VoIP Far and Away Favored Overseas

While the U.S. market dithers about deploying VoIP, service providers in overseas markets are already reporting great gains from their initial expenditures—based on a study completed by the Boston-based research firm, Aberdeen Group.

by Jim Thompson [July 12, 2002]

Packet-driven Voice over Internet Protocol (VoIP) technology has finally shed its image as a second rate substitute for conventional, circuit-switched public switched telephone network (PSTN) voice systems and "proven its business value to enterprises and service providers," according to a recent study by Aberdeen Group.

In a survey of enterprises and service providers titled What Works: Significant Voice Over IP Deployments of 2001, analysts note that VoIP technology has finally been standardized and service providers would do well to pay attention.

"At last, all elements needed to successfully build a VoIP solution exist in field-tested form. The potential savings, in administration as well as monthly recurring costs, are too great to ignore," noted the report.

In their research, the Aberdeen Group took a practical approach in evaluating the benefits of VoIP. "Instead of looking at it from a technology side, we asked the question, 'are there business benefits that drive the technical deployment?' We wanted to know if the technology has matured enough to deliver a business value," said Dana Tardelli, senior analyst with Aberdeen Group.

The study investigated VoIP deployments ranging from carrier networks to service providers and hosted IP-PBX solutions for mid-size enterprises. By and large, the question was whether "VoIP delivers a value proposition for those deploying the technology?"

No ear strain
According to the study, which also noted that 2001 was a "watershed" year for VoIP uptake, the answer is a resounding "yes!" The benefits of VoIP deployment include:

• Lower internal and external communication costs.
• Lower bandwidth expenses.
• Incorporation of voice applications that can enhance business processes.
• Optimization of infrastructure resources.

Poor quality, which had been the major impediment to VoIP deployment, is—in the view of the Aberdeen Group—no longer a major concern. According to the study, "the impasse between QoS [quality of service] and VoIP has been resolved."

Even carriers are beginning to accept that quality is no longer an issue as they move away from running VoIP via asynchronous transfer mode (ATM) switching technology and toward true VoIP. "The improvements in VoIP call quality, based on broad support in today's IP networks for DiffServ [differentiated services] and other QoS mechanisms, have eliminated the need to rely on ATM to provide QoS," noted the report.

Harmonic quality
In measuring quality, instead of looking at such things as milliseconds of delay or jitter data scores, equipment was used in real world situations to determine if it "felt right."

"In many cases the decision maker personally tested it by making phone calls," commented Tardelli. "It still has a way to go, but there is no question that quality is no longer a major issue."

Reliability of VoIP was also not a major concern for those companies taking part in the survey. Everyone questioned said dependability is key, but none expressed major concerns that the technology would be any less reliable than a traditional phone system.

"There is a measure of faith that the phone system will be there," said Tardelli. "None of the companies indicated that they had left their traditional phone system in place as a backup."

Generally, VoIP solutions offer enterprises lower initial capital expenditures and decreased ongoing telephony expenses, with greater functionality. Companies with heavy intra-office calling and those with extensive long distance calling needs see immediate cost savings.

Service providers, too, can reduce technology and investment risks. By offering hosted IP-private branch exchange (PBX) solutions for small- and medium-sized enterprises, VoIP opens the door to new service models that focus on selling business functions, rather than commodity access.

"People get excited when they hear they can reduce their long distance costs. But I personally see the big benefit being applications," said Tardelli. "It's things like switching a call to someone who is actually working at home or converging voice, data and video that make VoIP the way of the future."

Overseas adoption
VoIP has already gained acceptance in overseas markets. Recent deregulation, coupled with dependable equipment and costly international calling rates, have pushed the adoption of VoIP technology forward in Europe, Africa, Asia, and the Middle East.

While the market is moving toward VoIP technology, don't look for widespread adoption in the U.S. anytime soon. In most cases, lower long distance costs and increased functionality are not strong enough arguments to convince American companies to perform a "forklift" upgrade and discard a functioning communication system.

"We'll see slow, not explosive, growth," cautioned Tardelli. "Most companies will not turn to VoIP until they have outgrown their traditional system, when a PBX has past its life cycle, or when they move to new offices."

The high cost of building out existing infrastructures to supply VoIP services will also prevent many service providers and competitive local exchange carriers (CLEC) from entering the game immediately.

In a time when venture capital is little more than a dream for most, and profits have become the holy grail of corporate America, additional expenditures will likely have to wait. But, as existing equipment becomes obsolete and competition forces the survivors to adopt new marketing strategies, the benefits of VoIP will certainly outweigh the costs.

Tardelli believes that adoption of VoIP will accelerate over the next four to seven years. In the next five years, the decision to drop PSTN systems will come down to service providers being able to guarantee reliability.

"In five years from now, I think that 50 to 60 percent of all new buyers will turn to VoIP solutions," said Tardelli.

—End