The payoff from voice over IP

NOTE: Chaim Yudkowsky, CPA, CITP, is an MACPA member and chief information officer at Textilease Corp., a uniform and first aid services company serving the Southeast.

By Chaim Yudkowsky, CPA, CITP

One of the early consumer promises of the Internet was cheaper long distance service. A number of start-up companies innovated ways to try to make the process seamless and as reliable as the traditional long distance phone call that we were accustomed to heretofore.

Still, the software complexity, equipment compatibility and standards confusion, and serious latency issues (especially in the absence of widespread adoption of broadband Internet connectivity) has kept end-to-end voice over the Internet from being widely embraced.

Introducing VoIP

Nonetheless, this innovation has a direct relationship to the evolution of business voice over IP (VoIP). IP is the protocol used in transmitting information over the Internet. Corporate data networks typically use this protocol to transmit information in local area (LAN) and wide area (WAN) network environments. In its most primitive form, vendors of data network connectivity are offering a variety of services to bypass the usual means of passing the voice conversations over the wire. In a more complex implementation, this means that at least your end of every phone call involves using IP to reach its destination.

Some of the major vendors of network hardware are now offering specific equipment and software to provide VoIP. Typically, solutions combine proprietary and standards-based hardware that will replace corporate PBXs and voice mail servers. They also may require specific types of handsets. Often, some of the "executive functions" (call forwarding, caller ID, conferencing, etc.) of the handset are integrated with software functionality of the user's desktop or laptop computer.

Some vendors, like Cisco, have expanded the capabilities and even modified the definition of keywords to accommodate the broader capacity of what their technologies can provide. For example, Cisco's solution includes video conferencing.

Choosing a solution

Because voice is still an important way for customers and others to communicate with you, the first step in selecting a solution is finding a vendor that has great references. To demonstrate how difficult this is to accomplish, my experience with asking for mid-size references from two leading vendors was a shocking contrast. The local Cisco sales office could not provide references and did itself not use its solution, aside from a setup of a VoIP laboratory. Shoreline Communications provided a long list of users (some with more than two years of post-implementation experience) who vouched for the ease of installation and positive support experience with the solution. Shoreline itself uses its own technology, down to its telecommuters.

Redundancy

Appreciating your reliance on phone communication, even with a power interruption to your facility, means a solution must offer redundancy. In many of our businesses using PBXs, if power goes out, we can only use phones that are not connected to the PBX. These lines may be dedicated to fax or modems and specific disaster recovery planning installed lines.

Shoreline's solution integrates this critical need in its design. Every one of its voice switches has capacity for one redundancy line, up to a line redundancy for every 10 phone extensions.

Type of phone

Many of the contemporary VoIP business solutions demand that you embrace a solution comprised of all new technology. That means expensive special phone handsets that support VoIP must be used.

The ideal solution is flexible to leverage as much sunken cost in analog handsets and offer the flexibility of new handsets to be a more flexible and cheaper variety of analog handsets. The number of new handsets required and the cost per unit can comprise a substantial portion of the investment.

Taking advantage of sunken costs

Speaking of sunken costs, many of us already have installed and are using some form of WAN connectivity. The hardware to accommodate this function was expensive and does not change much (in contrast with the personal computer). Some solutions require (or strongly encourage) that you abandon sunken capital investment and reinvest in your network infrastructure hardware.

Scalability

Defining your level of commitment and extent of implementation can have significant bearing on some of the solutions at the outset or during the prototyping phase. The ideal solution would allow you to grow the system, understanding that the location-by-location return on investment (ROI) may vary significantly. This will allow you to buy what you need as you implement, not everything at the beginning of the installation. Especially now as you are more likely to compartmentalize capital investment's return on investment and marginal economic benefit, the scalability of both purchase and rollout is essential.

VoIP works today

Business voice over IP works today. Still, it is not for everyone. Also, the length of time to break even in ROI calculation will depend on whether you include hard costs only or also some soft costs.

From my perspective as a fiscal conservative, hard cost savings would be used to justify the system. Also, in light of the changing cost of long-distance service, payback periods of 12 to 24 months for this technology must be used in analyzing the business case for this investment.

When should you consider a VoIP solution?

Multi-location: For many multi-location environments, including those involving telecommuters, a fair percentage of the cost of telecommunication services is intra-company traffic. This includes voice between locations, fax between locations, and even paying for additional lines at each location just to accommodate the peak call volume that consists of both intra-company and other use. Using a typical business VoIP solution will eliminate the need for all of that cost.
Multistate: When you have facilities in multiple states, there are other significant opportunities for savings. The first is eliminating the toll charges to numbers that are local to one of your other locations by routing the call through your data network to a local line.

Second, you can eliminate intrastate toll calls to destinations that are not local to any of your locations by routing the call to another state. The premium charged for intrastate calls is an anachronism of the evolution of regulation and business practices of regional operating companies providing local service.
Maintenance: One of the significant costs of PBXs is maintenance. There are at least two elements to this cost. The first is the hardware cost; since the systems were initially very expensive, repairing or replacing any components can be very expensive. The second is the cost of adds and moves of extensions that connect to the PBX and setting them up for voice mail and other system features.
Line consolidation: With VoIP, you can consolidate the number of phone lines you need for corporate-wide peak call volume. Instead of basing the number of lines on site-by-site volume, now you can look at all usage. In addition, it is a good opportunity to get long distance rates (and local per line charges) down by seriously looking at dedicated service using T1s instead of switched POTS lines.

A decision to move to a new technology for a business function as pervasive as telephone service is complex and requires far more attention than simply this short article. Nonetheless, you might find it to be a rewarding exercise, despite the decision to otherwise slow down the introduction of new technology projects into your business.

Finally, if you'd like a copy of a basic ROI calculator for this technology that I have created, send me an e-mail at cyudkowsky@byteofsuccess.com.

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