Making the Case for VoIP

Making the Case for VoIP

Executive Summary

For AT&T, deploying VoIP across our own company has resulted in employee productivity improvements and compelling cost savings in capital investment and operations. By keeping a focus on quality while leveraging leading edge technology, AT&T has been able to realize financial paybacks that have helped to accelerate VoIP deployment. AT&T went through rigorous steps to identify and prioritize locations where VoIP would provide the most benefits initially, followed by a migration plan that will deliver these benefits throughout the entire company. This paper will take you through AT&T’s experience and show you the elements that created a winning business case.

Introduction

AT&T has played a major role in driving Internet Protocol (IP) technology and Multi-Protocol Label Switching (MPLS) since the inception of the Internet, recognizing the potential of IP to deliver a whole new standard for enterprise productivity, enabled by networked applications.

Today, after years of internal testing by AT&T,Voice over Internet Protocol (VoIP) technology has reached a tipping point: the scale and operational advantages impacting the financial case have strengthened.VoIP provides powerful Total Cost of Ownership (TCO) savings and return on investment (ROI) across the entire company.

AT&T is now fast-tracking the implementation of VoIP within its own business.

The Challenge

Joining Customers to Meet the Challenge

AT&T recognized early on that using IP to converge voice and data applications onto a single network had

the potential to deliver significant value to enterprises. VoIP was the first application to emerge in this market. Like all companies, AT&T faces two fundamental and ongoing business challenges: find ways to help employees work more productively and cut costs.The company saw the potential in VoIP to both strengthen the productivity of its employees and reduce TCO well below the costs of legacy technology. Two strategic initiatives championed by Hossein Eslambolchi, President of AT&T Global Networking Technology Services and AT&T Labs, AT&T CTO & CIO, were also driving AT&T toward solutions like VoIP: Concept of OneSM_{(do it once, do it right, use it everywhere) and}

Concept of ZeroSM_{(zero defects, zero cycle time and}

automate where possible).

AT&T leaders believe strongly that AT&T should use the very same business solutions that the company offers its customers. Nothing teaches as effectively as direct experience. So the company challenged itself to become a test bed for VoIP, put the technology to work and learn from the inside how to help customers use VoIP to deliver maximum business value.

Planning and Implementation

In the late 1990s, under the leadership of Andy Daudelin, Vice President of IT Operations, AT&T began initial implementations of VoIP. Daudelin’s team first trialed VoIP in their own department. Says Daudelin,“We started with IT so that we could learn how the technology worked outside the lab. Was the quality there? Did it meet our feature/function needs? Could we manage it? What happened when there was an outage? Along the way, we had some false starts. So we learned, and changed direction.”

As AT&T moved ahead, it became clear that some VoIP implementations delivered stronger ROI than others.The specifics of a business location – domestic or international, new or existing site – triggered the decision to go or not. Implementations at new facilities and locations outside the U.S. were the first scenarios to deliver a solid, positive ROI.

New Sites

VoIP delivered a strong financial payoff where there was no existing infrastructure. Even a few years ago, the decision to install an IP PBX at an AT&T location to support multiple sites made financial sense. As to performance, AT&T’s confidence in VoIP was strong. In January 2003 the company installed a new boardroom and executive offices in New York City, served entirely by VoIP.

Existing Non-U.S. Sites

VoIP in AT&T locations outside the U.S. significantly reduced TCO, due to the high rates charged by in-country service providers.VoIP avoids much of that cost by routing voice calls over AT&T’s virtual private

Existing U.S. Sites

For many of AT&T’s U.S. locations, the economics supporting VoIP did not become compelling until 2004. The TCO calculations for VoIP payoff depend in part on the vintage of the existing system. In a location equipped with a relatively new PBX, it may make financial sense to keep that system and upgrade it to support VoIP calling. When an older system is replaced,VoIP economics rule. Because AT&T was outsourcing PBX services, however, the timing to replace a system depended more on contract specifics than equipment age.

Equipment and Transport Costs

Early on, the high cost of IP telephones (around $500 each) made it too expensive to replace legacy PBX’s, plus the steady decline of U.S. long distance rates undercut the VoIP toll-savings advantage.

Today transport costs have stabilized, while the cost of IP phones has dropped from $500 to $350 or less. Mobile and home-based employees use a $50 IP softphone, cutting equipment costs even more.The aging of AT&T’s legacy phone systems has provided added incentive, since most of those systems are now reaching the end of their useful life.

