Has VoIP arrived?

A perspective on the current scenario and future outlook of VoIP systems by B. Ashok*, Sr. Vice-President, IT Services, Cisco Systems (India & SAARC).

Voice over Internet Protocol (VoIP) made global headline news in 2004. It is clear that this technology is moving from an experimental stage to mainstream business. If one is to go by what market analysts predict, VoIP is expected to have a better year in 2005 as an increasing number of companies worldwide, develop roadmaps for VoIP implementation. The Asia Pacific (APAC) market also reflects this trend with Internet Protocol (IP)-based services such as VoIP driving growth in the region.

Therefore the big question is, with the rest of the world betting big on VoIP, can India be left far behind? Market research suggests VoIP is gaining momentum, with India expected to be the second largest VoIP market in APAC after China. IDC estimates revenues from VoIP services in India will touch $2.8 billion by 2005.

What is VoIP? It is the process of sending voice telephone signals over the Internet or other data networks and is the main driver of the wider-ranging Internet Protocol (IP) telephony. Over the last three years, IP-based technology has evolved to provide a robust platform to deliver VoIP services. The debate on VoIP versus TDM no longer lingers, since service providers have addressed concerns about voice quality through increased bandwidth and special Quality of Service (QoS) algorithms. Global trends suggest companies are exploring a switch to IP-based networks and VoIP services. I believe this trend is here to stay.

My confidence stems from facts evident in the global market today. In the past, data went over voice networks, as data was a small constituent of the overall telecommunications traffic. Existing Circuit-Switched Networks are not optimized for data and therefore, not as efficient as IP networks. Over the years, the proportion of traffic has reversed especially in several of the world's major economies. Data traffic comprises half of the traffic, sometimes even 60 - 80 percent of the traffic on the network. When most of the traffic is data, it makes sense to carry voice on a data network as opposed to data over a voice network.

In addition, VoIP and IP telephony offer several advantages: reduced intra-office and long-distance communication costs and improved employee productivity through a range of applications such as e-conferencing and collaboration, call accounting and billing, unified messaging to mention a few.

It is therefore not surprising that enterprise demand for VoIP has surged in the last two years. Across enterprises, there is awareness of the value derived from VoIP because of its cost effectiveness, easy deployment and management. Best suited for multi-location industries, VoIP is being deployed in IT services and BPO companies, manufacturing, telecom service providers, banking and financial services companies.

Adoption of VoIP and IP telephony in these verticals is a result of several factors, some of which are outlined below:

• VoIP is attractive to the IT services market as it promises lower communication costs and savings from setting up and running two separate networks. Adoption of IP telephony has also been fuelled by this sector's confidence in the IP platform, technological maturity of IP-Contact Centre solutions and the benefits of cost competitiveness and efficiency enhancement.
  
• Large banks are increasingly pushing VoIP as they expand their geographical presence.
  
• In the manufacturing sector, auto and auto ancillary, textiles and pharma companies are experimenting with VoIP as they look to compete globally.

According to a recent Frost & Sullivan report, the IT services and BPO segment contributes about 33 percent to the IP telephony space, followed by manufacturing at 21 percent and banking and financial services at 13 percent. Other verticals such as transport, logistics, government, travel and hospitality are also emerging as key adopters.

While the concept of VoIP has caught on in large enterprises, small and medium businesses (SMBs) are slowly taking the plunge. Most analysts believe this sector is poised to take a leap forward in the adoption of advanced networking technologies. Educating the SMB sector about the inherent benefits of VoIP and IP telephony can provide some impetus but overall, I believe the approach will be more evolutionary in nature. Indian enterprises with legacy networks will integrate their IP technologies with traditional networks. 'Green-field' deployments free from the hassle of legacy networks, will move directly to IP-based networks.

