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Talk is cheap

The VoIP market is maturing, and it might be time for you to reap the benefits of the newest alternatives. Get ready to plug in.

The benefits of voice-over Internet protocol (VoIP) abound. For starters, take the numbers issue. With a landline phone, you have limited control over your one number.

With VoIP, you have total control over multiple numbers. Want to set up a virtual London office? Just create a number for it and have calls to that number forwarded to your real line in Trenton, N.J. (better posh up that accent, though). Want a unique 888 number to test the productivity of an advertisement? No problem: Create a new number that forwards to your real line and delete it when the ad is gone. Want to change cell plans? Just publish one number for all calls and route them to the new cell phone when you’re out of the office.

Then there’s unified messaging. I don’t know about you, but I have a hard time managing voice mail on three lines (work, home, cell) and e-mail at two locations–not to mention faxes. What if all these channels funneled your correspondence to one queue that you could access from any location you choose (cell, pager, landline, e-mail, the Web, etc.) in a format that you choose? And what if you could manage all of it with one simple Web-based interface? What if you could plug a salesforce-automation or CRM application into your unified messaging queue?

All this and more are possible with VoIP, including free conference calling, and call screening and routing. So why doesn’t everyone rush out and get a VoIP solution? The answer boils down to cost versus voice quality. Until recently, VoIP solutions were huge, ugly beasts that cost a lot to purchase and even more to hook up and maintain. The return on investment just took too long, especially for SOHO and small businesses. And relatively cost-effective solutions lacked the voice quality needed for business credibility.

Perhaps it’s time to take a second look at converting to VoIP. The market is now maturing and becoming more segmented. Chances are, there is a VoIP solution that can pay for itself within two years and deliver lots of additional tangible benefits now. According to a recent study commissioned by Nortel Networks–a leading producer of Centrix-based VoIP equipment for telecommunications companies–mass-market deployment of VoIP solutions should happen within the coming year, especially in small and medium-sized businesses.

Aside from the expensive and cumbersome in-house solutions, there are three main tiers of VoIP services to users within your company:

— A Vonage-like solution, which is a small box connected between your phone system and the Internet;

— A managed service like Virtual PBX, which works like an ASP to deliver VoIP service over the Internet; or

— A large telecommunications company like MCI, which delivers packet telephony over its own private network.

Cost-effective plug and play

Of the three viable options, Edison, N.J.-based Vonage offers the least expensive solution. Residential customers pay $25.99 for unlimited local and 500 minutes of long distance per month, or $39.99 for unlimited local and long distance. Each Vonage box (a Cisco analogue terminal adapter, or ATA) has two phone jacks. The jacks take existing phone cords just as a wall jack would. The second jack can be configured as a fax line for an additional $9.99 per month.

Business customers pay $69.99 for two different packages that vary according to fax usage. Larger customers with existing PBX systems can hook the box between their PBX server and their Internet connections to save on phone charges and system administration. Vonage’s largest customer currently has 150 employees.

In addition to cost savings over conventional local/long distance packages, Vonage offers such features as automated call forwarding, voicemail, and call records accounting. Users can configure their systems and check messages via the Web. Messages are stored as WAV files and can be attached to e-mails, if so desired. For $5 per month, users can also get a virtual number in another area code.

Jeff Citron, CEO of Vonage, says the company garnered 30,000 users in its first year of business. He expects subscriber levels to reach 100,000 by the end of 2003 and 250,000 by its second anniversary next April. These numbers could accelerate as Vonage explores new sales channels, such as a recent partnership with Earthlink–which bundles Vonage with its broadband service–and retail presence in stores such as Best Buy and Circuit City. Subscribers follow normal broadband usage patterns–two-thirds cable and one-third DSL.

While Vonage has a large and growing list of residential and business customers, the biggest market for its services is the small-office/home-office (SOHO) market.

“They want to make their home-based businesses seem like a big company,” Citron says. “They also want to make it seem as though they’re at their desks when they’re on the road. Calls that come into their main numbers can be forwarded to their cell phones.”

Vonage is an attractive option, especially for SOHO operations, but it is inexpensive relative to other options for a reason. Vonage does not yet offer the service in every city, so you may not be able to sign up for it just yet. Also, if your power or Internet connection go down, you’re left without landline phone service until they are restored.

