business can get a good ROI on its VOIP investments, saving close to R5 million annually in telephone calls.

"About 130 000 inter-regional voice calls a month are carried across the data network at an average bandwidth usage of 50%, resulting in savings of R400 000 a month," says the bank`s director of technology engineering, Herman Singh.

"VOIP is changing the way we do business, as it offers huge advantages, such as massive savings in telecommunications, increased bandwidth for movement of large pieces of data, more flexibility for mobile workforces, more security for disaster recovery and business continuity backup systems, more CRM capabilities, and more options for in-house training with video and other applications."

Singh believes IP telephony is the next step up, and claims that the bank is busy trailing this and should be instituting it soon. "It is still early days, but it has plenty to offer, especially our particular environment, and the only question is: `Will it be the next big thing?` I guess we`ll just have to wait and see."

At the end of the scale are operators such as HowzitOnline and Catella.com, companies focused on providing VOIP services to the small, medium and micro enterprise (SMME) market.

HowzitOnline chairman Anthony Glass says his company - a South African company based in the US - operates on a similar basis to Amazon.com. It offers the SMME market a VOIP-enabled handset, the required software, and $20 call time (which amounts to around 500 minutes on a US line) for a total outlay of $100.

"An ADSL line is required for the service to operate properly, but it is ideal for the small business market because, while it doesn`t offer the same cost savings as the big corporates get out of this market, if you save an SMME a couple of thousand rand per month, that is meaningful to them."

Dr Marna Cilliers-Hartslief, CEO of Catella.com, says there are not many offerings for the lower end of the market, which is why her company provides a solution that is affordable and easily integrated with a small company`s existing systems.

"The three key factors that will ensure the success of a VOIP system in the SMME market are quality, service and support, and the appropriateness of the solution to the company`s own growth strategy."

Sentech`s Raath believes the VOIP market is an industry in the making and that its effects are already being felt.

"While we haven`t necessarily seen all the VOIP solutions and offerings one may have expected after deregulation was first announced, we are already witnessing price reductions from the monopoly, in order to better deal with this new competition."

The future

Think about these

Areas for senior IT management to consider and communicate to their peers include:
* Security and operating efficiency impacts: Many of the issues and challenges faced in the current electronic mail environment (eg spam, spyware) must also be dealt with in the VOIP environment. Evidence of denials of service and functional disruptions is widely available. The VOIP environment can also present opportunities for passive attacks (like wire-tapping). Senior IT executives need to highlight such vulnerabilities to their business counterparts. They should note that adaptations made in the current environment to preclude such activities must be broadened and supported in the VOIP space as well. VOIP affords another avenue of attack into the network that, if left unguarded, makes associated systems and data more vulnerable to those with malicious intent.
* Staffing: The challenges faced by individuals managing a VOIP environment are the same as those that must be addressed in the existing network environment. From cost-efficiency, quality and skills viewpoints, it is desirable to have both environments managed and operated by the same individuals, regardless of whether they are employees or outsourced providers. In organisations that have limited resources already, placing additional burdens on staff members could impact on morale or have other repercussions.
* Technology deployment and support: Senior IT executives should ensure the architecture for both the VOIP environment and the networks is common. The ability to support and maintain a wide host of technology devices that will make use of both VOIP and networks must be considered.

Raath says over the next five or six months, Sentech will test its VOIP offering. The second step will be to sort out the legal side of things: the company wants access to the E-164 number range, which allows you to route an external number into your network. Its third target is to be able to begin offering switched voice services within a year.

"The opening of the VOIP market is a huge opportunity for us, because it is often the latecomers to the market who benefit most, because they learn from the other players` mistakes," he says.

Parsonson says that in the longer term, the savings to be had from VOIP will multiply, because it is more efficient running a single network, and adding future services is simple.

"I think we will see a lot of opportunities in the IP PBX market, and I also believe there will be a huge market for calling card companies - provided Telkom allows this - as this is an industry already worth some lb300 million to lb400 million a year in the UK," says Parsonson.

"I am optimistic about the development of this market, because I feel President Mbeki is aware enough of the importance of this industry to ensure proper and meaningful competition is developed, particularly on the infrastructure side, where I hope we will have alternative networks available in the next three to five years."

Orion`s Du Toit says his company plans to take the VOIP hype in "baby steps", because of the uncertainty in the industry.

"We are not simply going to plug in a single pipe and promise our customers the world - and anyone who does promise this is talking utter rubbish!"

Think it through

VOIP, while being relatively new to South Africans, should not be treated as a novelty, but rather as a well thought-out business decision with positive and far-reaching ROI and total cost of ownership consequences for an enterprise.

Businesses seeking to utilise VOIP should always ensure they are aligned with a company:

* That follows international best practices.
* That has a proven track record of successful implementations.
* Whose systems are open enough to speak to and to converge with a number of alternate vendors technologies.

If executed properly from the first step, VOIP has the potential to save a company millions, and could even allow smaller companies access to markets and technologies previously reserved for the corporate giants.

Key findings

* Awareness of VOIP increased dramatically between 2001 and 2004.
* Voice traffic is rapidly migrating from basic PSTN and ISDN services toward other technologies, such as VOIP and mobile.
* Overall, VOIP usage increased from 7% in 2001 to 12% in 2004. However, most of that usage was via customer premises equipment, such as IP PBX. VOIP services still have relatively low penetration among SMBs.
* The main reason for choosing VOIP is to reduce the cost of internal calls. The main reason for not choosing VOIP is the perceived lack of benefits.
* Of the respondents, 34% would consider using VOIP by the end of 2005. The impact of broadband has positive spin-offs into the VOIP segment. More than 30% of the respondents would consider using voice over broadband.

