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Feature Article
September 2004

Achieving Payback on your VoIP Investment

BY Michael Burrell

The economic case for VoIP has become so strong that most large companies cannot afford the luxury of postponing the decision whether to migrate to this technology. In fact, many are already well on their way with tactical implementations. According to In-Stat/MDR, the percentage of U.S. companies using VoIP will rise from two percent in 2003, to 19 percent in 2007. Meanwhile, Yankee Group reports that sales of IP-based telephony systems are currently running level with those of traditional systems, and will overtake them by 2006. Some analysts are also pointing to 2006 as the year when IP phones take over original digital phones.

Clearly, VoIP is gaining widespread acceptance. While this will be a long-term migration, it will ultimately be driven by potential positive ROI. The speed of payback could be even quicker in Greenfield sites — anywhere from six to nine months. The greatest challenge for companies considering VoIP is to steer their way through the hype and determine if choosing this route is the appropriate next step in their network evolution.

Now for the reality check: embarking on an initiative that will result in a dramatic shift from traditional tried-and-true technology will undoubtedly make the corporate powers that be shudder with fear, especially if their perception of VoIP is based only on Internet telephony experience. Crafting a plan featuring specific benchmarks, best practices and real-world data, however, will go a long way toward receiving buy-in at the C-level. Just as important, it will ensure a smooth migration to VoIP without sacrificing the current quality of service.

Before embarking on any shift in technology strategy, network managers must do their homework. In this case, the assignment is determining whether VoIP is in their organization’s best interest to pursue. Questions that require answers include:

  • What will your organization’s costs from a given country be?
  • How much traffic will a particular site or group of sites generate?
  • Does that traffic stay in the country of origin? If not, how much of it is international?
  • How much traffic is to other corporate locations, as opposed to going outside your company?
  • What does it cost to maintain a separate voice network? Are there any economies of scale from consolidating not only your voice and data network, but also other support functions, such as help desk, network design, operations, administration, capacity planning, etc.?

Answering the above questions will allow network managers to establish a baseline of costs for a group of sites. Once this is complete, it is time to examine other less easily quantifiable cost contributors. For example, if your company does business in Argentina, China, or India, what level of call detail is available from the local operator? Is it sufficient to know whether you’ve experienced toll fraud? What about employee phone abuse? Do you need to bill back locations or departments within your organization and do you have the necessary call detail to do so? Visibility, control, and security, while not easily measured, need to be weighed in the balance on the soft side of the equation. Detailed usage reporting can provide much needed control to give you a handle on your calling costs.

Simplicity is another highly overlooked area for selling a business case. For example, one multinational corporation doing business in 90 countries had more than 150 vendor and service provider relationships. This complexity resulted in higher administration costs of having to deal with multiple suppliers, price schemes, circuits, bills and management systems. Moving to VoIP offered by a single service provider can greatly simplify your life and give you much need control.

Since the C-level have their eyes on the bottom line, network managers must clearly articulate how payback can be achieved with VoIP by outlining the characteristics that contribute most to reducing costs:

Leased Line Cost — Elimination of dedicated leased lines for existing voice VPN service (WAN side) for each site. These access lines typically carry domestic and international traffic for a corporation. Businesses over the years have built a separate overlay network to carry voice, but voice alone. This dedicated bandwidth, when not in use — essentially when employees go home for the day and until they show up for work the following day — remains idle all night.
Bandwidth Optimization — Not only does eliminating an overlay voice network save money in access circuit costs, but by combining voice and data, companies can optimize bandwidth requirements. When voice is not in use, the bandwidth is available to data applications to dynamically use and take advantage. VoIP with compression (G.729a) requires one-third to one-fourth of the bandwidth of a TDM voice circuit, yielding even greater economies (12 Kbps versus 64 Kbps).
CPE Cost — Elimination of voice CPE, such as a CSU/DSU to terminate WAN voice lease line, reduces maintenance and management costs, eliminating another point of failure.
Toll Bypass — Factor in toll-bypass savings, because calls between corporate sites or ‘on-net’ calls do not incur any usage charges. If the percentage of intra-company calls ranges from 15 percent to 25 percent, you can expect a positive ROI. Also, it depends on where you call: the higher the percentage of international on-net traffic, the more positive your payback. While in industrialized nations this may not be significant, calls from the developing world and some emerging markets, in which rates are still high, can contribute substantially to savings.
Off-net Calls — Another area of savings pertains to calls outside your company or ‘off-net’ calling. Savings result because there are no access charges incurred for originating the call. A sample rate per minute when calling from anywhere in the world to the U.S., Western Europe, or industrial Asian countries range from $.02-$.05 per minute. This translates into big savings especially when calling the top 20 countries from the rest of the world, which represent 90 percent of the world’s terminating traffic, according to TeleGeography Research.

