VoIP: Ready for Prime Time

With most early problems ironed out, what's missing now are the killer apps.

Four years ago, a company investing in voice-over-IP technology was taking a huge, bleeding-edge risk. Poor voice quality and reliability were all-too-common complaints. But today, many of those technical problems have been ironed out, and VoIP is moving into the mainstream.

Companies are now using VoIP technology to combine voice and data networks and introduce powerful applications, such as the ability to dial a voice call by clicking on a co-worker's name in a company directory instead of looking up the number and dialing it. Indeed, VoIP has matured to the point where companies should be prepared to test the technology as an eventual replacement for traditional circuit-switched systems, which will eventually be phased out.

A full 97% of new phone systems installed in North America in 2007 will be VoIP or a hybrid of VoIP and circuit-switched systems, predicts Jeff Snyder, an analyst at Gartner Inc. in Stamford, Conn.

In fact, the market shows a clear decline in the number of traditional voice switches sold in North America and an increase in IP-enabled or pure IP systems. Revenue for pure IP systems sold in North America in 2005 are expected to hit $903 million, up 32% from $686 million in 2004, Gartner estimates show. Meanwhile, sales for traditional circuit-switched systems are expected to drop by 32% in 2005 to $999 million, down from $1.4 billion a year earlier. And hybrid systems are projected to grow by 30%, hitting $2 billion in 2005, up from $1.5 billion in 2004.

But for many, the technology's return on investment is still uncertain. To get payback from VoIP, IT managers must find the applications that will be critical, if not killer, for their organizations, and they must be prepared to look hard for reliable systems integrators.

Moving With the Times

Snyder says the main reason to consider VoIP isn't cost savings, as many vendors would have you believe, but long-term system protection, simply because traditional systems won't be available in coming years. Companies can save money by converging separate voice and data networks into a single IP network. Plus, calls made between remote sites are free, and moving or adding employees costs less.

VoIP: Ready for Prime Time
Image Credit: Gina Binkley
But, Snyder warns, "the cost savings for most organizations is not compelling enough to change from an older system."

"Enterprise buyers are definitely more comfortable with the technology than they were four years ago—with good reason," says Brian Riggs, an analyst at Current Analysis Inc. in Sterling, Va. "The technology has matured quite a bit, and the product offerings are stabilized. But that being said, although a lot of enterprises recognize that IP is the direction they are eventually going to take, the majority may not feel the pressure to make the switch right now because their existing systems are working and the applications they have are good enough."

There is clearly no single killer app to drive adoption, experts say. Adding applications such as softphones or eliminating the need for a separate handset is "not going to rock your world," Snyder says. "We're still waiting for a sufficient number of these applications that added together will provide great efficiencies. Today, it's still hard to find enough of these measurable efficiencies to justify the expense of IP telephony."

Integration Issues

The obstacles of the technology's early days have been largely overcome. Several VoIP vendors now sell software that can create quality-of-service (QoS) capabilities so networks can be tuned to give preference to voice calls over data calls. But that can be a tricky process. The value of VoIP is that it combines data and voice so that a companywide phone directory can be easily located, for example. But if the data network is secondary to voice, it might be hard to find such needed data on a voice or video call, Snyder says.

Voice quality can also be refined to become nearly identical to the quality of a call from a circuit-switched network, but that requires a robust IP network that will add to total costs.

One of the biggest challenges for companies considering VoIP today isn't the technology or finding vendors to provide the needed hardware and software. Instead, it's finding a credible integrator, says Snyder. "The integrators are the ones who deploy VoIP security, design reliability and redundancy and set up management for QoS. These are the big hot buttons, and it is possible to provide such things," he says. "But there are shortages of these [integrators]."

In the past, some failures of VoIP could be traced to integrators and IT personnel trained in data networks but unfamiliar with voice networks, Snyder says. In fact, Cisco Systems Inc., a top VoIP system provider, has grown more rigorous in choosing its integrators in order to provide more-qualified workers.

Riggs says the biggest challenge remains finding the killer apps that will force many more companies to upgrade to VoIP.

Still, VoIP is a "hugely hot topic" with IT managers, as some of the reins on spending are eased, Snyder adds. "People ask me, 'Do I need to change to VoIP?' and I say, 'You need to be aware of it and informed about it so you can decide when the time is right, but don' t feel forced to do it.' "

Tops in VoIP

For the first six months of 2004, the largest vendors in North America selling any type of voice system, including hybrid and pure IP, were Nortel Networks Corp., Avaya Inc., NEC Corp. and Cisco Systems Inc. According to Gartner research, Cisco leads in IP-only system sales. In November, the vendor reported that it had shipped its 4 millionth IP phone worldwide.SHIPMENT FORECAST

Total end-user revenue for North American premises switching equipment, in billions:
Shipment Forecast

Source: Gartner Inc., Stamford, Conn.

U.S. Phone Extensions InstalledAccording to projections from The Insight Research Corp. in Boonton, N.J., the number of VoIP extensions installed won't catch up to circuit-switched extensions until 2007.
Premises VoIP13.6M19.4M26.6M35.3M45.2M
Legacy PBX47.0M42.7M38.6M34.7M30.8M

Special Report

VoIP Goes Mainstream

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Copyright © 2005 IDG Communications, Inc.

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