When the idea of running voice traffic over data networks using Internet Protocol (IP) first gained attention in the mid-1990s, the usual argument for it was cost savings. Phone calls routed over the public Internet would be essentially free — whether they linked people across a street or across

an ocean. Inside organizations, using one unified network instead of one each for voice and data would halve communications costs.

It didn’t turn out that way. Falling long-distance costs have meant voice over IP is of little interest to consumers — although some carriers use the technology under the covers, especially for international calling. Within the enterprise, VoIP is finding a foothold, but not because combining voice and data into a single network necessarily saves much money.

While some argue there are long-term savings in moving to a single voice and data network, the biggest reason for integrating voice communications into the corporate LAN seems to be the new applications it makes possible.

IP systems easier to use

The real benefits of IP telephony include better support for teleworkers, more effective phone systems for organizations with multiple locations and unified communications capabilities such as the ability to collect voice mail and e-mail remotely over a single connection, says Nick Tidd, managing director of Mississauga, Ont.-based 3Com Canada Inc.

Ray Brown, vice-president of enterprise solutions at Mitel Networks Corp. in Ottawa, says using an IP system makes it easier to let employees in one branch office call workers at other offices using three- or four-digit extension numbers instead of seven-digit numbers.

He adds there is also some potential for cost savings here, because calls between locations can be routed over the organization’s wide-area data connections rather than over the public switched telephone network.

But with long-distance within Canada at 10 cents per minute or less, this “”toll bypass”” is not what sells voice over IP, Tidd says.

IP systems also allow people working from home to be integrated into office telephone systems as if they were in the office, says Jim Puchbauer, director of marketing for AltiGen Communications Inc., a Fremont, Calif.-based manufacturer of IP private branch exchanges (PBXs). The home worker’s phone can look just like any other extension — a receptionist at the office can even tell when the teleworker is on the line, he says.

AltiGen also offers a feature called Zoomerang for mobile workers. People on the move can dial in to the IP-based phone system to check voice mail, and return any message by pressing 5 on a telephone keypad while listening to incoming messages. When the call is complete, the system will return the user to his or her phone mailbox.

IP systems also integrate branch offices more seamlessly into corporate phone systems by tying them together over the company’s wide-area data network, says John Williams, director of distribution sales for Avaya Canada Inc. in Toronto. And some companies are looking to it as a way of setting up distributed call centres.

Mitel has developed technology to let personal digital assistant (PDA) users plug into the network wherever they are and have their calls automatically routed to them, Brown says. The company also offers Voice First, a feature that can turn any voice conversation over the corporate LAN into a videoconference, without disconnecting, provided both ends have video capability.

IP-based phone systems seem to appeal most to mid-sized businesses. Tidd says the bulk of 3Com’s VoIP sales are to customers with between 400 and 700 telephone sets. This is a small market segment, since some 98 per cent of all Canadian companies have fewer than 400 phone sets, but Tidd says 3Com has made some inroads into smaller installations and has also gained a foothold with the largest businesses through islands of IP in departments or branch offices.

Puchbauer says AltiGen has focused on small and medium-sized businesses, while Williams says Avaya has a range of IP products for businesses of all sizes. Like 3Com, Avaya’s sales to the largest businesses tend to involve islands of IP telephony that co-exist with circuit-switched phone systems.

Mitel, with a focus on larger businesses, emphasizes the ability of its IP products to co-exist with existing technology. Ripping out existing infrastructure is expensive, Brown says.

“”We approach a client with the philosophy that that’s pretty much the last thing we want them to do.”” Instead, the company creates products that “”basically live in both worlds,”” handling circuit-switched and IP voice traffic and transferring between the two technologies as needed. Mitel offers add-ons and companion products for its SX-2000 phone switch to support IP voice traffic.

That recognizes a reality that has become increasingly clear: Few if any organizations are going to tear out traditional PBXs that still do the job in order to move to VoIP. So the makers of IP PBXs and associated equipment sell primarily into new locations and organizations whose old phone systems have reached the end of their useful lives — and phone systems don’t wear out all that quickly.

For those who need a new phone system, IP systems are getting close to cost-competitive with traditional PBXs. And there is a cost advantage for small, growing businesses: VoIP systems generally scale more easily than the traditional technology. Where conventional PBXs accommodate new lines easily and cheaply up to a certain capacity limit and then require a costly upgrade to go beyond that point, IP PBXs can be expanded with fewer major cost spikes, Tidd says.

Peter Hickey, assistant director of communications services at the University of Ottawa, says the university paid about the same amount for a VoIP system as it would have for traditional technology, though he adds that this might vary with the size of the installation. On the other hand, he says, the existing data network had to be upgraded. “”It could be argued that this would have to have been done anyway, but the VoIP really accelerated it,”” he says. “”Is the cost of the network upgrade then part of the phone cost?””

The university, which installed VoIP at the School of Information Technology and Engineering, seems to have done well to get an IP system at comparable cost to a standard PBX. Views on the cost comparison vary, but Tidd says IP PBXs can cost from 15 to 40 per cent more than traditional PBXs.

Williams says IP handsets still cost five to 20 per cent more than the traditional technology. However, he and others argue that while IP phone systems cost a bit more up front on average, they make up for it in over-all cost of ownership.

Lumber firm cuts costs

One reason for this is the simplicity of moves, adds and changes, which can be handled entirely in software. The graphical user interfaces of new IP systems are easier to use, Williams says — but he adds that this edge may not last because traditional PBXs are moving to graphical user interfaces.

The Stag Timber division of Teal-Jones Group in Surrey, B.C., had unusual requirements that made an IP system cost-competitive with traditional technology. Karl Rulofs, Stag’s network administrator, says the company has two sawmills and a main office spread over about a kilometer, and a conventional PBX would have required two control boxes, substantially increasing the cost. This led Stag to a 3Com VoIP system, which cost about the same amount as standard PBX, Rulofs says.

The system has brought cost savings through easier configuration and through its ability to support remote phones. Rulofs recently replaced a costly satellite telephone at a remote logging camp with an IP phone linked to head office over an existing satellite Internet connection. The camp’s phone bill went from $2,700 per month to $190. Any call that is a local call from Stag’s Surrey headquarters now costs nothing from the remote location. For users, it means they can use the telephone without worrying about exorbitant costs. It’s the applications, not the money.

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