IBM Confidential

Next Generation Telephony

An Emerging Business
Communications Strategy

Bob Hughes
Program Manager
IBM CIO
Sept, 2002

IBM Confidential

The current strategic period will see the emergence of

several key technologies with voice particularly well
positioned.

< 2yrs
2-5 yrs

Innovator's
Innovator's
Curve
Curve
Business
Impact

"The Bubble"
Enterprise
Instant
Messaging
PDA Phones

Adoption
Adoption
Curve
Curve

Wireless
Web/WAP

Wireless LANs

Bluetooth

Technology
Trigger

Peak of Inflated
Expectations

VOIP

Trough of
Disillusionment

Slope of
Enlightenment

Plateau of
Productivity

Time, Maturity

Copyright 2002 IBM Company. All rights

IBM Confidential

The voice environment is about to undergo a transition

similar to the transition the data environment experienced
a decade ago.

Proprietary OSes

Open OSes

App-specific UIs

Standard GUIs

3270 terminal

PCs

Mainframe

Client/Server

1990 --------------- 1995 -------------- 2000 -------------- 2005 --------------- 2010

CS/TDM

IP Telephony

Hdwr-specific sftwr

Open software

Proprietary features

Standard GUIs

TDM phones

Intelligent endpoints

Copyright 2002 IBM Company. All rights

Our basic premise is that we are nearing the end of circuit

switch technologys ability to provide annual
cost/performance benefits.

For decades, enterprises have pressured current voice vendors to

lower cost and increase functionality using existing technology.
In general, we have been successful.
However, the opportunity to achieve continued improvements
within the circuit switched/time division multiplexing technology is
becoming increasingly limited.
We must move to a new technology to continue to provide annual
benefits.
This new paradigm for voice is voice/data convergence.
Finally, we must gain a true understanding of convergence, how
voice and applications will be enhanced.
We must recognize that voice is NOT just dial tone anymore.

Copyright 2002 IBM Company. All rights

In the WAN, prices have declined and are at or

approaching prices below which circuit switching cannot
go.
On/Off Rate Trends and Projections
0.35

0.3

0.25

0.2

Cost
Per
Minute

0.15

0.1

0.05

0
1996

Applied Research
Technologies

1997

1998

Domestic US

1999

2000

Trans Europe

2001
US to UK

2002

2004

Trans AP

Copyright 2002 IBM Company. All rights

2004

2005

SW Threshold

IBM Confidential

The transition to next generation telephony requires

simultaneous development on multiple levels: IP transport,
SIP protocol and Applications.
Base
Focus

IP Transport (plumbing)

Integrate

Advanced
Business
Communications
Applications

SIP Protocol
Base

time

IP Transport
1. Toll bypass (WAN)
Gateways to TDM
Gateways to PSTN
IVPN or Power9

2. Local (LAN)
IP telephones
IP softphones

SIP Protocol

Applications

Servers
Call Management
Proxy
Redirection
Directory

Clients

Presence
Follow-Me
Multi-casting
Instant Messaging
Etc.

SIP phones
SIP softphones
MS Messenger

External Services

Copyright 2002 IBM Company. All rights

A budgetary comparison between TDM and IP for the LAN

showed IP preferable under both the local server and
server farm based server models.

TDM vs Server Based IP Local

Servers

Local vs SDC Based Servers:

500 Stations per Site

C
ostp
erS
tation

600
400
200

TDM
IP

0
500

1000

3000

Cost per Station

1000

1000
800

800

TDM Local
TDM SDC
IP Local
IP SDC

600
400
200
0
2Sites

6 Sites

Site Size (in Stations)

Copyright 2002 IBM Company. All rights

Industry projections for WAN VoIP shows decreasing cost

per minute.

Avg Off Net Carrier Revenue per Minute

IP Voice Minutes
US Retail

0.09
0.08
0.07
0.06
0.05
0.04
0.03
0.02
0.01
0

Cost per
minute

Note:
This data covers services offered
by carriers, not IP transport over
converged corporate networks

Copyright 2002 IBM Company. All rights

IDC #26354
Jan 2002

Industry projections for LAN based VoIP show declining

cost per station.
World Side Cost per IP Phone

Cost per
phone

Factors driving cost down:

Competition (incl 3rd party)
Natural product life cycle

2006

2005

2004

2003

2002

2001

IDC, April 2002

Rept # 26977

2000

US $

450
400
350
300
250
200
150
100
50
0

Factors driving costs up (esp high end)

Color touch screen
Processing power
Infrared and wireless connection
PDA docking station

Copyright 2002 IBM Company. All rights

With declining cost per unit for VoIP in both the WAN and
LAN, the mix of IP to circuit switched/TDM technology will
shift in favor of IP.
World Wide Migration WAN
Voice Minutes: Cross Border

Migration from TDM to IP

Phones
10
8
6
4
2
0

Circuit Switched

IP

Total

150000
100000
50000

Circuit Switched

In-Stat/MDR
LAN Telephony:
A Billion Dollar Market

Copyright 2002 IBM Company. All rights

IP

2006

2005

2004

2003

2002

0
2001

2006

2005

2004

2003

2002

2001

2000

1999

1998

1997

1006

Minutes (Million)

200000

1995

StationsShip
p
ed
(000)

250000

Total

IDC Rept #26354

Jan 02

10

We believe the business opportunity for VoIP extends even

further to new applications and architectures, in
particular, for the LAN

Server farm model

Softphone saves $100 per station
Cost
Per
Station

Softphone Lite saves $50 per station

SIP enabled Message Center
Saves T1 H/W cost
VXML apps reduce IVR hell
May automate support functions
Unified Business Communications
Others
Time

Copyright 2002 IBM Company. All rights

11

These opportunities extend to the WAN, also.

