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The next voice you hear

Voice-over IP (VoIP) is well within reach for some small businesses.

Computer telephony technology has smiled upon John Kaczmarowski. He is a general manager for Stellcom, Inc., a San Diego-based wireless-systems integrator and hardware design firm. The company has 450 employees, 100 of whom are scattered around the country in homes and small offices. Kaczmarowski is one of the scattered ones.

“We’ve got people on the ground here in Minneapolis doing projects, but we don’t actually have an office,” he says. “So I had three voice-over IP (VoIP) phones put in my house. I got them for two reasons: one, because I wanted some sort of business-level service in my home office; two, because it is a home, and I have teenagers.”

His one-person office couldn’t justify the cost of a full on-site VoIP system with all its necessary routers, software applications, and phones. So Kaczmarowski subscribed to an outsourced Cisco VoIP service called IP Centrex.

“They configured the phones for me, and I just plugged them into the back of my cable modem,” he says. “I didn’t have to buy any equipment; I didn’t have to do anything. They just charge me a lease fee on the phones.”

To be sure, the solution is not cheap. The lease fee is substantial. And Kaczmarowski pays a per-minute charge for phone usage. So what has he gained?

For one thing, his overall costs have dropped significantly. “We work on many of the same projects as our people in San Diego, so we do an awful lot of conference calls,” he explains. “My conference call bill prior to putting these phones in was about $800 a month. Now I call out to the five or six people that I need, pay five cents a minute for the call, and I conference them all through the IP Centrex.” He says his VoIP providers offer conference-calling with up to 32 people, but he doubts he’ll go that far. “I don’t even know 32 people,” he laughs.

Otherwise known as VoIP, the technology converts voice streams into data packets, sends them across the Internet, and reconverts them to voice streams on the other end. VoIP offers small businesses more than just teleconferencing savings. Companies can also employ a variety of functions unavailable on conventional Private Branch Exchange (PBX) systems, from simple unified messaging to sophisticated call-center integration. Kaczmarowski’s favorite capability is a feature called Park. If his phone rings while he’s running out the door, he can put the caller on hold, then go to the car and dial into the call from his cell phone. The VoIP network transfers the call to the cell phone and drops it from its own system.

Perhaps because of its attractive features, the VoIP market is growing fast. The worldwide IP telephony market has grown from 310 million minutes of use in 1998 to 2.7 billion minutes at the end of 1999, according to a report by International Data Corp (IDC). IDC predicts that the number of IP telephony minutes will reach 135 billion by 2004, and revenues will rise from $480 million in 1999 to $19 billion by 2004.

But the rate of adoption by small businesses will be slowed by various factors, mostly related to costs. The initial cost for a business of less than 100 people can be as high as $750,000. Depending on where a company is in its technology investment cycle, the return on that investment can take a long time. Still, for companies that have nationwide sales structures and far-flung operations, a more modest investment can pay for itself within a couple of years. And an outsourced solution can pay for itself right away.

Kaczmarowski says VoIP is a blessing for mobile workers. Even if he takes his phone to a job in the United Kingdom, his calls cost the same. And IP phone systems are adept at integrating a worker’s phone calls, cell phone calls, faxes, e-mails, and voice mails. It’s one number, no matter where you are.

Getting to the table

Kaczmarowski’s solution is only one of the ways to implement voice-over IP. It’s simple and it requires practically no infrastructure, so it’s ideal for individuals and small companies with no special requirements such as call centers. But when most enterprises buy a VoIP solution, they host it themselves. That way, they can customize their services and avoid paying outside parties a per-minute charge.

Theoretically, that’s no problem, since one of the purported perks of VoIP is the ability to combine your network and telecommunications staff into one happy family. But that advantage, some say, is more philosophical than practical.

“Your staffing need is directly proportional to the sophistication of your communications applications,” says Joe Hines, managing director at Minneapolis-based Voice & Data Networks. “While you can pick a good vendor that can support you, he cannot know all the little pieces of your business.” Custom voice applications used to be a hassle because they had to be implemented by a proprietary PBX programmer, he says. Now, they can be developed in-house, but you have to hire “someone who has the whole thing memorized” to do it. Only the very simplest VoIP systems–with the fewest features–can be managed with a reduced data/telecom staff.

There are other issues, too. For one thing, the quality of voice transmission can be spotty, especially if–like Kaczmarowski–you’re running your VoIP calls through a consumer broadband connection. Even on the best systems, calls occasionally are dropped or become choppy, much as with cell phones.