All of the above characteristics apply when deploying VoIP in the WAN. When customers consider LAN IP telephony, an additional set of cost saving factors will apply. This could include cost to move, add or change end user phones, centralized call processing, Web-based administration, leveraging the LAN, or employee productivity benefits. It’s important to keep in mind that mileage may vary and savings will depend on the amount of internal calling, the destination of these calls and the data bandwidth already in place.

Proposal Approved… Now What?
Once buy-in has been received, network managers should approach a service provider that offers coverage in all of the countries where their corporation does business. It’s important that the service provider hasn’t only launched the service in the past year and that your company is not one of their ‘bleeding edge’ customers helping them work out the bugs. Simply put, experience counts. Other factors to look out for:
Insist on Voice QoS: Not all VoIP services are created equal. Those that use the public Internet should be held suspect because they cannot guarantee voice Quality of Service. Free Internet-based services may appear attractive on the surface, but they lack sophisticated private network features, offer only point-to-point communications and voice QoS is subject to congestion. VoIP delivered over a private IP network enables the service provider to control the QoS deliver to their customers.
Avoid Service Regression: Moving to VoIP and converging your voice and data network offers compelling benefits. However, the majority of service providers only offer toll bypass. This means you will take one step forward realizing cost savings, but two steps backward with a featureless service. Some companies offer support for private network services through the implementation of an application softswitch with a gatekeeper function. Others offer customers advanced feature functionality previously only found in circuit switched voice VPNs, such as private dial plans, Virtual On-net, Forced On-net, multiple call routing options for intelligent call handling, least cost routing for off-net traffic and call screening based on predefined lists. These match the most commonly used traditional voice VPN features, so users have the same voice VPN capabilities as before. Cost savings plus no compromise in features and functionality should guide the decision.
Service Level Agreements: Service levels represent another benchmark for consideration. Key data metrics, which make up a good quality voice call should be factored into the decision: delay of roughly 150ms one-way packet loss less than four-tenths of one percent, or jitter less than 40ms. In addition, voice specific SLAs should include: Mean Opinion Score (MOS) or the latest Perceptual Evaluation of Speech Quality (PESQ based on ITU P.862) to measure voice quality, Post Dial Delay or call completion. Without these assurances, there’s no way to give you the assurance that you will receive an appropriate business voice QoS.
Do It Yourself Versus Managed Service: Before discussing whether to use a managed service versus building and managing VoIP in-house, you need to ask yourself this question: what is our core competency? In choosing the in-house route, it’s imperative to have properly trained staff to step up to the challenge of managing a VoIP network. However, for the majority of customers who are trying to conserve capital expense or have insufficient staff resources, the logical answer is to out-task VoIP and purchase a managed service. This follows the 1980’s trend of enterprises moving away from building their own private networks, to using carrier-provided voice VPNs. By doing this, the service provider owns responsibility for deploying gateways to access the PSTN, especially overseas where regulatory issues need to be taken into consideration, least cost routing, gatekeepers and, hopefully, private network services for a VoIP VPN.

Network managers should understand that no question is out-of-bounds when working with potential service providers. Service providers should be able to offer clear and honest answers about how long they have offered VoIP, the technology running their service, and how many customers they have. They should also be able to provide references. It also goes without saying that they should be able to successfully demonstrate their service or support you on a proof of concept pilot.

In a business climate where companies will only consider technology initiatives that offer the most efficient roadmap possible to ROI, VoIP is increasingly becoming one of the best routes to take. Japan Tobacco International (JTI), for instance, which has 240 sites in 27 countries, is running VoIP, IP Telephony, and IP call centers over an IP VPN network and is achieving savings in the range of 10 to 20 percent. Once a successful migration has been reached, and end-user acceptance achieved, your organization’s C-level will witness the fruits of your labor: expansion to new markets will be faster than ever, new services such as video over IP can be added, and contact centers will offer Web-based, centralized administration, where separate voice and data support functions will be combined for greater efficiency.

Michael Burrell is the head of enterprise telephony at Equant. For more information please visit the company online at

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