VOIP odyssey: Beware the sirens` song

As companies implement and roll-out VOIP, research house Meta Group notes trends and warns of pitfalls.

Implementations of VOIP will increase significantly through 2007. Continued reductions in cost, coupled with improvements in quality, will facilitate expansion as the next wave of adopters, the "market followers", seek to capitalise on VOIP`s capabilities.

To align such deployments with the best interest of the enterprise, technology decision-makers must not be lulled by early stage savings and performance and ignore the risks associated with emerging technology proliferation and support.

According to Meta, CIOs continue struggling to consistently align, measure and mature IT processes. By 2006, 50% of firms will move beyond basic efficiency to effective partnerships through dynamic planning, operations excellence and business relationship management.

The research group says that by 2008, world-class IT shops (less than 2% of Global 2000 firms) will rigorously integrate their policies, people, platforms and processes to fulfil their composite objectives, encompassing investment, risk, speed, quality, timing and business alignment.

They got the worm

Customers are at risk of the telco manipulating the price of this link, which will ultimately dilute their savings.
Jacques du Toit, director, Orion Telecoms

"Early adopter" enterprises (those with high risk tolerance and resilience to change) justified incorporating VOIP into their telecommunications architecture by focusing largely on cost savings and addressing quality issues as they arose. During the initial phases of VOIP adoption and proliferation, as customers gleaned cost-efficiencies and tolerated disruptions, VOIP service providers garnered intelligence and made investments targeted at improving products, service and support.

Recent surveys have shown that the severity of risks associated with VOIP technology failure and vendor non-performance now fall within acceptable levels for a broader segment of the market.

"In light of early adopter successes, and as cost pressures continue to mount, we believe IT executives in `market follower` organisations will be hard-pressed to forestall widespread implementation and roll-out of VOIP in their enterprises," Meta stated.

Demand will grow as e-worker productivity improves with the proliferation of single, mobile devices that integrate voice, video and instant messaging. As a result, Meta believes the VOIP customer base will continue to grow at an increasing rate.

However, though the early adopters have taken and completed such journeys successfully, challenges they face must be dealt with on a case-by-case basis within each follower enterprise. In addition, risks that did not exist or were not easily created during the early phases of introduction (security, denial of service) have become more prevalent as those with malicious intent have become more familiar with the vulnerabilities of VOIP standards.

Recent trends in the number and severity of security breaches and the diminishing availability of people with necessary implementation and security administration skills highlight the need for phased and orderly planning. Also, vendor support practices have yet to mature, and it is often necessary to augment management controls and procedures with optional add-on packages.

Avoid the sirens

Recommendations

* The SMB and large corporate segments are equally cost-conscious with regard to purchasing. Providers should consider offering a highly scalable solution to enable these segments to buy a service that fits their requirements as closely as possible.
* Employees of smaller organisations are often no more technologically knowledgeable than the average residential user, and less so than an IT department within a large organisation. Providers should ensure ease of installation, ease of use and packaging are all carefully considered. They should also provide good service support, which will be critical.
* Providers should present a price structure that is clear, attractive and has features that are more applicable to the business than the residential market. Benefits should be clearly stipulated.
* Providers should offer a modular approach to the service offering, because it enables the SMB to buy only the features that it feels are necessary for its organisation. For example, voice mail is critical, whereas conference facilities are not.
* To ensure a VOIP offering to an SMB achieves the optimum impact, review the distribution channels to the SMB segment and consider new relationships with their most trusted parties, but ensure these are also the most suitable at any given time.
* Service providers must act quickly, within a six- to 12-month period, to begin to penetrate the SMB market with VOIP offerings. At the moment, usage is leaning heavily into the CPE segment, and without action from the providers, the CPE vendors will continue to dominate this sector.
* Service providers should leverage their broadband customer base, add voice as a value-added service and provide a cohesive package.

CIOs and other senior members of the IT organisation need to ensure their enterprises are not beguiled by the VOIP sirens of cost-efficiency and perceived quality. They should not ignore the dangers posed by:

* Security vulnerability

* Diminished skills levels

* Architecture inconsistency

The research group advises senior technologists to consider these risks, find ways to mitigate them well, and involve their business counterparts directly before embarking on a VOIP odyssey.

International trends

Many firms believe VOIP offers no real benefits, so service providers should make them aware of potential cost savings.

The small and medium business (SMB) market is traditionally an underserved segment, but it is becoming increasingly important for network service providers hoping to gain incremental revenue from a high-growth segment with developing communications needs.

In October 2004, Gartner conducted 625 telephone-based interviews with SMBs in France, Germany, Italy, the Netherlands and the UK (approximately 125 responses in each country). The objective of the study was to determine what public network services SMBs are using in data, broadband and voice connectivity, and how they expect their usage in terms of technologies and requirements to change by the end of 2005. A similar survey was conducted in 2001.

The associated report focuses on the responses surrounding developments in voice connectivity and usage, concentrating on VOIP. The results also detail comparisons with data from the 2001 survey to examine how attitudes and use have developed since then.