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 THE STAT 26Percentage of wireless customers who use their cell phones to take picturesMore Vitals
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APRIL 13, 2004
Telecom Tops Corporate To-Do Lists As businesses start exploring services like Wi-Fi and VoIP, experts say "tread cautiously" till this fast-changing tech settles down Over the past year or so, telecommunications has been at the heart of nearly every technology decision Gerald Cohen has been involved in. A month ago, Information Builders, a business-intelligence software company that Cohen runs, began testing voice over Internet protocol (VoIP), a technology for making phone calls over the Web. That came a few months after he began looking into buying more advanced wireless gadgets for his mobile workers -- who want to answer voice calls and check e-mail on a single device while traveling. For the past few years, telecom has been among the driest of corporate technologies, a sector characterized by strategies that revolved around cost-cutting. That goal may not have changed much, but suddenly telecom projects head many execs' to-do lists. A recent Morgan Stanley survey of 225 chief information officers in the nation's 1,000 largest companies revealed that wireless infrastructure and VoIP are even higher corporate priorities than last year, when in the same survey both made it into the top six. BUYER'S MARKET. And no wonder: Some of the newest technologies, such as VoIP, promise up to 40% savings on phone bills. And since telecom costs account for 1% to 7% of a typical company's overall budget, according to Boston-based tech consultancy Aberdeen Group, embracing such advances is worth doing -- and doing right. Of course, mining gold from leading-edge communications technologies is a struggle. In an era of tight spending, hardly anyone can afford to be a guinea pig. And VoIP is still riddled with quality and reliability problems -- and can cost a arm, if not a leg, to implement. Wireless telecom projects can involve lots of hidden maintenance and testing costs. And the tech standards for VoIP are still in flux -- so businesses that deploy one type of gear now could find themselves with obsolete equipment before too long. Still, for CEOs who were often blinded in the late '90s by a blizzard of spending on private phone networks and Web technology, it's nice to finally find a buyer's market. As phone companies, cable companies, and Internet service providers (ISPs) increasingly compete for retail customers, prices for services are plummeting by 8% to 12% a year, estimates David Willis, an analyst with Meta Group in Dallas. HEDGING YOUR BETS. That could kick off a round of consolidation that corporate customers need to plan for, says Willis. For instance, he counsels against buying bundles of long-distance, local, and Internet service all from the same supplier. Instead, he suggests that companies use one service provider for voice and data services, another for Internet access, and yet another for long-distance services -- so if one disappears, the impact will be muted. The bigger challenge for CEOs, though, will be to make wise decisions about emerging technologies. Perhaps the most prominent one is Wi-Fi, which provides for broadband Net access from offices, airports, hotels -- just about anyplace that has a special base station called a Wi-Fi access point or node. Wi-Fi hit many companies' radar screens only within the past year, but these networks will be in half of U.S. offices by 2009, vs. 8% last year, predicts wireless consultancy Farpoint Group in Ashland, Mass. And within two years, some 26% of 400 large corporations surveyed by tech consultancy Meta Group plan to deploy VoIP, which is now used by only a handful of companies. GO-SLOW APPROACH. Before they do wide-scale deployments of Wi-Fi or VoIP, however, many companies are choosing to test the technology with a small group of employees -- and then implement it slowly. Information Builders, with $300 million in sales, started a VoIP pilot project with a handful of staffers a month ago -- but it doesn't plan to introduce the technology companywide until two years from now, when VoIP's wrinkles are ironed out and the company's current telecom contract expires, says Cohen. Northwestern University in Chicago also plans to move slowly as it replaces its internal phone network over the next few years with VoIP, says Mort Rahimi, the school's chief technology officer. Here's why a go-slow plan makes sense: To ensure that an IP-based phone network runs even during power disruptions, the university needs to change its power backup units in every equipment closet -- of which there are thousands on campus. Each backup system costs about $3,000, plus installation, Rahimi says. But price goes down if the new gear is brought in as the older equipment is removed. Other telecom customers such as CCL Industries, which has 40 plants around the world that make or package products for the likes of Procter & Gamble (PG ), Unilever (UL ), and Johnson & Johnson (JNJ ), don't want any part of buying such equipment. They would rather outsource the network to a service provider, such as a phone or a cable company, says Akhil Bhandari, CCL's chief information officer. That way, he figures, his company won't get stuck with a huge up-front investment or obsolete equipment. HIDDEN COSTS. Northwestern's Rahimi is holding off on buying Internet phones, available from suppliers such as Cisco (CSCO ), because he believes that alternative technologies could make them obsolete quickly. Wireless service providers are rolling out mobile phones that also can connect to Wi-Fi networks to make cheap VoIP calls. So he figures that many of his campus's 20,000 phone callers -- many of whom already use cell phones extensively -- will opt for using wireless phones vs. special VoIP handsets. The other reason to proceed cautiously, says Martin Dunsby, vice-president for sales and operations at wireless consultancy InCode Telecom in San Diego, is that Wi-Fi networks aren't cheap. The latest, highest speed Wi-Fi access point costs as much as $100, and most laptops have built-in Wi-Fi capabilities. But because the technology is still so new, annual maintenance and testing costs can run as much as five times the cost of the hardware, says Dunsby. What's more, many people have trouble tapping into Wi-Fi networks at hotels and cafés. And troubleshooting there can be expensive, if not impossible. MAKING THE LEAP. Deployments of Internet-based phone systems can result in higher short-term overhead as well -- since, in many cases, companies end up maintaining both their old and their new telecom systems. So for now, companies eyeing Net phone networks should do so only for employees who need the extra functionality they provide, recommends Malcolm Collins, president of the enterprise-networks business at the world's largest IP equipment supplier, Nortel Networks (NT ). Lehman Brothers (LEH ), for instance, uses Net phone technology so that its brokers can leave messages for thousands of clients at a time, instead of having to record each message individually. The world of corporate phone services is about to experience a sea change -- one that ultimately will benefit many companies. The trick for CEOs is to ensure that their companies make the right choices -- at the right time.  By Olga Kharif in Portland, Ore.
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