Despite its inherent technological and cost advantages, VoIP faces certain challenges that impede its growth. In India, the biggest of these is the regulatory restrictions imposed by the Indian government on the usage of IP telephony. Currently, the Department of Telecom (DoT) allows IP telephony within a Closed User Group (CUG), if the call is:

• terminating on numbers outside India or
  
• between two computers or SIP devices.

Clearly, these restrictions were imposed to protect the interests of International Long Distance (ILD) and National Long Distance (NLD) operators who have paid huge license fees and continue to pay call termination and access deficit charges for their services. VoIP services can potentially change the game since IP-based networks are much easier to implement, as they do not require any major changes in the existing infrastructure. For Internet service providers (ISPs) who are already migrating to broadband services, the cost of providing IP telephony is merely incremental but means much greater revenues.

Another challenge is the relatively high prices of IP phones. This has resulted in organizations limiting high-end phones to their top management. But the cost and productivity benefits from VoIP implementations could address this issue. IP telephony reduces administrative, networking and IT support costs. While savings differ from company to company and vary from installation to installation, it is common for early users to achieve return on investments (ROI). However, the greatest cost benefits come from green-field deployments and full-replacement installations. On an average, customers can recover their investments within two years. Some organizations have experienced a reduction in costs by 15 percent, going up to 40 percent in certain cases, depending on the usage.

Cost benefits aside, IP telephony offers a range of value-added options such as directory integration, XML integration, calling party name and number, calls received, missed calls and dialed calls as well as extension mobility. Users can take advantage of applications such as e-collaboration, videoconferencing and unified messaging which provides a single mailbox for voice mail, fax and e-mail. Integrated call accounting and billing systems provide integrated management, reporting and billing of VoIP and traditional voice traffic, as well as Internet usage, making IP solutions an attractive option for enterprises.

Interoperability is another issue that needs to be resolved. Not all phones, soft phones, gateways, call managers are interoperable as they support some proprietary variant of a standard protocol. This limits enterprises from free mix and match of components. The usage of open standards can tackle this issue. Many suppliers have developed products that support open standards such as the Session Initiation Protocol (SIP). SIP not only allows for VoIP communication but also supports video, fax, and presence and instant messaging. Open standards are important because they provide a foundation that can be built upon.

The single most significant hurdle therefore, continues to be the regulatory framework which currently deprives the masses with a cheaper form of communication. Regulators in India are looking to identify how to place restrictions on IP telephony.

The verdict on VoIP as a technology is clear: VoIP is increasingly replacing TDM networks around the world. Sales Data from a leading IP vendor suggests that their IP phones replace over 8,000 TDM phones around the world in a business day and that number is growing exponentially!

PricewaterhouseCoopers, a leading consultancy, has identified key trends that will drive the world VoIP market. It is interesting to note that India mirrors some of these trends:

• With convergence, VoIP is beginning to transition into a multimedia service that provides CD-quality audio, full-motion video and other multimedia communications
  
• VoIP's next frontier will be the mobile market, placing the technology's players in direct conflict with cellular carriers
  
• Security issues are likely to cast a shadow over the VoIP industry this year and for many years to come, as little has been done to address this aspect and experts fear this might be a disaster waiting to happen
  
• VoIP in Call Centers: A major growth area for VoIP service providers as adoption of IP-based solutions by call centers will continue to drive the market
  
• VoIP Regulation: In India, TRAI and DoT will most likely address the concerns of VoIP service providers and bring about clarity on the regulatory framework. Internationally, the International Telecommunications Union (ITU) is working on VoIP regulation recommendations that would be incorporated in treaties. In addition, groups within the United Nations are looking at VoIP from the perspective of regulation and also weighing how to promote funding of the technology.

It is common knowledge that technologies like VoIP that have the potential to transform the way we communicate, cannot be eliminated or restricted through regulations. Most of the international carriers today, use IP-based networks to carry their traffic. It seems to be just a matter of time when Indian regulators realize this and rule in IP telephony's favour.

*The author is senior vice president, Cisco Systems India & SAARC