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VoIP Comes Through Loud & Clear

When Cantor Fitzgerald needed to rebuild its infrastructure following the Sept. 11 tragedy, the firm had to make a decision about its telephones.

When Cantor Fitzgerald needed to rebuild its infrastructure following the Sept. 11 tragedy, the firm had to make a decision about its telephones. It had been piloting Voice-over-Internet-Protocol technology with some success, so when the need came to rebuild, it swallowed VoIP: hook, line and sinker.

"We love it," says Matt Claus, chief technology officer at New York City-based Cantor and its sister company eSpeed Inc., which develops electronic marketplaces and trading technology. "We're using VoIP for essentially all of our internal voice communications with both firms."

Claus is not alone, a number of Wall Street firms have either deployed VoIP or are actively testing it, while others are examining their options. The technology allows firms to send phone calls over their data network, creating a range of benefits, from lower long-distance costs to better telephony management and flexibility, especially when it comes to moving employees around. It's at the forefront of telephony convergence, which sees data, voice and video sent over the same lines simultaneously.

Rich Malone, chief information officer at Edward Jones, a financial institution headquartered in St. Louis, says, "We've certainly looked at it. We have a whole team studying the telephony environment."

He notes that the firm has a number of different phone systems that need to be standardized. "With so many remote locations, we think we can leverage the technology cost effectively."

Michael Haney, a senior analyst in the Securities and Investment Practice at Celent Communications, says that VoIP is "making nice penetration" into the financial-services space.

Haney notes that firms like Lehman Brothers and Merrill Lynch have large rollouts in place, "but a lot of firms are still a bit hesitant to tear out their existing infrastructure ... until they get a clearer sense of their return on investment."

Driving the interest in VoIP is the fact that major telecommunications vendors and manufacturers like Sprint, Avaya, Cisco and Nortel are actively marketing their VoIP solutions.

Haney says it's estimated that 10 percent of global calls are currently done through VoIP. As well, Allied Business Intelligence of Oyster Bay, New York, predicts that advanced VoIP service revenues, worldwide, will skyrocket from under $1 billion in 2003 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.

Reduced telephony costs is one of the arguments for moving to VoIP. Jack Hunt, chief technology officer at SoundView Technology Corporation, an Old Greenwich, Conn.-based securities firm, says, "We're using it in a couple of different ways."

The first is for interoffice calls between the Old Greenwich and San Francisco offices. "It's totally transparent to the end user," he says. "It allowed us to reduce one private line between Connecticut and San Francisco," resulting in a return on investment in about six months.

The potential savings depends on the size of firm, he says, noting that private lines can run $4,000 to $5,000 a month. If a VoIP solution costs $20,000 but a firm can eliminate one or more lines, then the payback is quick.

"It's fairly easy to implement," he adds, noting that the firm uses switches from Nortel, a vendor it already works with. "It's totally transparent to the end user."

VoIP works differently from traditional telephony. Traditional private-branch-exchange (PBX) phone lines rely on circuit switching. That means a switch is open during the call and closes after someone hangs up. However, that's the only information that transfers over the line and it doesn't 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 how e-mails are sent over the Internet. It breaks down a voice call into bite-sized information packets. Instead of keeping the switch open, the information is sent and received as needed, allowing excess line capacity to send other data. When the data arrives at its destination, it's reassembled back into a voice call.

The concern is that the calls are not as crisp as through traditional telephone lines and that they suffer the problems that afflict satellite calls, with people stepping over each other in mid conversation.

When you speak to Charlie Brenner, director of the Fidelity Center for Applied Technology, however, there's no discernible difference, even though he's speaking over an IP telephone. It's part of Fidelity's "pretty active and aggressive pilot of VoIP."

The firm is testing IP telephones, which allow the user to plug into an Ethernet jack and receive calls. That's an advantage when it comes to moving personnel. Instead of paying the phone company to switch numbers over, it's a plug and play. The calls automatically find the user's IP address.

The interesting thing about VoIP, Brenner says, is that the technology begs the question of why someone would also need a traditional phone, since it only allows a person to complete a traditional call. He notes that his IP telephone is "in fact a computer, no different than any other PC on a desk. Why pay for two when you can have one?" That's why Fidelity is "working with technology that eliminates the telephone altogether," says Brenner.

Rather, employees could work with a headset off their existing computer, but that will take a shift in attitude towards phones, he notes. "I'm quite sure of the technology, the question is: Can we get around the cultural expectation of living life without a telephone on the desk. It looks kind of empty without it."

But the area where VoIP has the biggest potential is when a voice call is merged with data. For example, when Brenner receives an internal call, a window pops up with data about the person who is calling. That has important implications for call centers and customer service. Eventually, clients will be able to call their broker and their holdings and personal information will appear on the screen.

Moreover, a call is simply a channel of communication. There are other means people use to communicate such as e-mails and faxes, all of which can appear at different locales in an organization. Channeling the communications to a single spot may make it easier for people to manage information.

VoIP also opens the doors to collaborative conversations and distance education. Chris Doubek, president of Terra Nova Trading, LLC, a direct-access broker, says his firm has a VoIP solution it uses for one-on-one demos with customers.

The other area where VoIP is expected to make its mark is the trading floor. Cantor Fitzgerald's Claus says his firm is "still using traditional technology on the dealer boards," but it's only a matter of time. "We are adopting it as quickly as we feel is prudent."

The traditional analog "hoot-and-holler" network, which acts as an always-on intercom system that allows traders to instantly communicate with other departments, and allows brokers to shout orders to the trading floor, is ripe for VoIP. Currently, separately leased lines that can cost $2 to $3 million dollars a year are being used, with firms requiring multiple lines for the bond, equity and fixed-income desks.

"Hoot and holler is beautifully suited (for VoIP) because of dedicated lines. They're expensive" and it presents "significant cost reductions," says Robert Norton, COO and executive vice president of StrategIT, an IT consulting firm.

However, Fidelity's Brenner still has concerns about latency when it comes to VoIP. "Latency doesn't matter on data. It matters a great deal on a voice call."

When it comes to a VoIP deployment, he says, "First and foremost, you have to have very high confidence in your data network. Whatever flaws you have are going to be exposed to many more people. Things that you can paper-over when just dealing with data become glaringly obvious when people are on the phone and things are not working. People have high expectations of quality on a wired phone."

The Pros & Cons of VoIP


  • Lower long-distance cost
  • More flexible telephony management
  • Convergence of voice, data and video
  • Latency
  • Calls not as crisp
  • Need clear ROI before investing

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