Read the case given below and answer the questions given at the end.
CASE STUDY-1
While IP Telephony, and the resultant savings in communication costs, has been gaining considerable attention, its adoption has been slow because of the high initial investment required to set up a Voice-over-IP (VoIP) network. And with the recent cut in national long distance (NLD) charges, a question mark has formed around the cost-effectiveness of this technology. Enterprises are reluctant to invest lakhs of rupees on VoIP, with concerns that they may not get decent RoI (Return on Investment).But since the needs, options, and viability patterns are wildly different for enterprises and customers, lets look at the enterprise angle first. Ravi Chauhan, vice president, Enterprise Solutions-India and SAARC, Nortel Networks, says, "Given the fact that 70 percent of a company's communication costs are in the form of intraoffice STD bills, VoIP continues to make sense. We have seen cases where communication costs have reduced by 60 percent after implementing an IP telephony solution. The period for return on investment on equipment has dropped from ten years to three." It's not just about saving money. VoIP lets corporates take advantage of a host of value-added services like integrating voicemail, video, e-mail and fax. Raj Pawate, director-DSP Application, TI India, says, "IP networks are easier to maintain and manage than switched circuits." And if an organisation already has an enterprise WAN set-up with an existing data network, with a 64 Kbps leased-line facility, there is all the more reason to add voice capabilities to the data network, thus making even better use of precious bandwidth.
Cisco's solution
To set up a data network, which consists of LAN and WAN (switches and routers) the investment in equipment will be Rs 27.3 lakh. The cost of cabling will be Rs 2.5 lakh and, for IP telephony solution (Call Manager, IP phones and DSP resource), another Rs 25.4 lakh.With Cisco's solution the equipment will cost Rs 55 lakh, inclusive of all the IP telephony features. An additional Rs 6 lakh per year would go toward leased line charges for one 128 Kbps line and four 64 Kbps lines. The total investment would amount to Rs 61 lakh. The depreciation on the equipment over three years would amount to Rs 18 lakh per annum plus Rs 6 lakh for annual bandwidth charges. The enterprise would have a fixed annual inter-office communication cost of Rs 24 lakh using VoIP. This investment is justified if the enterprise has an annual inter-office communication in excess of Rs 60 lakh
Nortel's solution
The cost of the IP-PBX (hardware, software and 50 digital phones) is Rs 10.1 lakh, routers Rs 11 lakh and 37 IP phones would be Rs 6.4 lakh. The equipment cost would be Rs 28 lakh (voice and data) plus Rs 6 lakh for the leased line charges. This works out to Rs 34 lakh for the equipment. Depreciation on equipment over three years comes to Rs 9.3 lakh per annum plus Rs 6 lakh for annual bandwidth charges. Using VoIP, the enterprise would have a fixed annual inter-office communication cost of Rs 15.3 lakh. In this case, the investment is justified if the enterprise has annual inter-office communication cost of Rs 40 lakh and above.From the example cited above, it is clear that if an enterprise's inter-office communication cost is more than Rs 50 lakh then the investment in the VoIP is justified, otherwise it does not make economic sense. Secondly, the higher the communication, shorter will be the payback period.According to Cisco's Chaitania, "The investment in VoIP for enterprise WAN makes sense if an enterprise has offices in multiple locations or even if they have offices in two locations and their average annual spending on inter-office communication goes above Rs 50 lakh, then the investment will be justified." Cisco's philosophy for the VoIP solution is to give the enterprise headroom for growth, keeping the future requirements of the enterprise in perspective, whereas Nortel's approach is to give the enterprise a low-cost alternative solution at the outset that can be scaled up in future.Any mid-size or large enterprise whose annual communication cost is more than Rs 50 lakh and has offices in multiple locations should go in for a VoIP solution. Besides the cost it's the value-added services voice, data and video that it brings in, which make it even more worthwhile. While this clearly means that it may not make sense for SMEs to go in for their own VoIP networks, what the government's decision to allow Net telephony will do in the SME space is to encourage companies to replace their legacy PABX systems with IP systems. And since SMEs usually use third-party service providers to meet their network infrastructure needs, ISPs could take over the role and allow SMEs the benefits of VoIP too
Questions
1. What is the CISCO philosophy for VoIP solution?
2. What is the enterprise view about VoIP?
3. When the investment in VoIP will be justified?
