Bandwidth Bang for the Communications Buck

COST CUTTING | The convergence of communications—both data and voice—has placed many CIOs squarely in the role of communications manager, like it or not. "Once you've converged the networks, you need one person to manage that infrastructure," says Ovum analyst Marc Jacobson. But this consolidation offers opportunities to get the most bandwidth for the company's communications buck.

For example, Anthony International, a manufacturer of refrigeration equipment, reduced its carrier data and voice bills by 40 percent during a one-year period using network services from BTI Communications Group. Anthony combined several techniques, recalls CFO Michael Stewart. It began using the public Internet and virtual private networks (VPNs) in place of dedicated and leased lines to carry data on its five-building campus and among more than a dozen sales offices; it added voice-over-IP (VoIP) phones to its IP-enabled phone switch for about 50 users in both local and remote offices, and it consolidated its telecom providers from 50 to just two.

Take the time to examine your own situation, implement one or more of the strategies suggested below, and your savings might be just as significant.

The fastest way to cut down on voice and data costs is to consolidate your telecom contracts. Using the fewest national and regional carriers possible decreases management overhead and can increase savings through volume discounts. "Negotiate your contracts each year for a 15 percent savings right there," advises Bryan Van Dussen, a Yankee Group analyst.

Krispy Kreme Doughnuts, for instance, consolidated its long-distance voice carriers several years ago, going with MCI. But it was able to save an additional 50 percent this spring by moving from MCI to Qwest Communications, which also provides Krispy Kreme's data service, says Sam Gray, director of technical services at the doughnut maker. Dan Luczak, CIO of commercial printing equipment manufacturer MAN Roland North America, has followed a similar strategy. "Our voice and data services come out of the same bucket, so I can leverage that [combined volume] for more discounts," he says.

Communications providers can make mistakes, such as charging the wrong rates, charging for unused bandwidth and incorrectly applying tariffs.

Krispy Kreme's Gray has also hired KMC Telecom to provide the company's roughly 1,000 phone lines at about 200 locations. It's still not clear if this will reduce monthly local-service expenses, but the company was able to avoid hiring a new technical services person. He's reducing costs further by hiring Cybera to deploy DSL service as the last-mile data connection to stores in markets where DSL is available. This is at least 50 percent less expensive than standard local-loop T1 connections and well worth the lower uptime (about 98 percent) of DSL, he says.

Companies can often find savings by reviewing their contracts and billings diligently, either themselves or via service providers. Communications providers can make mistakes such as charging the wrong rates, charging for unused bandwidth, charging for services that were neither ordered nor provided, and incorrectly applying tariffs. HCA, for example, saves between 15 to 30 percent of its monthly telecom costs just by reviewing the bills for its 200-plus facilities, says David Adams, HCA's assistant vice president for data and voice network services. HCA's six-person telecom management staff does its own analysis using tools from MBG and Universal Data Solutions, but many firms outsource such tasks to service organizations such as ISI Telemanagement Solutions, QuantumShift, StoneHouse Technologies, Symphony Services, Veramark Technologies and others that hunt for savings in return for a finders fee.

Business broadband doubled to 10 million lines between 2002 and 2003, and will exceed 35 million lines in 2008

—THE YANKEE GROUP, 2004

MAN Roland, for instance, saved about 20 percent on its telecom bills by hiring ISI Telemanagement Solutions to identify billing errors, says Luczak, and half the errors were for recurring charges that showed up on each month's bill. For example, MCI kept billing a $2,800 monthly access charge that should have been just a few hundred dollars, he recalls, while for 30 months Sprint overbilled the PBX-to-ISDN connection charges. Luczak says a company such as ISI can play hardball better with the carriers when disputes arise because it has the expertise and databases of carrier program costs to effectively identify and prove mistakes. That expertise also lets ISI advise Luczak on more cost-effective ways to approach his contracts.

Whatever the savings, it's important to keep reviewing so errors don't recur. "They creep back in," says Mark Blasing, director of voice and data communications at La Quinta Inns, so the company hired Symphony Services to review its bills each month.

Go Beyond Frame Relay and T1
Enterprises can reduce their facility-to-facility data transport costs by replacing traditional conduits—such as dedicated T1, ISDN and frame-relay lines—with the public Internet, leased Ethernet and other high-speed data connections. Such technologies typically increase available bandwidth by 10 to 40 times at about one-third the per-megabyte cost.

New York-based E-Trade Financial, for instance, uses a VPN to connect its 12 campuses and branch offices over the public Internet. E-Trade CTO Joshua S. Levine says an analyst study of E-Trade's deployment showed it pays just 70 percent of what its peer group pays for data links. Likewise, MAN Roland is saving $5,000 per month by replacing frame-relay connections to six facilities with VPN connections over the public Internet. MAN Roland's Luczak says the change will pay for itself in 15 months, even with the additional routers and switch upgrades that were required. He expects further savings as he drops the ISDN lines that now carry videoconferences.

