VoIP takes hold with small businesses

It may be a truism but, nonetheless, voice over IP has the capacity to transform how companies deal with their communications. Large enterprises have been dipping their toe in the water for several years and now it appears that small and medium-sized companies are following suit, says Anthony Plewes.

Investing in voice over IP has become a priority for SMEs, with some 60 per cent considering investing in it during 2007, according to a survey by silicon.com and The Bathwick Group. In terms of planned investment, it only lags behind laptop and handheld computers.

This trend is significant as VoIP lies at the heart of convergence; it allows voice to be carried over data networks, eliminating the historical divergence between voice and data. (Read the full research results and watch the video about how small businesses are using new communications technologies.)

Although VoIP describes a very specific technology, there is often confusion among SMEs about exactly what it means for their business. Put simply, there are two different communications areas where VoIP plays a role. The first of these is what can be called internet telephony, where phone calls are delivered over the internet; and the second is IP telephony, which in essence is the replacement of the legacy PBX within a corporation. Both of these areas are relevant to SMEs and confusion between the two has served as a significant barrier to the uptake of the latter.

More on converged communications and SMEs

♦ Research report
Read the full analysis of research into converged communications conducted by The Bathwick Group and silicon.com

♦ Video with Jonathan Steel
Watch a video interview with The Bathwick Group analyst Jonathan Steel discussing SMEs' use of communications technologies

Internet telephony
To many SMEs, voice over IP is synonymous with telephony over the internet. Until recently, the lack of high-bandwidth connections made internet telephony little more than a curiosity but nearly all of the small businesses in the silicon.com/Bathwick Group survey now have access to broadband internet services, and therefore the bandwidth to take internet telephony seriously. For companies with a substantial amount of international calling or audio conferencing, it can provide massive savings on their telephone bill. (Read the full research results.)

Skype has played a major role in popularising internet telephony and remains one of the most important players in the market. However, unlike most telephony services, Skype uses a peer-to-peer network of Skype users to deliver the calls rather than a service provider per se.

What attracts many people to Skype is the perception that it makes calling free. This is only partly true: calls are only free between Skype-enabled computers. Skype can be used to call traditional telephone numbers but this involves 'breakout' - the call must leave the internet and be terminated on a telephone network. This service, SkypeOut, carries a usage charge which must be prepaid. The savings offered are by rating calls as local rather than national or international.

Vonage is a more like a traditional operator than Skype. It offers consumers and businesses a normal telephone number but routes the calls over the internet. Vonage says the operator has more than two million users worldwide. The number of users in the UK is confidential but Vincent Potier, director of marketing at Vonage UK, says around 20 to 25 per cent of these are SMEs. "Our sweet spot is companies with one to 10 employees and we have a large number of self-employed sole traders as customers," he says.

Because the telephony service uses IP, Vonage is able to offer a range of interesting features, such as allowing the user to choose their own dialling code for their business. This is useful to home-based business which might be located in rural areas but want to look as if they are based in London, for example. Vonage also allows subscribers to set up a whole range of virtual numbers with area codes in their main trading locations without needing to have a presence in the city. It is also possible to set up international virtual numbers in the countries that Vonage operates.

However, Vonage and other internet telephony services rely on customers' broadband connections, most of which do not provide high quality of service (QoS) for voice and the number of simultaneous callers are limited by the upload capacity. Vonage for example recommends that in order to conduct a high quality audio call, each user will need 90Kbps upstream and down. The problem here is that while ADSL downstream speeds are rapidly improving, the same cannot be said for upstream.

IP telephony
While internet telephony has attracted techies, consumers and cost-conscious businesses alike, the development of IP PBX technology for SMEs is much more significant. Guenter Junk, CEO of Sywx, one of the first companies to focus solely on IP telephony for SMEs, says: "Communications are changing for SMEs. Where the telephone used to be the primary form of communication, it is now just one of many, and IP telephony helps companies knit it all together."

IP telephony is a fairly major undertaking and is best broken down into three phases. The first phase is IP trunking, where multi-site SMEs can make substantial cost savings by connecting their sites together by effectively eliminating inter-site call costs. Productivity can also be improved through having a unified call plan across the business, allowing colleagues in different sites to work together better.

The next phase is to link remote or home workers into the office network using a VPN over broadband connections. Voice over IP gateways allow the remote worker to access PBX functionality remotely and collaborate with their colleagues.

Trevor Evans, business development manager in Alcatel's SME business, says: "It is possible to connect a single person to the office network with standard broadband connections. But if the employee needs to speak to external people over the connection, they will probably need a better connection including some elements of quality of service."

The final phase is to spread IP telephony throughout the organisation with IP phones on the employees' desktop. This set-up completely eliminates the requirement to have separate sets of cabling for voice and data networks, and provides for simplified management.

IP phones on the desktop also open up a whole new world of telephony applications as IP telephony can be very easily integrated into the company's back-end systems. For example, it only requires a simple XML application and the entire company directory can be accessed from the phone.

Steven Frost, SMB market manager at Cisco UK & Ireland, says: "VoIP is only the starting point, the real benefits come from features such as unified messaging." Although unified messaging can be done without VoIP, combining all communication on a single IP network makes its deployment and management straightforward. It also offers functionality such as presence and can be integrated directly into business processes. For example, companies could create a click-to-call button in their accounts package to call late payers of invoices. Features such as these are a real boon to company productivity.

Despite the clear advantages, there is still conflicting evidence about exactly how many SMEs have made it all the way to IP telephony. Alcatel, which heralds from a traditional PBX background, says it has now reached the tipping point for IP telephony sales to companies with more than 100 employees. For this market it is now selling more IP than legacy TDM systems. But in the sub-100 employee market, Alcatel is still mainly selling legacy PBXs, with IP telephony only making up a fairly insignificant five to eight per cent of sales.

Alcatel's Evans says: "Our customers are still finding barriers to deployment, particularly the cost of auditing and upgrading the LAN by putting QoS on it." Other earlier barriers such as security and scalability have been largely overcome, although companies need to pay close attention to security if combining VoIP with wi-fi networks.

Even IP telephony specialists such as Cisco have found SMEs have been slower to adopt IP telephony than larger companies. Cisco's Frost says: "It has taken smaller companies a while to adopt VoIP partly because the technology was designed for larger enterprises but now we have developed the right product set and the right channels to meet the SME requirements. The channel is vitally important for SMEs, because they want to buy from local companies. We've had to train them in both voice and data skills."

The relatively slow take-up of IP telephony in the SME market is not surprising. Equipment makers have long focused on larger enterprises and it is only relatively recently that fully functional telephony systems have been within reach of the smallest companies. Businesses with more than 20 employees are well placed to benefit from the advantages of premise-based IP telephony, while smaller companies without many internal IT skills are more suited to hosted offerings.

Companies of all sizes though are able to benefit from internet-telephony as long as they remember its limitations and mainly use it for internal communications.