Understanding How to Use and Adopt IP Telephony

Call Waiting
When consumers switch from traditional phone service to VoIP, the risk is negligible and the benefits are readily apparent.

All you need is a broadband Internet connection, a small router, and $30 a month for unlimited local and long-distance calling. Which is why Baby Bells are losing subscribers to traditional services at an alarming rate—4 percent a year, according to the Precursor Group Inc., a Washington, D.C.-based market-research firm—and why cable companies are fast jumping into the VoIP market.

The Yankee Group, a consulting firm based in Boston, predicts that consumer VoIP subscribers will balloon from just 130,000 in 2003 to 17.4 million in 2008.

But the issues facing the enterprise market are far more complex.

Ironically, the one benefit of VoIP that most companies are attracted to in the retail market—cost savings—turns out to be something of a red herring. The key selling point of the technology to date has been the potential to circumvent the local exchange carriers, or Baby Bells, and route long-distance calls over the Internet for free (or relatively cheaply).

Who wouldnt want to stick it to the Baby Bells after all these years? But the telecom world is changing rapidly as the Baby Bells themselves switch their backbones over to IP—so rapidly, in fact, that the price of a long-distance call over whats known as the Public Switched Telephone Network has fallen dramatically, from 15 cents a minute in 1997 to 9 cents in 2002 (the most recent data available).

Even the VoIP equipment makers are toning down the cost-savings rhetoric.

"People started looking at this technology strictly to cut costs by avoiding the LECs," says Jorge Blanco, vice president of marketing strategy at Avaya Inc., a Basking Ridge, N.J.-based IP equipment maker.

"But those rates have dropped, so trying to justify IP telephony based solely on that is a fruitless effort."

In many cases, the drop in prices is enough to discourage, or at the very least delay, CIOs from making the considerable investment in IP telephony, particularly since theyre already using one of the worlds most reliable communications technologies.

"The zeal to get into VoIP comes back to earth pretty fast when you realize the PBX you just spent $5 million on will work perfectly well for the next five years," says Jon Arnold, VoIP program leader at Frost & Sullivan, a New York-based market consulting firm. "The things just work too damn well."

Still, the resiliency of the traditional PBX is the only thing slowing the transition to IP-based voice communications, and the telecom industrys final, if temporary, saving grace.

As PBX equipment ages, companies are increasingly replacing the systems with IP equipment, sucking the life out of traditional local and long distance, which has long been the bread and butter of the Baby Bells.

Though slow to the game, the Baby Bells are beginning to wake up to their uncertain future, and have begun offering IP voice service of their own, both to consumers and companies. Qwest, Verizon Communications Inc., and even AT&T Corp., have all started offering IP telephony in the past year.

The other major unknown in the race to switch to VoIP is the Federal Communications Commission.

Faced with the prospect of severely crippling the $300 billion telecommunications industry by allowing Internet telephony to go unchecked, the FCC has begun exploring various options regarding VoIP regulation.

Experts agree there will almost certainly be some type of taxation or fee structure applied to IP phone calls, but how much it will cost remains to be seen.

To this point, FCC Chairman Michael Powell has been insisting that typical access charges that bedevil the ordinary circuit-switched network will not apply to IP telephony.

But social policy will likely have to be set—such as setting up a 911 call system, for example, or allowing the FBI to wiretap IP lines—and that will cost the consumer in the form of taxes and surcharges.

"In general, the commissioner believes that the service should be unregulated," says Michelle Carey, acting deputy chief of the FCCs Wireline Competition Bureau.

"But we are in an election year, so you cant always take everything the commissioner says to heart, because he may not be around in a few months."

According to Nancy Victory, former assistant secretary at the National Telecommunications and Information Administration, a division of the U.S. Department of Commerce that advises the President on telecom issues, the likelihood of the FCC levying fees on IP calls makes it impossible for companies to predict accurately the cost-savings of a VoIP rollout.

"There is a tremendous amount of uncertainty," says Victory, who is now a partner at Wiley Rein & Fielding LLP, a Washington, D.C.-based law firm.

"Odds are VoIP is not going to be as cheap as it is today. But how much so? We dont know."

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