Internet Telephony: A Sound Move?

Corporations are moving their phone systems toward Internet standards to cut costs and boost efficiency. But most companies, unless they're replacing archaic voice systems, are adopting the technology in stages rather than upgrading all at once.

Internet Protocol telephony systems break up audio, convert it into digital packets and then send those packets over a data network. By merging voice and data onto one network, or so the sales pitch goes, companies will cut costs because theyll have just one infrastructure to maintain and manage, and the networks capacity will be used more efficiently.

Thats because packets make better use of bandwidth than circuits. In conventional circuit-switched calling, the full bandwidth of a connection is dedicated to a given phone conversation even if no sound is being transmitted. By comparison, IP telephony slices every phone conversation into tiny snippets, or packets. Multiple calls, in the form of those snippets, can then be carried simultaneously over the same pipe.

But the economic justifications for IP telephony are not always so tidy. The costs to implement an entirely new IP-based voice infrastructure often produce a time-to-payback thats unrealistically long, says George Hamilton, a senior analyst at The Yankee Group. "Companies that move to IP telephony based solely on cost savings are almost never happy with the results," he says.

Its still early in the adoption curve for this technology, though the scene is shifting. In 2003, IP-enabled voice systems represented 31 percent of the total enterprise-telephony market by line shipments, up from 16 percent the year before, according to consulting group InfoTech.

The most common path to IP telephony today is either to install a private branch exchange (PBX) system that can service both traditional circuit-switched phones and IP models, or upgrade an existing PBX to handle IP. Major suppliers of traditional phone systems, including Avaya, Nortel Networks and Siemens, have added IP-telephony capabilities to their existing products, enabling customers to phase in Internet Protocol-based equipment where it makes sense. The shift is already under way: Gartner Dataquest estimates that sales of IP-capable corporate phone systems totaled $2 billion in 2003, compared with $1.6 billion for traditional circuit-switched PBXs. By 2007, says Gartner, 97 percent of all phone systems shipped will be IP-capable.

The alternative, of course, is to start from scratch with an IP-only phone system from vendors such as Cisco or 3Com. Less typically, a company may procure Internet-based phone service from a telecommunications provider such as Vonage, although analysts expect such services to grow in the coming years.