Voice Over Internet Protocol Report

Voice Over Internet Protocol Report

The Impact of Voice over Internet Protocol on Enterprise Communications

Voice over Internet Protocol (VoIP)'s market adoption and growth are being driven both from a cost reduction standpoint in addition to the agility this technology provides for companies looking to serve their customers through Internet-based service and support strategies. The mid-tier and low-end of both manufacturing and services industries however are leading adoption of VoIP technology, driven by the need to stay more focused on key customer relationships. The high end of manufacturing and services industries including financial services focuses on technologies that deliver enhanced data analytics, and the low end of the market is increasingly focusing on having a single view of their customers, strengthening relationships with them in the process. VoIPs' early adopters are more concerned with being able to stay connected with customers while significantly cutting the cost of calls and alleviating price premiums paid to traditional telephone service companies. These early adopters also have business models that are global in focus which further underscores the economic advantages of switching to VoIP as their communications technology.

The motivation the majority of companies have in adopting VoIP as a long-term replacement for Public Switch Telephone Network (PSTN) service include cutting the costs of internal and external communications, accomplishing lower bandwidth expenses, enabling 360 degree views of customers by using both data and voice-based applications that enhance business processes that are customer-facing, optimizing existing infrastructure resources including a heavy reliance on Service-Oriented Architectures (SOA) and Web Services, and most critical to it organizations, the simplifying of management of distributed architectures leading to a lower overall cost of operations. Taken together all these factors are driving the largest corporations globally to evaluate VoIP at the Chief Information Officer (CIO) level primarily as a cost reduction strategy. Yet the early adopters in mid-size and small manufacturing and services companies are relying on VoIP as the foundation for their multi-channels strategies, often linking their Internet sites and Call Centers to drive up customer satisfaction, strengthen their 360 degree view of their customers, implement more effective cross-selling and up-selling strategies online, balancing customer value and call center load in the process. This last point is accomplished when VoIP is used as the foundation for creating a synchronized online and call center strategy, where customers can seamlessly transition from one channel of communicating with the company to the other. The concept of Click-to-Callback is based on giving customers the option of either using website-based VoIP communication tools vs. calling in and speaking with a call center representative. An example of this in the services industries is the project completed by SouthTrust Bank, a small financial services company headquartered in Birmingham, AL. SouthTrust has successfully implemented this strategy while accomplishing a $5M reduction annually in telecommunications expenses, yet this savings only became known after the bank looked at how to use VoIP to pursue having a 360 degree view of the customer in addition to implementing disaster recovery over multiple locations. With traditional telephone services providers dragging their feet on VoIP service, SouthTrust Bank began piloting VoIP in the 2000-2001 timeframe and quickly realized it could be the foundation of their customer-facing strategies. There are literally tens of hundreds of smaller manufacturing and services companies that are in varying degrees moving to make their operations more efficient and cost effective, finding out that the level of customer responsiveness, customer satisfaction, cross-sell, up-sell and customer retention growth strategies are all possible when VoIP-based solutions are in place that unify all customer sales and service channels.

Both large and small companies on average spend over 30% of their total telecom services alone on voice services, with 66% willing to migrate to VoIP, according to Forrester Research and their adoption analysis of U.S. Enterprise-Class VoIP Services in Q1, 2007. (Forrester Wave 2007). Yet from the research completed by Gartner specifically in the financial services industry, there are only pilots occurring today in larger financial services institutions as there are many concerns regarding how secure VoIP is as the platform for completing financial transactions.

The context of the problem at the high end of manufacturing and services companies is resolving the paradox of how to attain the major cost savings without comprising the level of service possible on mature telephone technologies that can manage existing call volumes just fine. As the it departments of these larger companies are highly risk-averse and look for cost reduction first, and will only partially invest in customer-driven responsiveness measures, the piloting phase of VoIP in the larger manufacturing and services companies will most likely continue. The mid-size and smaller manufacturing and services companies however are quickly realizing that the many channels their customers interact with them through have even greater revenue growth potential than the cost reductions possible through replacing PSTN-based lines and systems.

