Table Is Set for Web Telephony

Switching to a voice-over-IP phone system can cut your interoffice long-distance bills to zero and reduce administrative headaches. So what are you waiting for?


For years now, the promised convergence of voice networks and the Internet has failed to materialize. It’s a bit like watching Bullwinkle Moose try to impress his buddy Rocket J. Squirrel: “Hey, Rocky, watch me pull a rabbit out of my hat!,” the providers of Internet telephony technologies promise, year after year. “Aww, that trick never works,” a jaded public sighs. “This time for sure,” the technologists gamely insist.

To no avail: After years of promises, the Internet still hasn’t replaced the telephone, or driven the cost of consumer long-distance calling down to zero — even though companies like Net2Phone have offered free telephone calls via Internet-connected PCs since 1996. Isn’t it time we put this whole idea to rest?

Not so fast. Voice-over-Internet Protocol (VoIP) technologies, which transmit conversations over IP-based networks, are on the verge of transforming corporate telephone systems. Now that companies have adequate bandwidth to handle VoIP, the technology’s voice quality rivals that of the Baby Bells. For companies with multiple locations, routing calls between them via the Internet can save a bundle on long-distance charges. What’s more, turning voice conversations into digital data makes it easier to integrate a telephone system with enterprise software applications. This puts customer relationship management (CRM) and sophisticated call center systems within closer reach, and makes possible new features — such as unified messaging systems that deliver e-mail, faxes, and voice-mail all on a single webpage.

These advantages, among others, have pushed sales of corporate VoIP software and equipment to $829 million this year, according to Phoenix-based consulting firm Synergy Research Group. In the coming year, that figure is projected to swell to more than $1 billion, with vendors such as Alcatel (ALA), Cisco (CSCO), Lucent (LU), Nortel (NT), and 3Com (COMS) leading the way. VoIP converts include Dow Chemical (DOW) and Merrill Lynch (MER), as well as many smaller companies.

For Buca (BUCA), operator of the Buca di Beppo chain of kitschy Italian restaurants, VoIP is part of a calculated expansion strategy. The company has 5,500 employees in 68 restaurants, and has been adding about 15 new outlets each year. Prior to installing an IP-based telephone system, each Buca di Beppo had 12 ordinary phone lines (at an average monthly cost of $50 per line) and called long-distance for dial-up access to database and e-mail systems in Buca’s Minneapolis headquarters. Long-distance charges alone were “a huge, huge number,” says John Motschenbacher, Buca VP for finance and purchasing.

In October 2000 the company began installing a new Nortel-based VoIP system. Now each restaurant has an IP-based PBX system and a T-1 line (used for voice and data) that connects to Buca headquarters via a private data network. Buca’s five-person IT staff oversees the entire network, using simple Web-based control panels. Motschenbacher estimates that each restaurant saves $300 to $400 on its monthly telephone costs.

But cost savings are only part of the story — the VoIP system has also boosted the company’s revenues by allowing restaurants to take reservations at any time of day. With the Nortel system, calls made to a restaurant before it opens at 3 p.m. are automatically routed over the T-1 to an eight-person staff at Buca headquarters. The call center books 400 to 800 reservations per day, generating an estimated $1.5 million in additional annual revenues. Not bad for a system that costs about $10,000 per restaurant.

To understand why Internet telephony is taking off now — after years of false starts — it helps to take a look at the technology under the hood. Consumer-oriented Internet telephony services bypass long-distance charges by sending voice data over the public Net, which is essentially free (you pay only for the local connection to your ISP). But this makes for crummy call quality — if one packet of data takes a fraction of a second longer to arrive, your conversation gets interrupted with pauses and glitches. Using the public Internet to place telephone calls is like hauling muddy water from the river, bucket by bucket, just to save a few cents, when clear water is already being piped directly into your home. “You get what you pay for,” says Anil Uberoi, VP at network monitoring provider XACCT.

Calls between your company’s various offices, however, go over the company’s local area or private IP network. And there it’s possible to control the amount of bandwidth available to voice data — giving it a higher priority on the network than, say, e-mail messages. Once you’ve solved the call-quality problem, VoIP offers significant advantages over the old telephone system — as Buca found — and costs the same as a traditional PBX, about $1,500 to $2,000 per phone line, according to research company Meta Group, based in Stamford, Conn.

However, a few obstacles remain between you and VoIP utopia, the biggest of which is the lack of interoperability between equipment from different vendors. Disappointingly, VoIP vendors have chosen to implement standards inconsistently, meaning that equipment bought from one company won’t always work with that of another. To steer clear of IT disaster, you’ll want to buy all of your gear from one source — and check the standard it’s based on. One potential bright spot in this mess is Session Initiation Protocol (SIP), an emerging standard for routing of calls over IP networks. Most VoIP vendors have already added support for SIP or plan to do so soon, which should smooth interoperability in the coming year.

Until this issue is resolved, I wouldn’t advise ripping out your existing phone system and replacing it wholesale, unless you have a manageable project with a clear payoff, as Buca did. Instead start with pilot projects in branch offices, and then extend VoIP throughout the company as the standards catch up with the market. (Even at VoIP vendors like Cisco and Nortel, the phone systems aren’t entirely IP-based yet — despite years of migration.)

Buca’s move to a big VoIP network was a gamble — especially for a company in the technologically conservative restaurant industry. But the payoff came so quickly that now the whole thing seems like a no-brainer to Motschenbacher. “I’m really surprised other companies haven’t grabbed onto VoIP faster,” he says. If Buca’s experience is any indication, it won’t be long before they do.

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Table Is Set for Web Telephony