Is VoIP Ready for the Mass Market?

Bank of America to move to Voice-over-IP for over 160,000 telephones across the entire organization.

Steve Venezia has big plans for the 1,500 or so traders at Bank of America (BofA) when it comes to their phone systems. In fact, he has big plans for the way in which everyone communicates at the banking giant.

Over the next three years, Venezia, managing director of the network computing group and network services at the bank, plans to move BofA from the traditional time division multiplexing (TDM) in the Private Branch exchange (PBX) circuit-based phone system it currently has in place to cutting-edge Voice over Internet Protocol (VoIP) services for its more than 160,000 telephones that are spread across the organization. It's a mammoth undertaking and one whose scope and impact on the organization is not lost on Venezia. "It's being managed closely under a microscope," he says, adding that it's very early in the process. "We're just starting to get into this whole endeavor. We're getting ready to deploy the business case."

The first challenge Venezia faces is explaining VoIP to the company's different business lines and outlining how it will improve their operations. "We need to make them understand what VoIP is and how it integrates. We're just starting to do that and are working closely with the risk and audit departments," he notes.

BofA -- which works with outsourcing giant EDS -- has chosen a number of VoIP partners to assist in the project, firms like San Jose, Calif.-based Cisco Systems, which has shipped more than 2.6 million IP phones to date, and New York-based IPC Information Systems, a trading-solutions firm that provides VoIP-based trading turrets. "They're fast movers and have leadership status in implementing VoIP on large trading floors for leading financial institutions," Venezia says of IPC, a longtime BofA vendor.

Despite the complexity of the project, Venezia asserts that VoIP is worth the effort. "It provides better technology for cheaper costs," he says.

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.

Beware VoIP Pitfalls

While VoIP has its advantages, there are also some things to watch for. State says one thing he's had to deal with is the rapid number of upgrades. "That's the only thing we experienced from the negative side, but it's nothing we can't handle."

Additionally, because the phone system is IP-based, security is an issue, and firms run the risk of attacks and viruses that could impact their telecommunications. But the security concerns are no different than those with other critical applications that run on the network -- it needs to be monitored and protected like any other application.

"We've always been very attuned to security," Cantor's Claus says. "The addition of IP telephony into our network hasn't changed anything we're doing other than heightened our awareness," he continues.

Because the technology is still young, there's also room for improvement when it comes to product offerings. "I think the feature sets are not as rich yet," State says. But he expects that will quickly change as more firms adopt VoIP and vendors develop new services around it.

So, will VoIP be the death of TDM-based PBX? "I don't think so," says James Parker, vice president of product development at Transaction Network Services in Reston, Va., which provides voice transport solutions to the financial-services industry. "It will take years to replace."

What that means, says Peter Skoglund, director of product management and systems engineering at trading turret maker BT Syntegra in New York, is that the financial-services industry will operate in a hybrid mode, with a blend of IP telephony and traditional TDM telephony. "Hybrid gives you the best of both worlds," he says, including the "five-nines reliability [available 99.999 percent of the time] of TDM" and the VoIP best practices and flexibility.

Greg Kenepp, president and chief operating officer of trading turret maker IPC in New York, says, "A large percent of [financial services] is still driven off legacy technology. What the industry is going to face is a period where we have a hybrid environment, and we're entering that now." He expects the hybrid period to last between five to seven years.

Dan Wagner, CIO and executive vice president of business structure at New York-based Global Crossing, which provides hoot-and-holler services to trading firms, says, "It's impossible to do a complete swap-out." So hybrid systems are a logical step. He says firms want to make the shift to VoIP "as seamless as possible."

VoIP Hits Trading Floors

Vendors that serve trading firms have recognized the potential of VoIP and are adding it to their mix of solutions. IPC's IQMX desktop turret delivers a blend of voice, video and data. IPC's Kenepp says the company has installed more than 17,000 of the devices to date.

He says VoIP gives firms the ability to put networks between their trading turrets and back rooms. This allows firms to rethink the way they architect their trading-room floors. "It allows remote traders to trade over the corporate network infrastructure. Previously, customers didn't do that kind of thing," he says.

The other area that VoIP is starting to impact is the traditional hoot-and-holler lines and automatic ring-downs that firms use to communicate with each other. They push a button and shout out instructions.

Kenepp says, "Most hoot-and-holler lines aren't IP yet, because they're pretty complicated" and the background noise from the microphones can impact the quality of the information transported on the network.

But Cantor's Claus has no concerns about deploying VoIP over the hoot-and-holler network. "It's a matter of understanding how it works and the best way to tune it and deploy it." Eliminating carriers in the hoot process is also one of the financial savings associated with VoIP.

For firms looking to move to VoIP, Syntegra's Skoglund says it "really depends on their existing infrastructure." If it's a solid WAN that's widely distributed, then the costs can be low. "If it's a completely disparate LAN environment, then the expenses can be pretty great."

"Infrastructure is important," agrees Global Crossing's Wagner. "You need to have the people to run the networks and maintain the networks and make sure they have the highest integrity and are security conscious. CIOs have to get comfortable with the reliability and performance."

That's the challenge facing BofA's Venezia as he moves forward. "The benefits are going to be large down the road," he predicts. "The folks who aren't entertaining it now, they will have to later. It's going to be the next-generation infrastructure." In the meantime, he's preparing for one of the larger technology projects BofA will tackle. "Failure is not an option," he says. "It will succeed."