Cost
Per
Minute

Voice over DSL

Saves $.02 - $.05
Voice over Power9 (true convergence)
Savings TBD
Local Message Recording
Saves LD cost if called # busy
IP conferencing
Other

Time

Copyright 2002 IBM Company. All rights

12

New paradigms in voice also promise savings.

Self provisioning saves $25 per station

Drop UPS requirement saves $45 per station
Cost
Per
Unit

Desk top power saves $70 per station

Converged documentation and processes
Saves local implementation effort (TBD)
Others

Time

Copyright 2002 IBM Company. All rights

13

- - -

ap
ps

ne sg
o
h lM
tp
a
f
So Loc

c
Re

tes
i
r S BX
e
P
mb IP
u
N ith
W
tes
i
r S AN
e
b
m IP W
u
N n
O

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X
M
L

Se
lf

pr
So ovi
ftp sio
ho nin
ne g
Co
Li
nv
te
er
ge
d
do
c

We have a chicken and egg situation: the size of the VoIP

benefits are a function of the penetration of our VoIP
infrastructure.

Benefit

Infrastructure
Penetration

Copyright 2002 IBM Company. All rights

14

Voice realities in the industry and at IBM require a new

way to look at business cases. We will no longer be able
to rely solely on cost savings and must look to productivity
and revenue enhancements.
Business Transformation
Cost and
Savings

Easy to calculate
Easy to implement
Drive vendors for
lower costs

Productivity
Enhancement

Difficult to measure
Difficult to quantify

Increased
Revenue

Business
Case

Difficult to quantify contribution

Measured at corp level

The reality of voice business case at IBM:

Inventory is aging, often fully depreciated
Therefore, the case for change on solely cost/savings basis is tough
The role of functionality offered by new technology will play major part in business case

Copyright 2002 IBM Company. All rights

15

IBM Confidential

IBM has a forward thinking voice vision/goals/objectives

statement.

Transform IBMs voice infrastructure into

one that:

Is increasingly cost effective

Increases end-user productivity and
satisfaction
Showcases IBM products, services and
solutions
Accelerates IBMs business advantage
Addresses diverse global requirements

Copyright 2002 IBM Company. All rights

16

IBM Confidential

The IBM strategy focuses investments in new technology

and looks beyond convergence for benefits

Avoid investing any new $s in TDM technology,

where possible.
Look beyond the convergence on IP transport.

Voice becomes just another IP application.

Telephones become just another application endpoint.

The ultimate payoff is in the integration of the

voice application with other applications.

The real value in next generation telephony is in

application integration, more than IP transport.
Leverage IP telephony to converge along multiple
planes.

Data and voice transport.

Wired and wireless services.

Voice and instant messaging.

Voice enablement of existing applications.

Copyright 2002 IBM Company. All rights

17

IBMs Next Generation Telephony Architecture is a layered

architecture; and we anticipate applications that leverage
services from multiple layers.

Applications

Same Time
Calendar

App 2

App 3

Unified Messaging
Smart Audio Conf

App N
CRM
Many Others

Abstraction
Layer

Application
Interface
Service

Directory (Incl ENUM) VXML Audio Bridge Speech Reco

Presence
Text to Speech
Routing Apps

Call Control
Signaling

SIP Dial Plan GK GW BW Ctl Admission Ctl

PSTN/Wireless (Cell and 802.11) Interface

Transport, Switching
And Routing

Power9

End Points

Phones
Softphones

DSL

Ethernet

IVPN
QoS

Cell Phones
PDA

Copyright 2002 IBM Company. All rights

Wireless GW

End to End Management

App 1

Softphone Lite
Video

18

IBMs experience in VoIP business cases is emerging. It is

influenced by inventory of spare equipment (LAN) and
implementation of new WAN

Premise (I.e. IP PBX):

Individual RFPs are highly competitive and often difficult to

characterize

Because we have so much TDM equipment in inventory, we do not

have many pure project comparisons of TDM vs. IP

Given this, a budgetary study was completed comparing 5 yr TCO

of IP and TDM. IP was less expensive
WAN:

Very successful AP WAN project

Initially projected savings: up to 20-40% savings, based on site
and final access requirements

EMEA RFP did not produce large savings

Current contracts show excellent cost per minute
Complexity of EMEA voice network reduced candidate traffic
for IP

US Power9 project promising

Copyright 2002 IBM Company. All rights

19

IBM Confidential

IBM has successfully deployed Voice/Data convergence in

a number of projects.
June Prod
June Prod
In Prod
Calgary Sales & Svc
Cisco AVVID
450 phones

Tel Aviv Country HQ

Cisco AVVID
850 phones

Toronto Software Lab

Cisco AVVID
3,000 phones

In Prod
AP Inter-site
18 sites
up to 50% of
traffic

June Pilot
U.S. Power9 WAN
Cisco gateways
5 sites

June Prod

June Pilot

Dubai New Facility

Cisco AVVID
200 phones

1-2% of Population on IP phones

EMEA WAN RFP in evaluation

India site-to-site
2 site pilot
8 sites if successful

In Prod
Singapore Sales & Svc
Cisco AVVID
1,000 phones

25% of AP site-to-site traffic on IP IVPN

U.S. WAN (Power9) pilot 2Q/3Q 2002

Copyright 2002 IBM Company. All rights

20

We have excellent communications tools and depend on

them daily. Yet they dont always work together.
On a good day:
My PC works
My IM works
My applications work
My phone works
My cell phone works
My PDA works
Everything Works!

But none of them really work together

What if they did?

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21