Cisco rides the IPTel wave

The Indian IP telephony market is growing at a rapid clip. Prashant L Rao finds that IPTel is a winner in the enterprise segment and Cisco is uniquely poised to exploit this opportunity

B Ashok says that for a company that already has a long distance network or leased circuit in place, the cost of an IP telephony deployment works out cheaper than an ERP rollout

It’s a $6.5 million market (CY 2002, Source: Frost & Sullivan) that is expected to grow a robust 65 percent in 2003. For Indian enterprises, banks and software houses looking to trim costs in a dull market, IP telephony has never looked better. It’s not unusual that IP giant Cisco India is doing very well in this market. Sales of Cisco’s IP phones are rolling along at 10,000 units every quarter even though IP telephony is presently limited to Closed User Groups (CUG). While talking to system integrators and users it became clear that deregulation, when it happens, will only send the market skyrocketing.

Drivers—cost savings, excess bandwidth and fancy features
Initially, one, and only one, thing—cost savings—drove the IP telephony market. Today, with the market starting to mature, other factors are coming into play, including surplus bandwidth on corporate networks and the rich functionality available on IP phones.

Goodbye gargantuan long-distance bills
Since IP telephony piggybacks on an enterprise’s existing infrastructure, the immediate impact reduces or completely does away with an organisation’s long-distance bills. IP phones plug into the LAN, MAN and WAN that are already in place. There is the cost of utilised bandwidth but at 20 Kbps per call it’s not very significant vis-à-vis the STD/ILD bill for the same conversation on the existing POTS.

Also, most companies have surplus bandwidth on their networks and IP telephony lets them put this excess to good use while slashing their communication costs. This leads directly to the payback period. Before the drastic cuts in long-distance rates that took place in 2002-03, the payback period was six months. Today, Cisco estimates it should be about a year.

As B Ashok, vice president, Cisco Systems India & SAARC says, “If it is a company with offices in multiple locations or in the US, the deal is done.” For a company that already has a long-distance network or leased circuit in place—and most large companies do—the cost of an IP telephony deployment works out cheaper than an ERP rollout. Cisco’s estimates put a basic IPTel installation with 50 phones at roughly $25,000. That’s in the region of Rs 12 lakh, roughly half the cost of the smallest ERP implementation. Considering the short payback period and high success rate of IP telephony deployments, it definitely makes sense for enterprises to consider and at least pilot this concept. Especially when voice quality issues have been sorted out. “IP telephony quality is better than cell phone quality,” says Sridhar Pai, head of the VoIP SBU at Network Solutions.

Better features on IP phones
IP phones, especially the high-end ones, have impressive features. The Cisco 7960 sports a six-line display, programmable buttons and a speakerphone. In an IP-centric installation, which is what Cisco offers, a global directory is maintained by Call Manager software for the organisation as a whole. The software runs on servers at each location, which replicate the directory across locations. In other words, if a company’s Bangalore office goes off the network, Bangalore’s list of contacts is still there in the global directory stored on servers running Call Manager in Mumbai or Delhi.

Inhibitors—Costly phones, interoperability issues and CUGG
While IP telephony is attractive there are a few factors that are resulting in IP telephony deployments being fewer than they should be. The biggest of these are the relatively high prices of IP phones and the fact that IP calls can be made only within a Closed User Group.

IP phones don’t come cheap. A top-notch model like the 7960 costs $350. This has resulted in organisations limiting high-end phones to their top managers, with lower-end phones like the 7910 being offered to other users. Cisco is aware of this and it is working to bring down the cost of these phones. Cisco’s older basic model, the 7910 costs $150. Its latest vanilla IP phone, the 7902, costs 27 percent less at $110. That said, IP phones are yet to break the $100 barrier. While so-called soft phones—software loaded on PCs that provide phone-like functionality—offer lower costs, they also demand a change in user behaviour. “Soft phones will not replace regular phone use. Besides, many ISPs do not provide SLAs (Service Level Agreements) for soft phone users,” adds Pai from Network Solutions. Which means that companies have to settle for a mix of hard and soft IP phones to balance out their costing. In the near term, IP telephony deployments will continue to be a mix and match of a few high-end models and a greater number of entry-level phones.

Interoperability is still an issue. “Not all phones, soft phones, gateways, call managers are interoperable as they support some proprietary variant of a standard protocol. This limits corporates from free mix and match of components,” says Pai. While a CIO can use a PC from one vendor, running an OS from another, with an add-on card from a third company, this is not possible in the case of IP telephony. Keeping this in mind, the potential of IP phones is highest in new buildings or offices. Companies who have existing TDM systems in place will find it more difficult to integrate IP phones with their legacy system. “This is frequently a problem because of the proprietary protocols involved and lack of access to modify the same,” adds Pai.

Down the line
The CUG issue is squarely in the hands of the government. Industry consensus is that this is bound to happen and when it does, IP telephony will rocket into the stratosphere. This seems likely when you consider that the deregulation of wireless LANs has seen a surge in WLAN deployments. In a way the ongoing telecom revolution in India could benefit Cisco with large nationwide IP networks coming up. Once deregulation takes place, the existence of these fat IP pipes will let Indian service providers emulate their counterparts in Singapore in offering IP telephony as a service with varying levels of call quality that the user will be able to pick by using a specific prefix before dialling out. As it is, Cisco is hopeful of seeing 100 percent growth in IP phone shipments. Today, the walls of CUG force organisations to maintain two sets of phones, one for PSTN and the other for CUG IP calls. Once the government knocks down those walls, sales of IP phones should explode.

Cisco IP telephony deployments in India