[November 19, 2004]

The Real Cost Behind a VoIP Switchover

BY JOHANNE TORRES

If you’re exploring your options for switching your office from fixed line to VoIP-based telephony (VoIP - define - news - alert), trying to get straight information on dollar amounts in simple “black and white” can be confusing.

You’re likely to find a wide range of VoIP-enabled telecom solutions on the market, as well as a long list of providers in the space. Assuming that you’re hoping for the lowest cost of implementation and services, a good way to start your research will be to look at what services are bundled in with the various packages, along with the overall savings that the solutions would bring to your telecom expenses. Consider what size companies the various vendors serve. Providers might cater their products and hosted services to small, medium or big corporate clients, with solutions designed depending on how many stations and users are needed at the site. Keep in mind the cost involved in implementation, operation (including maintenance and post-implementation upgrades), and monthly fees if the service is a fully-hosted operation.

Wanting to get some number info in plain “black and white” about the real cost behind the implementation of a VoIP-enabled telecom system, I stumbled upon a VoIP cost analysis called “Convergence: Reality at Last” conducted by Nemertes Research. The New York state-based research firm works closely with over 3500 Information technology professionals who provide Nemertes with their technology purchasing insights. The analysts go into detail when comparing VoIP-enabled telecom products and services offered by top-notch vendors in our industry such as Avaya, Cisco and ShoreTel.

The experts found a striking difference in cost by user depending on the vendor and the size of the implementation among the services surveyed. The study revealed that such prices can range from $515 all the way up to a sky-rocketing $1512 per user station. The research firm concluded that ShoreTel and Nortel posted the lowest per-unit startup costs while and Avaya and Cisco posted the highest.

"We find significant disparity between vendors when it comes to the true operational and capital costs to implement their products," says Robin Gareiss, principal research officer for Nemertes Research and author of the 128-page benchmark. "It's vital for CIOs to understand those cost components and how they affect long-term convergence strategy."

The survey revealed that companies with 1,000 or more VoIP users spend an average of $525 per user station on initial costs; and those with fewer than 100 users spend an average of $763 per user. The calculation figures include IP PBXs or switches, handsets, equipment upgrades specific to the VoIP rollout, as well as the baseline network assessment, planning and installation, and troubleshooting the implementation to working order. Experts concluded that companies spend an average of $17,220 on their baseline network assessment, which evaluates the "readiness" of the IP network to handle voice and video traffic.

The survey also asked the participants about their implementation choices when considering which types of bundled services to receive when switching to an IP-based telecom model. The study revealed that roughly 80 percent of companies want carriers to bolster their convergence portfolios with managed services. Companies are mostly interested in hosted applications, wireless integration, among other services, among other offerings. "IT executives are getting impatient with the carriers," Gareiss says. "They haven't effectively marketed convergence services, so decision-makers usually don't even have carriers on their short lists."

According to the study, several applications are driving corporate decisions to converge their networks, including videoconferencing, unified communications, collaborative tools, and call-center/CTI offerings.

Confirming that large companies wanting to reduce telecom expenses by switching to an IP-based solution, the study indeed reveals real savings in local-loop costs by $9,600 to $28,000 per site annually; and midsize companies also reduce costs by $4,800 to $9,600 annually.

The study also found out the following:

• ShoreTel earned top rankings in all categories against Avaya and Cisco,
  and in all but "solution experience" against Nortel, where the two
  tied.
• Technology, customer service, and management tools are the most
  important buying criteria.
• ShoreTel has the highest sales closing rate, at 87 percent, compared to Avaya
  at 50 percent, Nortel at 43 percent, and Cisco at 40 percent. Nortel's rate climbed from 19 percent last year, while Cisco's dropped from 58 percent.

Nemertes ’ five-month study combined detailed input from 65 IT executives from organizations across a range of industries, and includes recommendations for enterprises and vendors.