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Is VoIP Ready for the Mass Market?

Financial executives say yes.

VoIP Growing

BofA is not alone in adopting VoIP. Michael Haney, a New York-based senior analyst with Celent Communications' securities and investments practice, says, "VoIP is penetrating into different areas than we've seen in the past." Once confined to the enterprise phone system, it's now finding its way into everything from call centers to trading floors and the hoot-and-holler lines that drive them.

Mass-market adoption is under way, says Russell Kohn, executive director of product development at Con Edison Communications, a subsidiary of Consolidated Edison in New York. "It's definitely beginning. Mass-market adoption doesn't happen in the snap of a finger. I think over the next three years you will see the numbers increase dramatically."

It's estimated that 10 percent of global calls are currently made through VoIP. And Allied Business Intelligence, of Oyster Bay, N.Y., predicts that advanced VoIP service revenues worldwide will increase from less than $1 billion last year to more than $30 billion by 2008, as businesses seek advice in adopting VoIP. Most of that growth will take place between 2006 and 2008, the firm says.

Research firm IDC forecasts that worldwide sales of IP telephony equipment will increase by 48 percent in 2004 and top $4.9 billion by the end of the year, ballooning to $15.1 billion by 2007.

VoIP works differently than a traditional phone network, which relies on circuit switching. During a traditional call between two numbers, a switch opens. It allows the parties to speak to one another and it closes when someone hangs up. That is the only information that is transferred over the line, however; it does not operate at maximum capacity, since one caller listens while the other speaks and there are lulls in conversation.

VoIP relies on packet switching, similar to the process in which e-mails are sent over the Internet. It breaks down a voice call into bite-size information packets, or chunks. Instead of keeping the switch open all the time, the information is sent and received as needed, allowing excess line capacity to be used to send other data. When the data arrives at its destination, it's reassembled back into a voice call.

When VoIP first hit the market, the top concern was reliability, as calls suffered from latency, the same problem that afflicts video satellite phone calls. The call is slightly delayed and the parties speak over one another.

Matt Claus, chief technology officer at Cantor Fitzgerald in New York, says "IP phone systems can be very sensitive to latency on the data network." Cantor installed a VoIP system when rebuilding its infrastructure following the events of 9/11. "It's been pretty solid for us," he says.

According to Claus, a combination of high-quality service, proactive management of bandwidth and best practices when it comes to monitoring and utilizing the network allowed Cantor to eliminate the latency concern. "Data networks have always been one of our core strengths. We're confident in our ability to manage the network," he explains.

In fact, firms interviewed by Wall Street & Technology that are using VoIP report that latency is no longer an issue. Moreover, they see few downsides to moving to the technology.

Take Steve State, a managing director at RBC Dain Rauscher who is responsible for telecom issues. For the past three years, RBC Dain Rauscher has been piloting VoIP after its information systems department moved into a new building and the firm installed an IP PBX from Cisco. "It's strictly a router-based server and is not a retrofit of an old system," State says. "We're using it in the traditional telephone environment."

Today, the firm has more than 300 users. "It's managed just like a user's desktop," State says of the system. It provides employees with a variety of features. For example, they have access to their contact lists via the phone and a call history so they know whom they have contacted. "It's standard telephony." State says, "We're complete with the pilot. Right now, we are preparing the business case to expand it to the rest of the firm."

Proponents of VoIP cite a number of benefits to the technology. The first is dealing with the dreaded moves, adds and changes, known as MACs. That's when employees are shifted to new workstations or locales and the IT department has to set them up with new technology, including phone systems, which usually requires contacting a telecom vendor.

The beauty of VoIP, State says, is "the ease of moving people around. You completely eliminate the vendor from the process and move the phone with [the employee]. There's no re-cabling and no reconfiguration." People simply plug their phones in and they have all the same features and capabilities as if they were sitting at their previous desks, including the same phone numbers, so they can receive calls and access voice mail. "You can have people work from home and still maintain the same visibility as if they were in the office," he adds.

Cantor Fitzgerald's Claus agrees that VoIP's strength is its flexibility. "It allows us to easily support a highly mobile workforce," he says.

A second strength of VoIP, and one that State stresses "we haven't had to exercise yet," is its disaster recovery and backup abilities. Because it runs over a firm's wide area or local area network, an IP-based phone system provides more options for disaster recovery. State says his firm has a plan in place that allows it to move people around to maintain their operations.

Claus notes that hoot-and-holler lines are notoriously difficult to back up. "Voice has never lent itself well to good backup. By exploiting VoIP, we've been able to create a very reliable backup solution," he says.

A third benefit, and the one most touted by VoIP supporters, is cost savings. While there are up-front investments needed for an IP phone system, experts say that overall, VoIP can reduce costs in the 20 percent to 30 percent range. Savings include everything from lowering maintenance and long-distance costs to eliminating the monthly fees for private lines.

BofA's Venezia is still crunching numbers when it comes to assessing the cost benefits of VoIP, but he sees maintenance benefits in being able to leverage the firm's existing data network by adding voice. He says the move to VoIP will allow BofA to manage both voice and data through a single network, providing "ease of management across the board" and improving the firm's overall efficiency and the productivity of its systems.

RBC Dain Rauscher's State notes that "a PBX system can go on forever." But, he says, "It becomes a maintenance issue" and firms can spend heavily to manage it.

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