In conjunction with VoIP pilots, the largest manufacturing and services companies are also evaluating how Web Services, specifically in the areas of transactions with financial intermediaries, and both commercial and consumer customers.

Web Services is the next generation application layer that will be used in conjunction with VoIP. The application richness of Web Services built upon VoIP as a platform shows considerable potential for smaller manufacturing and services companies who want to connect with, sell to, service and learn from their customers how to deliver greater value over time. In essence the combination of Web Services and VoIP for smaller- and mid-size manufacturing and services companies firms working with these technologies has the potential to completely re-order how selling and service are managed in this industry.

The Fundamentals of VOIP

VoIP is the transmission of voice and data digitally across the Internet. This is accomplished by coding, compressing messages and then placing them into packets for quicker communication across the Internet. After the voice data are transmitted to the destination through the network, in order to be received at the receiving end, it will be re-assembled using the process outlined below.

Step 1: Voice to digital data transformation

The first step in the process is the translation of voice data, which is by nature analog, into digital data. The voice data is translated into an IP packet for ease of communication across the Internet. Digitizing is accomplished through a variety of coding schemes. The current voice coding standard is mainly ITU-T G.711. The source and destination must use the same coding algorithm, so that the digitalized bit stream can be converted to understandable analog voice data. Digitizing can be done by the PSTN provider (telephone company), Internet Service Provider (ISP), or PC on the desk or the IP telephone set.

Step 2: Digital data to IP transformation

After the voice data is digitized into bit stream, the next step is compressing and coding the voice packet into specific frame, this is done by using algorithms to ensure accuracy and security.. The network processor will add control header and payload in the voice packet, and send the voice packet to the destination through Internet. Different from circuit switching network, IP network doesn't have dedicated link between transmitter and receiver, the control header provides network navigation information for the packet, the payload includes voice data, timestamp, and other additional information. Also, the re-assembly can be done by the telephone company, Internet Service Provider (ISP), or by the PC on the desk or the IP telephone set.

Step 3: Transmission

In this session, the entire network will receives the IP packet from the sender and transmits it to the destination within a specific time, the time can be different values in a specific range, it reflects the "noise" or interference in the network transmission process. Each node in the network checks the address information in the IP data, and uses this information to send the data to the next node. During the transmission, packets can be lost, damaged, or have errors. In the ordinary data transmission, the lost/damaged data can be retransmitted, but since VoIP is real time application, therefore a complicated error detection or correction method is needed.

Step 4: IP packet to digital data transformation

The destination VoIP equipment starts to process the IP packet after receiving it. A buffer is used to accommodate many voice IP packets. A company can through the use of VoIP tools change the size of the buffer; small buffer generates small latency, but can not adjust big jitter. Address information and other control information will be removed, only the original data can be reserved, the reserved original data will be sent to the decoder, and the decoder will decode and decompress the voice data into new voice data.

Step 5: Digital voice to analog voice transformation

The media player driver sampling the voice data and send it to the sound card, the sound card play. Figure 1 shows a simplified diagram of this process.

Figure 1: A simplified model of how VoIP works

Source: LWC Research (2006)

The Critical Role of VoIP standards

Without a standard for voice over IP, the products from different vendors will be incompatible to each other. With the growth of VoIP, new requirements are brought forwarded, such as providing communication between a PC-based soft phone and a phone on PSTN. Such requirements strengthen the need for a standard for IP telephony. Same as other technologies, there are various standards proposed to be accepted by the industry. Two major standard bodies which govern the multimedia transmission over IP network are:

International Telecommunications Union (ITU)

Internet Engineering Task Force (IETF)

Besides ITU and IETF, there are other standard bodies exist, for instance, European

Telecommunications Standards Institute (ETSI), the Telecommunications Industry Association (TIA).

