Forecast 2006: VoIP

Quality is conquered, yet savings are still elusive.

Although not as popular a technology as many predicted it would be, voice over IP isn't so much hyped as it is misunderstood.

So says Curtis Wolfe, CIO for the state of North Dakota. He says many IT managers expected that VoIP would save them money across the board. But it doesn't work that way, says Wolfe, whose IT department is running a VoIP pilot project for the North Dakota Department of Transportation in preparation for a much larger state-government rollout over the next four to five years.

"Our assessment is that VoIP benefits are driven by applications, not economics," Wolfe says. "If you can take an application where the integration of data and voice makes sense, such as a call center where an employee can get a screen pop of previous purchases by a customer who's calling, there's value in that. But it's being done for the benefit of sales or customer service, not because you're saving money with VoIP."

In fact, in a recent Computerworld survey, respondents ranked voice over IP third among technologies that didn't live up to their promise in 2005.

"Companies are not saving as much as they anticipated," says Keith Nissen, an analyst at research firm In-Stat in Scottsdale, Ariz. One reason is that the volume of phone traffic varies from one company to another. A company that makes a lot of long-distance phone calls among corporate locations can save money with VoIP because those calls can be rerouted over the company's lower-cost IP network, Nissen says. But if facilities make most of their long-distance calls outside the company instead of within it, there's little savings from an internal VoIP network, he says.

To make matters more complicated, it seems likely that the long-distance rationale for buying VoIP -- replacing expensive phone calls with cheap ones -- won't last long, Nissen says.

"In the future, long-distance charges will come down so much that you will be paying a flat rate for long distance, not a per-minute rate," Nissen says. "So, as a cost justification for VoIP, long distance will go away."

Long-distance rates are expected to decline because of competition from cell phones (which include long-distance in flat-rate monthly prices), low-cost prepaid phone cards and the growing number of VoIP providers that serve both consumers and businesspeople, Nissen says.

Equipment Backlog

But there's another barrier to VoIP adoption: Current phone equipment is too new to justify replacing it.

"We are going to switch to Gigabit Ethernet on our state network, and as a result, we'll have the equipment and routers we need for voice, video and data over the same network," Wolfe says. "But we won't switch the whole state network to VoIP now because we've got traditional phones and telephone equipment that we're still trying to amortize off the books. That's why it will take us four to five years to move to VoIP."

Some IT managers say the problem of poor service quality -- previously cited as a reason for slow VoIP adoption -- has disappeared.

"Quality of service is one of the myths of VoIP at this point," says Gregg White, network communications manager for Minnesota's Hennepin County. "It was an issue two years ago, when there were dropped data packets that would cause a gap or echo in the conversation. But we have no quality-of-service issues now, even when we're communicating to 13 remote sites from our downtown Minneapolis cluster of six buildings that are linked by fiber."

By the end of 2005, Hennepin County had converted 5,000 of its 8,100 users to VoIP over a period of two years; the other users will be shifted to VoIP in 2006.

Nagging Concern

But quality of service is still on the minds of some would-be VoIP buyers, Nissen says.

"To ensure quality of service, some enterprises have to re-engineer their data networks to accommodate voice traffic. That is fairly complex and costly," he explains.

Another barrier to VoIP adoption is political wrangling between the voice and data network staffs, White says.

"If the voice and data groups combine their traffic, they can get economies of scale," White says. "But sometimes members of both groups don't want to change the way they do business. That's the reason a lot of companies have not made the jump to VoIP."

Despite these problems, some say 2006 will be the year VoIP becomes widely adopted. "The big advance will come in corporations rather than the government sector," Wolfe predicts.

Others expect that many companies will go slowly with VoIP adoption in 2006. "A lot of large enterprises are not going to pure VoIP networks," Nissen says. "They are still using traditional phones with their IP networks because it costs a tremendous amount of money to replace all the phones at once."

But eventually most companies will opt for pure VoIP networks, because they have either outgrown or fully depreciated their non-VoIP equipment, Nissen says. As a result, VoIP's promise for the enterprise may simply have been delayed, not derailed.

Alexander is a freelance writer in Edina, Minn. Contact him at

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Copyright © 2006 IDG Communications, Inc.

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