VoIP: Can You Hear Me Now?

If your company is considering upgrading phone systems, it's time to think seriously about IP telephony, or voice over IP.

VoIP technology simplifies the management of voice communications, adds new features and saves money. The market is maturing quickly, with a bevy of industrial-strength vendors providing equipment, services and software for mid-sized businesses.

Last year, Softscape, a Boston human-resources software developer with 160 employees, went live with a hosted VoIP solution, replacing a seven-year-old VoIP system from 3Com that was being discontinued. “We expect a savings of up to, if not higher than, $1,000 a month by allowing office-to-office calling without having to pay local carrier charges or cell phone minutes for remote employees,” says Jonathan Frappier, IT director at Softscape, which recently became part of Sum Total Systems.

How VOIP Works
VoIP technology works by converting voice signals into digital data packets that are transmitted over the Internet. The systems can support office phones, mobile phones and videoconferencing.

The technology appeals to IT managers because it lets them combine voice and data communications over a single network instead of maintaining separate networks for each, reducing infrastructure and management costs, experts say. CFOs like it because it saves on long-distance fees, since companies pay for an Internet connection but no telecommunications charges.

Jay Brandstadter, a Rockville, Maryland, IP telephony consultant, predicts that in 10 years, 90 percent of U.S. businesses will run VoIP systems. The technology already comprises 50 percent of domestic business voice traffic, says Brandstadter, whose long career in telecommunications began at Bell Labs in 1962. “Nobody's making new PBX systems,” Brandstadter says.

After a lull during the recession, revenue from business VoIP services began growing again in late 2009, according to a recent report from Infonetics Research, a networking and telecommunications market researcher. Another research firm, IBIS World, forecasts that VoIP will be the best-performing industry this decade, growing nearly 150 percent.

Of course, ripping out old phone equipment is not a simple decision. CFOs and financial managers may need help making a business case for upgrading. Small and mid-sized companies may have an advantage over larger enterprises because they don't have major legacy agreements and systems preventing them from making a change, says Jayanth Angl, a Toronto-based research analyst with Info-Tech Research Group.

Even though most mid-sized companies are still tethered to a landline, VoIP capabilities are expanding all the time, says Karen Nielsen, a New York telecom analyst with AMI-Partners, a market researcher and consultant. “The Internet is a very mature pipe now, and the [telephony] software is getting more sophisticated,” she says.

What VOIP Brings
Cutting costs is the No. 1 reason companies convert to a VOIP system. Savings can run anywhere from 20 to 40 percent on domestic long-distance and international calls and up to 50 percent for videoconferencing, according to Brandstadter and other experts. Even local calls can be cheaper. “The large T1 pipes from phone companies are very expensive,” says Jon Arnold, a Toronto analyst who follows IP communications. Instead of spending on a T1 line that provides 24 additional lines when it only needs a few, a company can purchase incremental bandwidth as needed, he says.

VoIP also helps companies save money because features such call waiting and voicemail are included, Arnold says. The technology can be used as a springboard for adding integrated voice and data services such as web conferencing, real-time collaboration and information on employees’ location and availability.

Such unified communications, or UC, technologies don't require IP telephony to work, but VoIP makes deploying them easier, Angl says. "Companies should talk to their vendors to make sure it all works together for employees,” he says.

In addition, it’s now viable to use a single vendor such as Cisco, Microsoft, Avaya, Siemens or IBM to put together an integrated UC and IP solution, he says.

Companies that adopt VoIP can save on support costs too, since the technology is easier to manage and administer than traditional voice technologies, Brandstadter says.

Compared with the public telephone network, IP telephony also is easier to integrate with Wi-Fi and 3G wireless technologies, says Nadeem Unuth, a New York computer science instructor. Since more employees use mobile phones at work, supporting those users on the same internal VoIP network is a big plus, and can produce further cost savings versus pricey minute-based cell phone charges, says Nielsen.

What to Consider If you’re thinking of switching to VOIP, here are some variables to take into account:

1. Quality and reliability. VOIP connections and sound quality are improving all the time, but the technology is still a work in progress. Consider how tolerant your company would be of Internet outages and the occasional spotty call. "You are taking risks if you use a really cheap service,” Arnold warns.
2. Providers. There are two categories of VOIP vendors. The first sell hardware and software, including Avaya, Fonality, Cisco and Nortel. The second connect a company's PBX system to the public telephone network over the Internet and include Comcast, Vonage, CBeyond and Cox Enterprises. When choosing a provider, evaluate the track record and performance, geographical coverage, staff support and guaranteed service levels.
3. Special equipment. Companies that don’t want to buy special IP phones can use existing analog phones equipped with adapters that allow them to work on the IP network. Companies that choose to upgrade can use any third-party IP handset with their service. However, VoIP service providers may restrict which mobile phone models work on their IP networks. Most vendors will also require either Wi-Fi or 3G phones, according to Unuth.
4. Outsourcing. If you'd rather not worry about details such as equipment, design, integration or support, consider going with a hosted or outsourced service. Softscape, the software developer, opted for a hosted VoIP service because it required less capital upfront, according to Frappier, the company’s IT director. “With an on-premise solution, you have to maintain hardware and software maintenance contracts for support, keep IT staffed fully trained, apply upgrades and fixes to your environment and potentially staff full-time system administrators,” he says.

Over time, experts predict prices will drop even as features expand. Skype and Google, which has a new cloud-based phone service called Voice, are two prominent players working to win over business customers.

Arnold, the communications analyst, says that with all the options available for business customers, “There is really no excuse to not look into this.”