Krispy Kreme took a different path when its T1 lines could no longer handle the increasing data traffic among its various Winston-Salem, N.C., facilities. Technical Services Director Gray replaced the T1s with leased metro-area Ethernet service from Time Warner Telecom. Gray's costs tripled, going from $500 per month to $1,500 per month per location, but his bandwidth shot up 70-fold from 1.5Mbps to 100Mbps. Gray says he would have needed to deploy multilinked T1 or T3 lines (which are difficult to install and manage, and would have cost far more than his current approach) to achieve the same bandwidth. The added performance also let the company stop using Citrix Systems' terminal emulation tools to run applications over the slow T1 lines. Terminal emulation forced users to log into a Citrix server, a process that resulted in increased management overhead and help desk calls from frustrated users. All Krispy Kreme facilities with metro-area Ethernet connections now run corporate applications locally, connecting back to corporate data stores over the high-speed connections. In fact, Gray was able to begin moving his network operations from the headquarters to a more secure, larger space at a nearby manufacturing center without slowing data or applications access at the home office.

Penske replaced its frame-relay connections with DSL and cable-modem service, upping bandwidth from 56Kbps to as much as 1.5Mbps, while reducing costs by 70 percent.

In addition to lower bandwidth costs, enterprises can look for managed private IP VPN providers that can eliminate the management overhead of handling multiple network providers, advises Yankee Group's Van Dussen. "You can do away with a lot of suppliers." For example, Penske Truck Leasing hired GoRemote Internet Communications to choose and manage broadband providers, giving it one point of contact. Penske replaced its frame-relay connections with DSL and cable-modem service, upping bandwidth from 56Kbps to as much as 1.5Mbps, while reducing costs by 70 percent, says Jerry Hodgen, manager of LAN, WAN and desktop services at Penske. It took just three months for the change to pay for itself, even figuring in the cost of new VPN-capable routers at each location. So far, about half of Penske's 800 locations are using broadband, and Hodgen expects that number to increase as DSL and cable-modem service spreads.

Phase In IP Telephony
IP-based telephony can significantly reduce costs, says analyst Van Dussen. "IP based telephony reduces administrative, networking and IT support costs while also increasing productivity. Savings or TCO reductions differ company to company, installation to installation, but it is common for early users to save enough to fund its installation," he notes. But the greatest savings come from deploying VoIP in new sites and in full-replacement installations (see "IT, Phone Home," www.cio.com/printlinks). Most enterprises can't afford to replace their PBX systems outright, but they can still benefit from IP telephony implemented incrementally: Most PBXs from the last 10 years support IP interfaces—including those from major providers such as Avaya, Mitel Networks, Nortel Networks, and Siemens—so communications managers can connect new users and facilities via IP while sharing most of the PBX functions such as four-digit dialing and voice-mail access. Already, Van Dussen says, approximately 10 percent of all enterprise voice traffic in the United States is bypassing the public phone network, largely due to VoIP adoption and the use of private networks.

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Florida Atlantic University CIO Jeff Schilit has replaced T1 voice lines among his seven campuses spread out over 150 miles and now runs voice traffic over a high-speed optical network that also carries data traffic. This saves the university $75,000 a year, and Schilit expects to save more when he moves his videoconferencing service from separate ISDN lines to the central data network. But Schilit will keep his existing Siemens telephone switch in place, since it is only two years old and should last at least seven more years. "When it's time to replace it, we'll make the move to native [IP telephony]," he says.

IP telephony doesn't cost significantly less to place calls outside the PBX than traditional telephone systems, notes Ovum analyst Jacobson, until you add in the savings from taxes and tariffs that VoIP providers don't have to charge. But at the behest of the regulated carriers, the U.S. Senate is considering a bill to make VoIP providers charge these tariffs and taxes as well. The Federal Communications Commission has exempted from taxes and tariffs only those VoIP calls that completely bypass the regulated phone system, and has no position on calls that transit partially through that system. To be safe, however, enterprises should not justify the cost of their IP telephony investments on tax and tariff savings alone, advises Ronnie Johnson, national telecommunications contract administrator at HCA.

Analysts and vendors also tout IP telephony's potential to run applications, such as displaying client information onscreen automatically when a client calls in, or managing voice mail, e-mail, and even instant messaging over one network and across multiple devices. CIOs see that potential, but "the new IP phones don't have a real application yet," says Luczak. Their immediate benefit is a lower cost to connect campuses to each other by replacing trunk lines and connecting users within a campus by replacing or augmenting PBXs. If it comes true, the promised potential of new IP applications will be just icing on the cake.

San Francisco-based freelance journalist Galen Gruman can be reached at ggruman@zangogroup.com.

Cool Fuel

As CIOs become responsible for consolidating voice and data, they need to look for ways to save money