In the consumer market, it’s still a curiosity: Internet-based phone service, cheap and kind of cool, but a little unreliable – the sort of thing your techiest friends have signed up for, while the rest of us stick with our sturdy old copper lines.
But in the business world, VoIP is hitting its stride.
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No, CIOs haven’t gone mad, plugging whole corporate phone systems into the Internet. But increasingly, businesses are using VoIP technology to greatly expand the capabilities of their phone systems at a much lower cost than with traditional networks.
In-Stat/MDR last month reported that 12 percent of U.S. businesses used VoIP in 2004, up from 3 percent in 2003, and predicted a 20-percent market penetration by the end of 2005. Bigger companies are using VoIP even more heavily, with In-Stat estimating middle-market penetration at 34 percent, and 43 percent in the large-business segment.
And while most companies are now using VoIP just within their in-house networks, research firm IDC has projected that the U.S. market for hosted VoIP services – true IP phone service – will grow to $7.6 billion by 2008 from roughly $60 million in 2004.
“With all of the market conditions in alignment, VoIP is finally poised to overtake and replace the aging but reliable circuit switched infrastructure,” IDC reported. “While not downplaying the potential of the consumer [market], IDC believes that the business market is ripe for adoption of VoIP and the features and functionalities that it promises.”
VoIP (pronounced voyp) is short for “voice over Internet protocol,” a way of connecting calls by sending data packets across a computer network, rather than a voice signal through the public switched telephone network.
For home users, VoIP usually involves plugging a regular phone into a converter that connects to a cable modem with high-speed Internet access. If a user in Providence, say, calls a non-VoIP user in Chicago, the signal would be converted to data in his home, go through the Internet until it reaches a VoIP gateway in Chicago (or the closest site available) , then convert back to voice and get delivered through the phone system.
VoIP business applications usually involve closed networks, not the Internet. In a soup-to-nuts VoIP system, every user has a VoIP-enabled phone that plugs directly into the company’s in-house network. The network hub then connects to an external network – say, QWest’s – that would transmit the call to a VoIP gateway or into another VoIP network.
For a company with multiple offices, even across the country, VoIP can make it possible to have a single phone system – with easy transfers, conference calls, a switchboard that shows who’s on the phone, even a house intercom – for all the sites combined.
Workers who travel can connect to the network from any site with high-speed Internet access. And if someone’s transferred from the Providence to the San Francisco office, she can unplug the VoIP phone, plug in at her new desk, and never miss a call.
Then there’s all the extra features that VoIP services increasingly include: instant messaging, video calls, document and application sharing, and extensive voicemail, paging and call forwarding services.
“The possibilities are endless,” said Jeff Swider, president of Vision Telecom, a Providence firm that helps businesses connect with phone and data services to suit their needs.
Swider himself has switched Vision’s internal phone system to VoIP – though external calls go through the regular phone system. To set up, say, call forwarding, users log into the system on their computers. With the help of a secure network, they can also tap into the system from any site with a high-speed Internet connection. Swider sometimes plugs his phone in from home, for example, using his cable modem, and gets all the services he’d get at the office.
This is the VoIP application that has gained the most ground so far in business, and it’s growing fast. A November report Dell’Oro Group showed more than 2.1 million VoIP lines were shipped in the third quarter of 2004, up 14 percent from the previous quarter and 39 percent from the third quarter of 2003. Swider said about half of Vision’s clients already have VoIP phone systems.
But much of the best VoIP has to offer isn’t in-house, but beyond a company’s walls. And that segment of the market has taken longer to come together. Lisa Pierce, an analyst at Forrester Research, said many carriers are just now “fleshing out” their IP phone service offerings, and everything’s still in such flux that many businesses – especially those for whom this would be a major financial commitment – are going to want to act cautiously.
In Rhode Island, some carriers, such as QWest , are already offering IP Centrex and hosted PBX phone service, the higher-level services a mid-size to large company would need, but major players Verizon and Cox Communications aren’t there yet.
For small companies, consumer market leader Vonage offers an Internet-based service, but experts agree that for anything but the most casual business application, the Internet is far too insecure and unreliable to put your phones at its mercy.
Swider is now testing yet another option, NuCall, from a Massachusetts company that’s geared to the business market. Swider connects to the service with a handset that plugs into his laptop’s USB port, and calls are routed through the Internet to NuCall’s servers, which in turn put them on the private Level 3 network. The phone travels with him anywhere he goes, and he doesn’t even need to plug in: any WiFi-enabled site will do just as well.
Swider isn’t ready to sell NuCall to everyone, but he said it does seem like a good product for small and mid-size businesses. The connection is pretty clear, and NuCall offers a wide range of features, including the ability to do video calls. Prices range from $30 to $50 per month per user, he said, with unlimited local service and “aggressive” long-distance rates.
Hosted PBX and IP Centrex service also costs about $30 to $50 per user, Swider and his partner Doug Stephenson said, but there’s the added cost of $400 to $700 for a T1 line to connect to the external network. Phone service is so inexpensive now, Stephenson said, that for most businesses with a good plan and good services, switching is not yet worthwhile. A recent PriceWaterhouseCoopers analysis, however, predicts a drop in prices this year.
One good thing about VoIP, Swider and Stephenson noted, is that you can get many benefits without going all-out. Just as they’ve switched in-house, for example, a company with a strong in-house phone system that wants to plug into VoIP external service can get an adapter to do that. Ditto if your in-house computer network isn’t powerful enough to take on VoIP.
Whatever businesses do, however, expect to see more and more VoIP phones. Companies know they’re going to be adopting this new standard, Forrester’s Pierce said. “The only question is how and when.”