Critical Success Factors in VoIP

The popularity of VoIP and the enhanced Quality of Service (QoS) on IP network clearly brings major opportunities to manufacturing and services companies to serve their customers. The listed the following critical success factors for VoIP (Howe 2001):

VoIP maximizes the usability of network, reduces cost and time, and provides new service opportunities.

VoIP extends service to remote locations with lower cost.

VoIP brings new multimedia service opportunities, such as PC-based call, web-based multimedia conference

IP-based network makes it easier to implement VoIP service.

VOIP Market Dynamics

The high costs of compliance, the increasing number of competitive services, and the emergence of manufacturing and services companies entirely based on the Internet all form a significant set of challenges for any financial services company.

For the larger manufacturing companies with assets over $1B, the focus is on risk mitigation and managing a diverse portfolio of investments to protect and grow shareholders' wealth. The mid-size and smaller firms however are more focused on growth, and specifically in the areas of attracting, selling and servicing customers. Out of this three-step process area of attracting, selling and serving a set of requirements emerges that center on how best to create value for shareholders, grow the customer base yet mitigate risk. In choosing to integrate VoIP into their companies, many companies take a strategic view of integration, including the value chain in addition to the supply chain. The value chain is actually the series of intermediaries that comprise the distribution channels, partners, and intermediaries that also contribute to transactions and services. As a result, manufacturing and services companies are focused on driving technology innovations in four key areas:

Streamlining their supply chains to enable greater profitability

Managing value chains in an effort to drive up higher levels of sales

Improving customer service and loyalty

Enabling the workforce and reducing employee churn

Increasing core operating efficiencies and enabling best practices throughout the organization

When added to the burden of compliance as defined by the Sarbanes-Oxley Act (2002) the many costs of noncompliance are forcing many publicly-traded companies to pursue cost reduction strategies much more aggressively than they have in the past. The Sarbanes-Oxley Act (sometimes called SOX compliance) was deliberately non-prescriptive in its approach to defining the specifics of how the Act would be enabled, leaving significant room for interpretation. While any legislation would appear at first glance to not be associated with telephony costs, specifically VoIP, yet in fact the mechanisms and the networks that VoIP technologies create need to have higher levels of synchronization with other databases, in addition to integration across multiple systems in any publicly-traded organization. Sarbanes-Oxley has been successful in enabling higher levels of accountability throughout publicly-held companies mainly as a result of re-defining core processes as they relate to reporting and disclosure of events, both positive and negative that impacts a company's financial performance according to Gable (2005). The Economist (2006) also states that Indian outsourcers are the greatest beneficiaries from Sarbanes-Oxley spending as U.S.-based companies are often choosing to re-define business processes that are critical to their companies in addition to attaining Sarbanes-Oxley compliance through outsourcing. Another research and advisory firm, (Gartner 2005) defines the strategy of compliance around Sarbanes-Oxley as arduous, including first a company's interpretation of what the business regulations to their specific circumstances, understanding where the organization currently stands relative to compliance efforts, documenting a plan for achieve compliance, executing it, and devising measures and controls.

Compliance and its many requirements are in turn augmenting the role of VoIP in publicly held manufacturing and services companies throughout the U.S., in addition to those in foreign nations that trade on American stock exchanges. VoIP is quickly becoming the foundational element of the compliance networks companies are creating in response to regulatory requirements. The following sections of this literature review specifically look at the value chain and supply chain considerations of the financial services industry, and how VoIP-based technologies are making them more effective.

Uses of VoIP

The use of VoIP as a unifying communication strategy in many manufacturing and services companies has already begun. VoIP, as has been alluded to earlier in this report, is increasingly part of the Web Services of larger, information-intensive organizations. Figure 2 shows an example of how companies are using VoIP to unify the many departments and systems relied on for serving customers and operating efficiently.