Finally, there have been sporadic reports of latency due to the medium over which the calls travel. Once a call goes over the Internet, it can be routed to Timbuktu before ending up at its destination down the street. This can result in a lag time between one party saying something and being heard at the other end. By the time you read this article, Vonage is expected to offer a Motorola VT1000 combination router/analogue terminal adapter, which would eliminate one box on the desk. It will also offer functionality that should improve voice quality and reduce latency.

Managed services

One step up from Vonage is a managed service, such as Virtual PBX. Virtual PBX gives customers IP PBX functionality with nominal up-front costs. After a $150 set-up fee, customers pay month-to-month for the service they use. Monthly charges are based on the number of users in the system and the amount of call time. A typical monthly charge is $200 a month for access to the system. After that, companies pay 5.5 cents a minute for call traffic. The company continues to add value with its hosted applications and partnerships with companies such as Salesforce.com. As the company adds features, it keeps its fees constant.

While not the cheapest solution, Virtual PBX does offer features that can offset the higher costs with better productivity, especially for sales staff and other employees with a lot of road time. When you administer the system over the Web, just give each employee a unique extension and enable that employee to configure where incoming calls can be forwarded, and how they will access their voicemail.

As with Vonage and other cheaper solutions, you can configure the system to forward to your cell phone. Unlike with other systems, when calls are forwarded to your cell phone, the system behaves exactly as though you are in the office. You can configure it to pre-announce the calls, complete with caller ID and other pertinent business-relationship information about the caller. Just press Pound to accept or Star to send it to voicemail; or you can transfer the call to anyone in the system, whether they are onsite or offsite, without even answering.

Paul Hammond, CEO and president of Virtual PBX, started the company in 1997 when it cost $75,000 for a traditional POT (plain old telephone) system to be installed. He says he saw a market for small companies to get some of the functionality of a big-iron system without a huge up-front investment.

“Our solution targets small businesses with 25 people or less,” he says. “It makes the most sense for companies that have a lot of road warriors and small remote offices. You can have a small business with folks working from home, working abroad, working in their car, but have the appearance of a tightly integrated system.”

In addition to call routing, screening, and database management, Virtual PBX offers unified messaging and a growing number of customer care and sales-force automation applications for its customers at no extra charge. And new application are being added all the time. Finally, companies can set any number of virtual 800 phone numbers that forward to the main line.

Hammond says this feature is especially important for companies that have multiple identities and want their employees to announce the appropriate company name when answering the phone. Other uses include testing advertisements with a unique number. Calls to that number can only be generated through the ad.

But Hammond admits that even with added functionality, Virtual PBX is not cost-effective for individual users or companies with desk-bound employees.

“Frankly, when looking at a hosted service, it has to provide value to your company to be worthwhile,” he says. “It’s not the right service for individuals, or if you have all your people located in a single building.

“Vonage is a low-cost way to have calls delivered to a single user or a single building,” Hammond adds. “But any time you want to move into presenting a distributed office as a single company, hosted services are the best option.”

Managed networks

While users can accept cell-quality calls, quality of service (QoS) is the big bugaboo for business VoIP. That’s where private, managed IP networks shine. Rather than sending calls over the great unwashed Internet, private networks have control over where voice packets are going and thus can guarantee QoS on a par with circuit-switched systems. MCI and Sprint are both getting into voice-over private IP networks. But at this point, only MCI has the last-mile end game.

Currently, MCI targets small-to-midsized companies that already have fractional T1 pipes and want to run both voice and data down the same pipe, thus saving money on POT service. Here you’re talking about $1,000 per month for the T1, plus $35 per user per month–which includes the full gamut of VoIP features plus QoS.

Barry Zipp, MCI’s senior director of enhanced services, says the break-even point for fractional T1 versus staying with the POT system is a 10-to-15-person office, depending on call volume.

For SOHO users, MCI will roll out VoIP over DSL later this year, Zipp says. It plans to roll out a highly functional voice-over packet solution over its Rhythms network. Early next year, MCI expects to have broad penetration for DSL users, in a partnership with Covad, Zipp adds.

“We expect the DSL solution to be price competitive with the Vonage solution,” Zipp says. “The difference is, we’re going over MCI’s managed backbone. Internet calling is fine for family, but when you’re trying to present yourself as a professional, I don’t think it’s worth saving a little bit of money to have less-than-professional calls.”

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