Late 1990's

AT&T began its first implementations of VoIP to support internal operations

January 2003

AT&T installed a new boardroom and executive offices in N.Y.C., served entirely by VoIP

2004

40% of AT&T users outside the U.S. were using VoIP

2006

Virtually all of AT&T will be using VoIP services delivered via the MPLS-enabled AT&T IP Network

“The VoIP solution ramped up quickly and its performance has been every bit as good as the legacy systems. The flexibility of an IP platform has given us a much better solution for keeping my 70 agents in Bratislava fully integrated into the global operation.”

Steve Coffey, Director, Managed Services Delivery, Worldwide Customer Service

“Network equipment costs have dropped, and that has changed the financials to deliver a much stronger return on investment (ROI),” says Daudelin. “The technology is mature at this point. And our legacy equipment is reaching the end of its life, which reinforces the financial benefits.”

Becoming the Standard

The payoff today is dramatic – and VoIP is becoming the standard at AT&T. The company is now extending VoIP-enabled phones to more than 20,000 employees. By the end of 2006 virtually all of AT&T will be using VoIP services delivered via the multiprotocol label switching (MPLS)-enabled AT&T IP Network, delivering hundreds of dollars of savings per employee annually.

In addition to changing the way the company communicates, AT&T’s experience with IP communication has paved the way for AT&T Dynamic Network ApplicationsSM_{or DNA, an}

integrated portfolio of Network-Based IP services AT&T is delivering to customers. AT&T’s internal end-users have helped the company better understand how to design new end-user interfaces for their award-winning customer portal – AT&T BusinessDirect®_.

They also have helped prioritize feature development for AT&T IP services.

Results

AT&T’s deployment of VoIP is delivering significant benefits by increasing productivity and helping cut costs.

Increased Productivity

AT&T is seeing productivity gains in both system administration and management, and with end users: • Single reach numbers for mobile workers allows calls

to be received regardless of where they are • Single voice message system eliminates need to

forward calls to outside lines

• VIP calls reach users immediately, even when out of the office

Speed

New VoIP installations go in fast. “We deployed IP call centers in Bratislava, Slovakia and Singapore,” Daudelin says. “We were able to turn those up in six to eight weeks. We estimate the onetime deployment costs were 50 percent of what they would have been with legacy technology, and the time to do it was less than half.”

Control

With VoIP communications, users can program their own special calling features, such as call forwarding and speed dialing, and much more. A 6,000-port system the company is about to deploy for AT&T Labs users in Middletown, N.J. is capable of providing on-demand video conferencing.

“My VoIP service has made it easier for media contacts to reach me. I can easily program different reach numbers and specify which calls will receive a priority treatment.This helps me be responsive to media inquires that can come in any time.VoIP gives me the tools I need to be more productive and phone tag is a thing of the past!”

Gary Morgenstern, AT&T Public Relations Director

“Network equipment costs have dropped, and that has changed the financials to deliver a much stronger return on investment. The technology is mature.”

Andy Daudelin, AT&T Vice President, IT Operations

Years Years

0.0 0.5 1.0 1.5 2.0 2.5 3.0

1 year payback

1 to 1.5 year payback

1.5 to 3 year payback

New Sites Existing Non-U.S. Sites Existing U.S. Sites

Mobility

IP softphones give mobile users high-end

telecommunications functionality from anywhere. VPNs enable remote users and travelers to access features, such as multi-user conferencing and voice messaging. Softphone users on a wireless local area network can take calls on their PC and move from their office to a conference room.

Cost Savings

Daudelin estimates the savings produced by easier moves, adds and changes (users simply move their own phones) at $50 per user per year.

On-demand audio conferencing is cutting conferencing costs in half and saving $96 to $120 per user each year. For virtual office workers,VoIP cuts telecommunications costs 60 percent. Because all calls are carried “on net” over the AT&T MPLS network, there’s no need for an additional POTS (plain old telephone service) line for home-based workers. That saves, conservatively, $20 a month per employee, Daudelin says. Toll costs also come down. Softphones that cost $50 enable employee’s laptops to double as full-featured phones. If users are satisfied with the functionality, Daudelin will replace desk phones with softphones and save several hundred dollars per user.

By helping remote workers perform more productively, VoIP supports AT&T’s drive to cut costs through remote office or “telework” arrangements. AT&T estimates it is saving $180 million yearly through

telework, including $34 million yearly in reduced real estate costs. Some 30 percent of AT&T managers now work full-time in a virtual office.

For offices outside the U.S.,VoIP cuts the long distance bill by 20 percent to 50 percent, depending on local conditions and tariffs.

In new installations, eliminating separate telephone cabling can save $40 to $90 per user.VoIP enables AT&T to reduce the average number of ports allocated per user, delivering a 25 percent saving in that area.