Figure 2: VoIP-based Applications' Integration

Source: Aberdeen Research

Even this level of complexity as shown in Figure 2 implies a simplification of reality, as the process workflows for integrating PSTN and VoIP-based messaging networks throughout an enterprise is much more complex than the figure communicates. Large companies have multiple divisions and offices around the world, with duplicate, sometimes redundant departments and applications. Although enterprises have taken initiatives to centralize certain financial functions, sharing information with the central office often creates redundant work, results in unnecessary costs, and prevents visibility financial operations. Mergers and acquisitions have contributed further difficulties with centralization. Different companies have different it strategies, so they implement different telecom systems. Replacing legacy telecom systems of acquired companies has proved to be difficult and costly. To avoid integration difficulties, the communications systems of acquired companies were often left unchanged indefinitely. Figure 3 shows how an enterprise can be unified using VoIP.

Figure 3: VoIP Enterprise Application Structure

Source: Aberdeen Research

VOIP Competing Technologies and their impact on the Enterprise

The dominant competing technology to VoIP is Plain Switched Telephone Network (PSTN), which is the dominant installed technology in use throughout the majority of businesses and residences for both voice and data communication. PSTN began as an analog-based technology that relied on circuit-switched telephone networks. These circuit-switched networks form the foundation for how the Internet functions today using Internet Packet-based Switching networks today. PSTN also was originally designed as a fixed-line telephone system, which is significantly different than the approach VoIP uses of multi-routing throughout switching networks to complete a call. Having originally begun as an analog-based technology, the majority of U.S.-based PSTN networks are digitally based, making clarity, speed, accuracy and asynchronous communication possible. PSTNs' legacy system installations and evolution to digital communication, in addition to the stability of the technology itself have led businesses to continue using this technology as their communication standard. The major disadvantage however are the cost and fee structures that telephone companies are applying on top of PSTN-based networks. This cost element is what is compelling businesses to consider replacing their PSTN with VoIP-based technologies. The long-term savings of having packet switching and application provider functions managed over the Internet is worth the time to coordinate networks using VoIP-based technologies according to early adopters. The inherent risks of synchronizing significant amounts of traffic over a VoIP are economically justifiable given the significantly lower costs relative to fee structures that PSTN-based networks rely on. In addition to these factors, businesses are beginning to favor VoIP due to its use of the Internet as the communications platform, thereby making it possible to send and receive calls at low or no cost from PDAs and other electronic devices. In taking all these factors into account the value chain of PSTN vs. VoIP emerges, which is shown below:

Source: From PSTN vs. VoIP Regulatory Analysis Chintan Vaishnav, ESD, MIT May 31, 2007

The implications for businesses is that despite the slightly increased risk of having to rely on multiple points of coordination over the Internet for VoIP to remain stable, in addition to the security risks (which are discussion in the next section), the cost savings are so significant that it makes sense as a communications strategy financially. The financial implications of VoIP are increasing the level of research and development investment by both traditional PSTN providers in addition to companies with Internet-based business models including eBay, Google and Yahoo. Each of these companies have alluded to the opportunities in VoIP throughout their investment analyst briefings with Google announcing in November, 2007 an Application programming Interface (API) for supporting GPS positioning of a telephone and its plotting on Google Maps. The bottom line is that PSTN will continue to have the majority of telephone users globally in the next five years, yet by the 2011-2012 timeframe with the advancements in security and value chain integration, it is feasible that VoIP will eventually overtake PSTN as the dominant voice communication platform.

Potential Areas of Improvement for VOIP

Since an IP network doesn't provide a physical security level like PSTN does, the key areas of improvement center on security for VoIP. What complicates this that there are several protocols are employed in VoIP, each of them has security mechanism, the following section gives description of how this most critical issue needs to be improved within the VoIP standard. There are many different methods can be used to attack VoIP. Some attacks try to steal information while others attempt to shut down the network. The attacks to VoIP aim at confidentiality, integrity and availability