Voice over IP (VoIP) technology has the potential to have a significant, positive impact on the bottom line of a company's communications budget. Channeling voice traffic over the Internet, via hard-wired systems or even wireless 802.11 systems, can easily eliminate a lot of those nasty long-distance phone charges -- especially when dealing with overseas calls. Installing such systems is also a lot easier and less expensive because in most cases you are dealing with "soft" switches and routers instead of expensive hardware upgrades and overhead.
The problem, however, is that many VoIP systems are still a bit unreliable. The quality of these systems also falls far short of the quality of traditional landline systems. We have tried VoIP systems to conduct a little business from out humble offices on a number of occasions and have come to the conclusion that most of these systems are relatively poor at best. Systems and solutions offered by some of the bigger players in the market (most notably the broadband companies) have also proved to be unreliable, as we discovered last year when we switched our phone system to an all-digital and VoIP mix. What we discovered was that just like death and taxes your phone system should always be there and unavoidably persistent, which did not seem to be the case with our foray into VoIP.
We also tried to conduct business with a friend of ours in Scotland, using VoIP, and discovered that although the connections on the other side of the big pond worked well, ours was a few steps better than a tin can and a length of string. Perhaps this is the reason why a number of very large corporations (including a major multinational automobile manufacturer) have decided to postpone aggressive plans to expand VoIP projects until later this year, when the technology is expected to improve a little.
The truth is that despite all the optimistic talk about VoIP, there has been very little concrete and ROI-pumping action within IT departments in the U.S. Sure, the bean counters on the business side are psyched about the technology, but these are the same people who celebrated when they discovered that you can save money by moving from five-foot to four-foot cubicles and not really impact productivity that much. While there is a whole lot of kinetic energy surrounding VoIP, this young industry is still waiting for some significant action before experiencing a sizeable end-user reaction.
The laws of VoIP physics may finally be coming into alignment this year as several major manufacturers make major commitments to development and back up those promises with actual products. At the Consumer Electronics Show (CES), which just wrapped up in the Mecca of Broken Dreams (a.k.a. Las Vegas), industry heavyweights such as like Motorola, Inc., Texas Instruments and others announced plans to develop or incorporate analog telephone adapter (ATA) technology and other data conversion systems into their products.
As everyone knows, ATA systems are used to convert traditional phone calls into the packets of data that are then shot over the Internet. Motorola plans to install ATA technology in its wireless phones sometime within the next six-to-nine months. Down the road, we may also see ATA devices directly installed in cable and DSL modems to allow at-home telecommuters, small businesses and departmental computing groups to take advantage of the potential cost-savings of VoIP systems. Small companies, like Zoom International, have also announced plans to incorporate ATA technology into their broadband modems.
In fact, we forecast a lot more activity and development coming from the smaller companies like Zoom than perhaps some of the larger players like Cisco Systems -- even thought Cisco has been involved in VOIP for some time and has a significant investment in that arena.
One company that has recently attracted a lot of press and industry buzz is Vonage, a VoIP phone company based in Edison, NJ that presently boasts about 90,000 subscribers and just announced an unlimited local and long-distance plan for $34.95 per month. The company's services are available through partners like Amazon.com and Earthlink, and executives there claim they now handle more than 4 million calls per week -- certainly enough of a flow to make the traditional phone service providers stand up and take notice.
Verizon, Cingular and other wireless service providers are also taking a serious look at VOIP, especially as the lines separating wired and wireless phone services begin to blur and customers come to expect that their calls will leap from one system to another as they wend their way to their intended destination. Wi-Fi (802.11) networking companies, such as Vernier Networks, are also taking a hard look at VoIP and investigating ways to integrate the technology into their group networking and location-based services framework.
As we pointed out earlier, though, VoIP has a long way to go before it graduates from being a high-potential technology to a reliable and cost-effective tool for businesses. The challenges that lie ahead include:
- The need for a lot more research and development, especially by the chip and embedded systems makers. Chipmaker Texas Instruments, for example, has been peddling the reference design for ATA since early 2002 with only modest success and interest from the developer community;
- Adding ATA technology into wireless devices and broadband modems will increase the cost of those devices, which is not the best of tactics in a slowly recovering economy where businesses are looking to reduce expenditures;
- State regulators are using hard to apply fees, access charges and taxes to VoIP services, with only limited success thus far. However, it is inevitable the legislation will pass allowing extra charges, which could drive up the cost of these low-cost services by 30% or more;
- The current state of VoIP technology is poor-to-good, which is basically unacceptable for most business communications (unless they involve international calling, where the cost-savings can be considerable). Also, unlike traditional phone service, VOIP systems tend to disappear when the power fails.
The biggest iceberg looming in the distance, though, may be the threat of government regulations and involvement in VoIP -- which will ultimately arrive, but may be too much of a roadblock at this nexus in development. Right now, a lot of backers are pushing for a hands-off approach to allow the industry to mature. To some extent, the FCC favors this approach since regulators there recognize that too much early intervention and control can stifle development and growth.
Unfortunately, the carrot of added taxes and revenues from fees may be to enticing for federal and state agencies that are being pushed to find new avenues of income. There are some very strong arguments in favor of regulation and control in the name of Homeland Security. Federal agencies, such as the FBI, are concerned that laws covering such things as traditional phone wire-taps and monitoring simply do not apply to VoIP systems. On the flip side, end users should be concerned that VoIP providers have stated they will happily comply with any demands to pen their systems to scrutiny and observation. Sure, this will happen anyway, but do the keepers of the VoIP keys have to be so willing to swing open the barn door at this point?
One thing is certain: This will be a very critical and interesting year in terms of VoIP development and future growth. Naturally, we'd be interested in hearing your opinions on this, so give us a call, drop us an e-mail, or pick up that tin can and string.
Tim Scannell is the president and chief analyst with Shoreline Research, a Quincy, Mass.-based consulting company specializing in mobile and wireless technology and initiatives. Shoreline works with end users, looking to implement mobile solutions, and vendors, developing new products and seeking business and customer opportunities. The company also specializes in training and strategic planning projects. For more information on Shoreline Research and the company's strategic services please go to http://www.shorelineresearch.com.