Voice quality gets better as Quality of Service (QoS) equipment, networks, and applications get more expensive. And that leads to the primary drawback: Though long-term telephony expenses are lower with VoIP, the up-front costs of the system can also be quite high, often exceeding that of a good-quality traditional PBX. That’s something a lot of companies can’t swallow right now.

“PBXs happened to be one of the worst types of computer equipment for Y2K compatibility,” says Robert Spivak, vice president of sales and marketing at SPIV Technologies Group in San Jose, Calif. “So all this PBX gear was upgraded or replaced a lot earlier than it would have been normally. PBXs that were ending their life cycle–or even those that were just bought two years ago–were upgraded again.” As a result, Spivak says, many companies are sitting on five- or 10-year PBX leases, and aren’t about to make a change.

Spivak also warns that today’s VoIP systems lack interoperability. Though many firms are working on standards, many basic protocols are proprietary. Considering that the main drawback of PBX is its proprietary nature, trading one proprietary system for another is not attractive. It’s possible to mix and match the “best of breeds,” he says, but that’s a very expensive, far-reaching project with uncertain results. “The sure way to make everything work with the least amount of work is to go with one vendor,” he says. “And there are a lot of companies that just don’t want to do that. They won’t adopt something that locks them into a single-vendor solution.”

Catching the buzz

When VoIP first became well known, its biggest selling point was toll avoidance. But telephone companies reacted by strongly competing on prices, turning their long-distance services into loss leaders. Now, there’s hardly any difference in effective costs, except in teleconferencing. The lower toll costs have made it less urgent to adopt voice-over IP for the primary benefit of cost savings.

Still, smaller companies who garner less favorable long-distance rates may see savings with VoIP. And over time, pennies add up, regardless of company size. “I can place a call that gets converted from circuit to packet here in the United States and gets carried over a managed IP network to, say, Russia,” says Mitch Auster, vice president of product management and marketing at Boston-based ADC. “When it’s good, when the congestion isn’t there, the reliability and quality of the call is pretty decent. If I can live with that, I can pay 20 cents a minute instead of a dollar a minute.”

The other great VoIP selling point is the features. The truth is, most IP phones don’t have as many features as their PBX counterparts. But the capabilities they do offer are especially exciting because they represent the integration of telephony and computers. The buzzword for this phenomenon is unified messaging: Voice mail, faxes, cell-phone messages, and e-mail are all accessed on the computer screen, wherever you are.

The all-in-one features can make life easier for today’s increasingly mobile workforce. If a caller doesn’t reach you on your office phone, the VoIP system will try your cell phone. And there’s only one number to put on your business card. A client never needs to know where you are in the physical world.

Call me

Kaczmarowski has benefited greatly from his outsourced VoIP solution, and in a perfect world, his entire firm could do the same. But he is the only Stellcom employee using VoIP. “It’s kind of a test case,” he says. “They’ll look at it and see where they go from there.” He’s been pushing for the entire company to join in, because it would save a lot on cross-country phone bills. But like many organizations, Stellcom just invested in a brand-new PBX. So it may be a while before its executives are ready to make their telecommunications investment all over again.

“You always have to ask, ‘How do I leverage my current technology?'” says Hines. “If I’ve got too much invested, I can’t move forward.”

He notes that smaller businesses may often be luckier on this front than their larger counterparts. “[Small businesses] very often don’t have anything invested, or very little,” he says. “They either don’t have an extensive PBX in place, or maybe they have one that’s been off the books for years and really only gives them a dial tone.” In his opinion, companies who are sitting on an old, paid-for PBX are perfect candidates for a VoIP solution.

Of course, companies that are just starting out are even better candidates for the technology. Such companies would get the advantages right from the beginning, and don’t have to spend money replacing something else.

Quickly growing firms that have been on the market for a while may also benefit. Kaczmarowski says he used to own a company that grew so quickly it had three offices within a year’s time. “We went from one side of town to another, and all of a sudden you’ve got different phone numbers and you’re constantly reprinting cards,” he says. “For organizations that are growing or moving a lot, [VoIP lets you] just pick up your phones and take them with you, then plug them back in again.”

Still, if your employees spend a lot of time on the phone with clients or investors, you may want to wait a while to implement VoIP. For most systems, the voice quality is better than that of a cell phone, but not as good as a traditional land-line phone. Plus, call center applications for VoIP are as expensive as their PBX counterparts, if not more so.

Companies that require crystal-clear connections and customer-relations applications can still implement voice-over IP, but their initial investment will be higher than most. As your quality and flexibility needs go up, so does the price tag.

“As for me, I have no issues with the quality, though I can tell the difference,” says Hines. “But if you’re a call center agent, that’s not acceptable. It all depends on who you are.”

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