The AT&T Equation: Where to Find the Strongest VoIP Payoff

New Sites Existing Non-U.S. Sites Existing U.S. Sites Transport Same as existing sites 20%-50% Cost Reduction Breakeven

Capital/Lease Expense 25% lower to deploy (due Varies by situation 35%-50% higher for equipment;

to reduced cabling/switch cost) 30% savings in ports

Yearly Operating $500-$890/user $690-$1070/user $500-$890/user

Expense Savings

Net Payback 1 year 1 – 1.5 years 1.5 – 3 years

Average Annual Savings: $500 – $1000 per user

Conferencing Service Maintenance Moves/Adds/Changes Remote Worker Service

$120/year/user $180/year/user $50/year/user $500/year/user 0

$100 $200 $300 $400 $500

Key Learnings

Daudelin draws a number of key lessons for other IT executives considering implementing VoIP.

Manage Call Quality End-to-End

“In some of our early deployments we deployed solutions where we couldn’t see end-to-end and weren’t able to constantly monitor call quality,” Daudelin says. “People were experiencing poor quality; we didn’t know until we did customer surveys. That’s not where you want to be.You need to have sound end-to-end management where you can monitor not just the wide area network, and not just the premises equipment, but end-to-end call quality. That’s critical.” “We’ve done a lot of work in AT&T on both the network side and the IP telephony side to configure tools that are integrated to provide that view,” Daudelin adds. AT&T automatically monitors such IP voice quality indicators as jitter, delay and packet loss. If call quality falls, an alarm sounds, and network administrators step in.

Save to Re-invest

Daudelin says that by picking the right places to start implementing VoIP – sites where the TCO savings are greatest – the CIO can start generating cash flow to fund the future deployments. For AT&T, the deployment of new U.S. sites, non-U.S. sites and virtual office users helped fund the next phase of VoIP deployments.

Take It To The Net

VoIP services can be provided using a dedicated on-site IP PBX or by a Network-Based solution,

such as AT&T’s Voice DNA service. “We tried both approaches,” says Daudelin, “and I have a strong bias towards a Network-Based solution. In the end, it not only enables you to avoid an investment in premises equipment, but also minimizes your risk by enabling you to trial before deploying company-wide.”

Conclusion

As the world’s networking companySM_{, AT&T has taken}

a global lead in using the most advanced networking technologies – MPLS and VoIP – within its own operations. What AT&T executives like Andy Daudelin understand is you have to build a business case and “prove in” each technology investment.

The first VoIP implementations to meet the TCO test were new locations and international sites. But today the economics of VoIP have grown far stronger, and every location is up for consideration.VoIP boosts employee productivity and provides compelling savings in capital investment and operations. As Daudelin and AT&T have learned, the time for VoIP is now.

“As someone who can be working at up to 3 different locations during the week, it had been difficult for callers to reach me before I had my VoIP service. Now I have a single reach number and features that help me be productive no matter where I may be working. VoIP has simplified how I manage my calls, so I can focus better on the work at hand.”

Christine Ryan, AT&T Law & Government Affairs

For more information, visit www.att.com/networkingexchange.

AT&T VoIP Utilization Statistics

Non-U.S. Ports U.S. Ports 0

10000 20000 30000 40000 50000 60000 70000 80000

Year

2002 2003 2004 2005 2006 2007 2008

Number of P

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About the Series

This is one in a series of TCO reports that is aimed at sharing the lessons AT&T has learned within its own business about how next-generation networking solutions can pay off – enhancing productivity and reducing total cost of ownership (TCO). Our goal is to provide real world answers, based on real-life experience, that help executives deal effectively with today’s business issues.

Our own approach to enterprise networking is built on the principle that solutions must deliver value and enhance the performance of business applications. We begin with a vision set forth by President of AT&T Global Networking Technology Services and AT&T Labs, AT&T CTO & CIO, Hossein Eslambolchi.

This vision is being realized through an aggressive program called the Concept of OneSM _{which is the}

consolidation of our network into a single, global, MPLS-enabled network with consolidated operating support systems. And for enhanced customer experience, the Concept of ZeroSM_{delivers process}

automation that enables us to serve customers with zero defects and zero cycle time.

Starting with this clear vision based on the potential of networking, we have created a practical roadmap to guide our customers. Then we put that vision and roadmap to the test inside our own company, since AT&T faces the same business challenges as other enterprises. AT&T believes strongly that the solutions we provide our customers should be the same that we use across our own company. If a solution creates value for AT&T, it will for customers, as well.