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David Potter[April 14, 2004]

A VoIP Epiphany


A few years ago, no one would have predicted the drastic downturn of the telecom industry following the climatic rise in growth, spending, R&D and employment we experienced around the turn of the century. But then again, no one could have predicted the overall recession either, much less the events of September 11.

As we sort through the impact of these events on all businesses, look at the overall economy and consider the financial, business and political venues, many question exactly what happened? But now that events have happened, the next logical question is, �Where do we go from here?�

Industry experts predict the next major paradigm shift will involve Internet Protocol (IP) telephony. However, this transition will and should occur over many years in order to take full effect and render optimal impact for all.   

Unlike during the 1990s, technological advancements such as Voice over Internet Protocol -- otherwise known as VoIP -- must be qualified on better grounds beyond being considered �a really neat technology.� It will be legitimized by any real, measurable savings that it enables. Generally, VoIP savings fall into three categories: MAC savings, lower bandwidth costs (or better utilization) for WAN links and reduced personnel. Many TDM PBX professionals dispel the ability to reduce personnel as merely wishful thinking. In actuality, they are probably correct, but only for the near term. The initial installation and configuration of a corporation�s first VoIP system can be challenging. However, once it is set up, the number of dedicated personnel required to run it will be less than with a traditional PBX system. Existing IT personnel will assume primary responsibility for running the VoIP system.

Let�s evaluate the potential benefits of each of the three main savings areas. When traditional PBX MAC work is contracted out, the cost runs $55 to $295 per occurrence with an average cost of $119. When handled in-house, the cost is expected to average $64 (based on the same survey). The average MAC takes 1.5 hours in a TDM PBX environment and the average employee requires 0.87 MACs per year. For every 100 employees most companies spend $10,353 per year for contracted MACs and $5,568 for in-house MACs.[1]

In a VoIP scenario, each MAC averages about 15 minutes and is done by the IT staff (typically help desk personnel) for an approximate cost of $10.25. For every 100 employees, a firm should expect annual savings of $9,461 versus contracted TDM PBX MACs and $4,676 as compared to in-house TDM PBX MACs. Other benefits include the ability to perform MAC work from any PC on the LAN/WAN and the fact that users can simply pick up their phones, move them and log on anywhere on the network without any IT involvement whatsoever.[2]

Trunk lines are not new in the PBX world, so why should we attribute lowered bandwidth costs on the WAN using VoIP? Basically, VoIP proponents say that if you have a WAN link dedicated for voice and a WAN link dedicated for data, you can eliminate the voice link or at least reduce the size of your aggregate WAN links. This would be possible, of course, only if you had bandwidth available on the data WAN link that can handle the new voice traffic. Packet technology is more efficient than TDM and can squeeze in voice packets among the data packets (with proper QoS). IP (or should this be VoIP?) does not waste resources waiting for the next time slot when the current one is empty; it uses all of the bandwidth. Voice doesn�t use as much bandwidth as data applications, so it makes sense to blend voice with data to maximize the network.

In the short term, don�t expect noticeable personnel cost reductions. In fact, during the period when companies are transitioning from TDM to VoIP, we have seen slight increases in personnel complements in the telecom and IT areas that are dedicated to IP PBX implementation.

There are several reasons for these increases. One is that VoIP is new and many enterprises are bringing in additional people (full-time or contract) into their IT areas who understand the technology. During the VoIP system setup, the TDM PBX must be kept running, requiring all of the telecom staff to continue in their traditional roles.

VoIP technology is so new to most companies that implementing their first system typically takes substantially longer than installing or upgrading another traditional PBX -- a trend that will change as they move along the learning curve. Once these initial issues have been successfully conquered, the personnel savings will start to emerge. 

VoIP is here to stay. Already in the first quarter of 2004, it appears that new VoIP port shipments from the major manufacturers will exceed TDM port shipments. 

VoIP is justified from an ROI perspective. The numbers and reasons appear to be a little soft in the short term but if you project out 12 months from installation, the savings become more obvious. 

If your company needs to upgrade its PBX system and it makes economic sense in the long term, then you should consider implementing VoIP, but not if your current PBX is handling all of your telecom needs.

In any given organization, four basic measures must take place for a smooth transition from an old system to a new IP network:

  1. Solidify existing capital structure -- solid financial planning is essential to secure the future success and maintenance of any new system;
  2. Update the �highway� from copper to fiber;
  3. Ensure necessary revenue exists to support the new network; and
  4. Educate and engage all human capital to be involved in the process.

VoIP has immediate applications where the database already exists, as in a school or large bank system. Even so, this transition can take months to get all end users up to speed -- from the CEO down through the organization.

In most cases, VoIP should be implemented as it becomes practical. Some systems currently can incorporate IP telephony, but most will have to be developed over time. Digital software-based networks need to replace today�s mechanical systems and careful planning is necessary, especially for multi-site organizations. Multiple factors should be evaluated, such as the status of the current system, where all equipment and hardware reside, the management process at each site and specific billing needs.

When evaluating whether or not to transition to VoIP, managers need to assess what makes sense economically and for the company he or she represents. It�s never smart to buy technology for technology�s sake or before technology�s time. However, it is smart to become educated, thus recognizing when the time is right to integrate new technology into specific environments.

This inevitable transition cannot happen overnight and should take a cautious seven to 10 years in order to be successful. A decision maker should first consider all variables and fairly assess potential savings before beginning a shift to VoIP.   

Look for applications people in your office can use efficiently and support with expertise. Keep in mind the inevitable roadblocks -- existing capital assets, condition of current physical plant, network costs to support margins and the abilities of your people.

All cautions aside, it should be said that VoIP will most likely bring new sources of revenue. They will include systems integration, project management capabilities and professional services such as network assessment, consulting for next-generation telephony technology and supplementary value-added services.

VoIP is getting better by the day. Improvements to its efficiency are apparent and equipment is quickly advancing. As soon as the investment has been qualified and your people have been educated, it�s time to make the switch and evolve toward VoIP. But keep in mind as you evaluate your companies� needs and press forward: Pioneers get the arrow, settlers get the land!

[1],[2]  Statistics contained in this paragraph from: Nemertes Research Survey, 2003

David Potter is founder and Chief Executive Officer of SOURCE, Inc. SOURCE is a telecom solutions provider, offering new system sales, repair and exchange, technical assistance, disaster recovery, asset management, system reconfiguration and equipment valuation. SOURCE products are supported by a unique inventory system that combines information tracking with serialized bar-coding to form a fully digital information logistics database. SOURCE, an Avaya Platinum BusinessPartner and Authorized Remanufactured Supplier, holds GSA Federal Supply Schedule #GS-35F-0499-L for refurbished telecommunications equipment. For additional information regarding SOURCE visit

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