Voice over IP is becoming the preferred choice for larger companies thatwant to consolidate complicated networks, but will it offer a return on investment?
Since leased lines were introduced in the 1960s, voice and data networks have been run separately. Now, voice and data networks are being combined. By the end of the decade it is likely that most companies will run voice and data under one network.
What is making this possible is Internet Protocol, which governs the transmission of data over the internet and most local area networks. Voice over IP is a technology that allows the transmission of telephone calls over IP networks. It digitises the analogue voice signal and converts it into IP packets.
IP exchanges that could handle voice messages started to hit the market in 1998 and now all major private branch exchange suppliers sell IP PBXs. IT companies are also in the market, with Cisco claiming 6,000 customers worldwide. Many traditional time-division multiplexing (TDM) PBXs are now IP-enabled.
Nigel Jones, business development manager at supplier Alcatel, estimates that pure IP PBXs already account for 5%-6% of the market, while IP-enabled TDM PBXs account for more than 33%. Conventional PBXs are down to 60%, with sales flat to declining.
Synergy Research estimated the global market for IP telephony products to be worth $849m (£542m) in 2002, and predicted it will grow by 50% a year to reach $4.4bn in 2006.
Circumstances where VoIP is likely to be most cost-effective include where a company is building additional branches or for the scheduled replacement of existing networks. "With a greenfield site, it makes no sense to do anything else," said Maren Bennette, communications programme manager at Cisco IP.
Advantages of VoIP are that IP PBXs are cheaper than traditional PBXs; there is no need for separate Lan and telephony wiring; and you do not need a separate phone system for each location, just access to the IP wide area network.
Also, only one management system is needed. "People have been trying to merge support teams for telephony and IP for years," said Tony Lock, senior analyst at Bloor Research.
VoIP is usually suitable for organisations about to add new branches to existing ones. Conduit, which is providing the 11 88 88 directory enquiry service, is one example. It adopted an IP telephony and virtual contact centre to link its new Swansea site with existing Dublin and Cardiff contact centres.
"Generally, VoIP is good for companies with multiple sites with lots of voice traffic between them," said Peter Hall, research director at Ovum.
Lock agrees. "Companies that have relatively good network communications, such as large blue-chip companies, could save on the cost of internal phone calls," he said. This is because internal calls bypass the public infrastructure under an IP network.
VoIP can also make sense when it is time to refresh technology. European bank Cr'dit Agricole needed to replace its data network and had a hotchpotch of voice networks over 152 sites. It replaced everything with a VoIP network and saved 46% a year on line costs.
Paul Smith is a UK-based fashion and clothing company employing 260 people. It has united its voice and data networks in an IP-based infrastructure and is already enjoying increased efficiency and cost savings.
The company had reached capacity on network switches and its PBX. Lee Bingham, business analyst at Paul Smith, said, "We could have replaced our old PBX with a new one, but we felt that with VoIP we were investing in the long term rather than bringing in a quick fix."
The company installed Cisco VoIP equipment. Voice and data traffic is now run over a Lan linking Paul Smith's two main Nottingham sites with a warehouse in London. There is a gateway for connectivity beyond the Lan, and the company uses BT's Equip software to run traffic over a Wan linking Nottingham and London.
In this set-up there is no need for a separate log-in for phone and IT departments, as there is one combined telephone and data directory. IP phones are connected to PCs with no additional cabling.
Bingham said, "The installation paid dividends through the immediate increase in the quality of voice traffic."
Surrey County Council has replaced six Wans, one main voice network and multiple departmental systems with a single IP network. The council is now expecting to save £50,000 a year through lower external phone charges.
The Belfry golf course, which needed to update its call centre's basic PBX system for the 2002 Ryder Cup, is another organisation that has adopted VoIP.
Ed Sygrove, the Belfry's director of IT, said a key benefit was "full access to management information that was not previously available".
Not suitable for all
But VoIP is not the ideal choice for all. "Situations where it is not suitable include companies with a single site where the requirements are simple, there is no need for fancy features, and the customer is not in the market for a high-end TDM PBX," said Hall.
Also, if there is no reason to change the present network, it is usually better to wait. "The case for replacing a digital voice network with an IP voice network is less compelling," said Jones.
Data networks will almost always need to be beefed up to handle voice traffic. "More than 80% of all data networks are not capable of supporting VoIP," said Martin Wicks, director at networks supplier Avaya, due to the capacity requirement.
"You need about as much bandwidth for a VoIP call as you do for a traditional TDM-based call," said Steve Kennedy, head of product futures at network provider Thus.
One of the biggest problems in constructing a business case for VoIP is the high cost of IP phones. They typically cost £190, compared to £40 to £60 for a TDM phone. "Prices have to come down a lot," said Hall. "Once they are readily available at under $100, the business case will be very compelling."
IP-based telephony is now established, and the business case is getting clearer all the time. "It is now a mainstream market, rather than an early adopter market," said Hall. "Convergence will be standard in a few years time."
VoIP at a glance
- By 2010 most companies will have converged networks, driven by IP for voice as well as data
- IP PBXs currently account for 5%-6% of the market, with hybrid systems accounting for about 33% and conventional PBXs 60%
- VoIP reduces management costs and call costs between sites. It makes most sense for greenfield sites, for companies adding branches and for scheduled replacement of networks.