VoiceCon: Avaya CEO says VoIP may not lower costs

Avaya CEO Don Peterson surprised some IT managers at VoiceCon Spring 2006 Wednesday by declaring that they should not deploy IP telephony expecting to lower communications costs. Instead, they should look at it as a way to improve business operations.

Peterson’s comments, delivered in a keynote address to most of the 5,000 conference attendees, stood in stark contrast to several presentations from representatives of businesses well on the way to outfitting their companies with new networks, phones and applications based on IP who said they’ve already saved money.

Some of those IT managers have reported millions of dollars in annual savings, thanks to reductions in long-distance call costs and a decrease in the amount of work for IT staffers who have to add or move phones. Other savings resulted from deploying only one data line to a desktop without the need for a separate costly voice cable.

“We don’t believe IP telephony is a cost-reduction case,” Peterson said in his speech. “I fundamentally believe that the real value is not cost reduction, but how it changes the business.”

Peterson was not available to elaborate on his comments later, but Jorge Blanco, Avaya’s vice president of strategic marketing, said recent independent research and customer surveys have raised questions about earlier assertions of VoIP cost savings. As more systems have been rolled out, the return on investment issue is being clarified, he said.

“Don is trying to make a reality check in his comments,” Blanco said. “There are operational and cost reductions, but we’re trying to say don’t go at this through the lens of saving money. Instead, lay the foundation to drive business strategy.”

Some IT managers said they would never have won business approval for VoIP without cost savings as a part of the picture. Others said the business benefits are overwhelmingly positive and nearly immeasurable in a dollar sense.

For example, Catherine Brune, CIO at Allstate Insurance in Northbrook, Ill., said her company and customers benefitted from VoIP using Avaya technology with a data infrastructure from Cisco after Hurricane Katrina. Allstate was able to quickly set up emergency trailers in the field to help with claims filing and to easily transfer calls to call centers hundreds of miles away, she said.

“This technology can enable a different business process,” Brune said. When the network near New Orleans failed after the storm, Allstate was able to move to another carrier within 24 hours, thanks to the flexibility of VoIP. “If your job is to take care of customers, this is a technology for you.”

Brune said IT managers might not be able to make a persuasive business case to get funds to start a VoIP deployment, and they might have to use internal funds to take early steps to prove the value of the technology in order to make the case for more funding later on.

Gary Bixby, director of support services for the school district of Cheltenham Township in Elkins Park, Pa., said the greatest value of a new Alcatel VoIP system in his district is that it improves emergency preparedness. Teachers can be discreetly informed of an emergency, such as an intruder in the school, over a graphical display on IP telephones, with a link to a Web site for more information, he said.

Bixby began researching VoIP more than a year ago and has deployed about 300 IP telephones, half the number being rolled out. Costs for the district will total $300,000 over five years, but Bixby has not calculated the value from added emergency preparedness and other benefits, including the need for fewer PCs.

In the future, the school district hopes to use Alcatel’s IP telephony to interface with SIP-based videoconferencing technology, which would be invaluable for distance learning, he said. Tests of three videoconferencing systems are under way.

In comparison, some businesses have saved money on maintenance and toll calls. PPL Corp., for instance, saved more than $1 million a year with a VoIP system put in place two years ago, said Dave Stever, manager of communications technologies at PPL, an electricity supplier in Allentown, Pa.

Vantis Credit Union in Winnipeg, Manitoba, is basing a projection of a 15% to 20% improvement in revenue on Nortel IP-based videoconferencing kiosks that will be deployed in eight locations over the next two months, said CEO Michel Audette. The revenue boost would come from not having to staff offices in remote locations, as well as attracting competitors who might be interested in merging with Vantis, he said.

Another Nortel customer, Erlanger Health System in Chattanooga, Tenn., has seen productivity gains from Nortel technology, since nurses can respond quicker when a patient needs assistance, said John Haltom, network manager for the health care provider. The health system has 1,500 IP phone users, about 20% of the total it plans to deploy, he said.

Peterson’s comments did not surprise Zeus Kerravala, an analyst at Yankee Group Research in Boston. “Peterson is absolutely correct,” Kerravala said. “Business productivity is what you have to focus on. You get more bang for your buck by focusing on productivity than cost reduction.”

Kerravala said there’s a widespread impression that VoIP can save money, but the larger the organization — and thus the larger the implementation — the smaller the savings. “In a very large organization, in fact, going to VoIP could be more expensive,” he said.