Companies look for big savings

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Internet telephony for small and mid-sized businesses is a classic example of a technology that came through the back door.

In some small companies, workgroups are using the free voice facilities in software such as Microsoft’s MSN Messenger as an alternative to conventional and mobile phone calls.

“Analysts have underestimated consumers’ willingness to adopt new technology,” says Jeff Citron, chief executive of internet telephony provider Vonage. “It is not a question of if, but when. Companies also want to use wi-fi phones and make calls from laptops.”

For the small and mid-sized company, flexibility and features, as much as costs, are driving interest in internet telephony. Businesses are using services such as Skype not just to save on international calls, but for its ability to set up small audio conferences. Skype has recognised this by introducing its Skype Groups service for business.

Other companies are using internet telephony to allow remote or mobile workers to connect to voice calls, as if they were on the office phone system. Voice over the interent also wrests control of phone numbers from the incumbent, fixed-line telecoms provider. Using internet telephony, a small company can set up local numbers in New York, London and Tokyo and route them to an employee with broadband.

“One of the primary drivers for small and mid-sized companies [to adopt VoIP] is operational efficiency,” says Lauren Ventura, senior director for the commercial – or mid-market – sector at Cisco Systems. “Companies want to add features they have not previously had, as well as to connect offices and branches and connect to customers.”

But small and mid-sized companies seem rather more hesitant about a wholesale move to VoIP than either large enterprises, or consumers and the small office-home office (soho) market.

Aversion to risk and a lack of in-house technical expertise are two barriers. Large companies have IT departments that can manage internet voice roll-outs, or bring in system integrators to handle it. Consumers will typically use internet telephony alongside a mobile or landline service, so if it breaks down they have other ways to communicate.

Small and mid-sized companies, however, have to integrate VoIP with legacy equipment, in particular the office phone system. “Smaller companies do not have a lot of disposable money, so they tend to make IT spending decisions only when the wheel is about to fall off,” says Larry Velez, an analyst at Forrester Research. Many mid-sized companies upgraded their voice hardware in the run-up to the year 2000 and may not be ready for further big investment. This has led companies to investigate hybrid systems, which combine internet telephony with existing infrastructure.

“If customers don’t want to make the jump into full Voice over IP, they can set up a system that provides a simple gateway into existing hardware,” says Craig Joseph, a director at Inclarity, an IP-based telecoms provider. It says this is an effective way to prolong the life of a phone system.

Other mid-sized companies are approaching IP telephony the other way round, and are using IP extensions to the desk in combination with the public switched phone network. This was the preferred option for Zijlstra, a small furnituremaker in the Netherlands. It has installed IP extensions from Cisco, including wireless handsets in its warehouse. According to managing director Marcel Zijlstra, the main savings were in installation, as it used one network rather than separate connections for voice and data.

Telephony equipment vendors confirm that small and mid-sized companies are approaching VoIP in steps. “We are seeing much more use of IP trunking than IP end-to-end,” says Jean Christophe Giroux, global president of enterprise solutions at Alcatel. “The main value of IP in mid to large companies is at the transport level, where they operate over several sites. We are seeing more aggressive companies going for IP end-to-end, but that is typically because they want to deploy new applications.”

But mid-sized companies are also deterred from a complete switch to VoIP, not just because of hardware issues but because so far, service providers have been reluctant to target the smaller company. Incumbent telecommunications companies, in particular, are hesitant to offer VoIP, because it risks cannibalising existing fixed-line revenues. “The market for SMEs is being compressed by consumer services on the one side and by enterprise services on the other,” says Roberto Bonanzinga, senior vice president for business development at European broadband and VoIP provider Viatel. “If today you are a business in the mid-market, and want VoIP, where do you buy it from? There is a limited number of providers taking advantage of the mid-market.”

The reluctance of large telecommunications companies – and some PBX vendors – to promote VoIP might make some SMEs suspect the technology is not mature.

The exception appears to be where companies move to premises, often greenfield sites, and can make savings by combining voice and internet infrastructures, or where they have high-capacity VoIP links.

This was the experience of Strategic Data Management, a UK company that processes marketing information. When it came to moving offices in London, it could save £13,000 by switching entirely to internet telephony.

“To install lines and a phone system would have cost £15,000, whereas voice over IP cost us £2,000,” says Adil Murghal, IT systems manager. The company also stands to save 50 per cent in call costs. “We have a 2 millions of bits per second [mbps] data line, and have dedicated 1mbps for data and 1mbps for voice.”

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