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Voice-over-IP systems face quality, regulation issues

Everyone knows that talk is cheap, especially companies that have made investments in voice-over IP technologies.

Everyone knows that talk is cheap, especially companies that have made investments in voice-over IP technologies, which allow inexpensive voice calls to be made over the Internet worldwide. Not surprisingly, some major companies have poured a great deal of money into establishing VoIP pilot programs and then linking these systems into existing wired telephone networks. Major vendors, like Cisco Systems, have also invested a significant amount of research and development dollars into VoIP, in the hope that it will continue to spread like wild fire throughout cost-conscious enterprise networks.

At the moment, there are close to 2.5 million IP telephony subscribers in the U.S., with VoIP traffic accounting for roughly 10 percent of all calls. Some analyst groups predict there will be more than 7 million VOIP subscribes by 2007. Right now, a significant number of people in the U.S. use VoIP on a regular basis through such paid services as Net2Phone and 'freebie' services such as Free World Dial-Up and SIPphone. In fact, companies like Microsoft Corp. make it very easy to sign up VoIP services and place calls through your computer by offering capabilities that are integrated with its instant messaging software. Simply click here and you are suddenly vocal as well as textual. It's that simple.

VoIP has also attracted the attention of the traditional telephone companies, who use VoIP services to slice a few dollars off operating costs by avoiding the usual private network routes and their respective tolls. In fact, some analysts maintain that in a few years almost every phone call will make some use of VoIP technologies and channels. This is part of the reason why some very well known Fortune 500 companies are actively looking into VoIP, or have launched pilot programs. Unfortunately, we have a way to go before the term 'VoIP' is as familiar and comfortable as the term 'touchtone' phone.

Making a point between A and B
Like everything in life, less cost does not necessarily equate into more value. This is why some people prefer a Mercedes automobile to a Kia. Sure, the Kia is priced lower and will comfortably and safely get you from Point A to Point B, but there is certainly more benefits to taking the trip in a luxury automobile. At the moment, VoIP is a technology very much in its infancy. The sound quality is far less than that offered by traditional telephone networks, and in many cases rivals that of two tin cans and a string. Also, there are some issues of reliability, which is acceptable when you are dealing with straight Internet access, but a problem when you are talking to a prospective client on the other side of the world.

We know of at least one large multinational company that has already spent a considerable amount of money on VoIP technology, and has even experienced a considerable ROI savings on international calls made through its VoIP network. However, this company has suddenly decided to pull back on its aggressive VoIP plans, primarily because the technology just doesn't deliver what it promises.

The fact is that most VoIP initiatives are being pushed by people who sit in those leather-bound executive chairs, and not by IT. A significant number of these projects also involve Cisco equipment, mainly because that is the dominant equipment brand there and it is already on the approved buying list. Besides, for many executives, Cisco is the 'safe' buy -- just like IBM in the 1980s.

However, some people involved in IT have a hard time seeing the cost-savings benefit of VoIP, especially when you consider the level of quality and the total cost of ownership of systems that target domestic calling. Says one IT executive, "Sure, you did have some cost chipping and cost avoidance, since you saved some money by not buying additional equipment, but essentially you have to install more servers, and your LANs and WANs have to be beefed up to support the VOIP infrastructure."

Dialing for regulatory dollars
If the quality issue isn't enough to make you think hard before committing too many resources to VoIP, you may want to consider that the price of talking over these networks may soon rise substantially. A number of states, especially California, are looking at ways to force VoIP providers to register as telecommunications carriers. If successful, then the services provided by VoIP companies would be subject to regulations governing operation and pricing. They would also be subject to taxes, which means additional fees passed onto the business and consumer user.

The Federal Government has countered that VoIP offerings are not telecommunications services, but are in fact, Internet-based services. So, they are not subject to the same restrictions and regulations as telecommunications service providers. However, as more states get behind the VoIP regulation movement, it is inevitable that the Feds will eventually fall in line.

So, with all of these criticisms should a company be looking into VoIP as a way to maintain telephone costs? For now, sure! VoIP is still pretty much a wild and wooly environment, and it does save some money if you are willing to accept less-than-crystal quality. But, the window of opportunity may quickly close as regulators get into the act, and more companies opt for quality over penny-pinching. For the moment, it's your call!

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

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