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VoIP gaining ground, despite cost concerns

VoIP gaining ground, despite cost concerns

Interest in voice-over-IP projects at U.S. businesses remains keen, according to analysts, and several companies are moving ahead with plans to install such systems.

For example, The Boeing Co. said last month that it plans to install 150,000 VoIP phones and related networking equipment from Cisco Systems Inc. In March, IBM Corp. outlined plans to provide VoIP phones to about 400,000 of its employees and contractors over the next five years using gear from Avaya Inc., Cisco and Siemens AG. And SouthTrust Bank in Birmingham, Ala., has installed a VoIP system, based mainly on Cisco gear, in 825 branches in the Southeast over the past three years. The system has saved the bank millions of dollars and has reduced annual communication costs by 30 percent, said Stanley Adams, SouthTrust's group vice president of network services.

Despite these steps forward, not all VoIP implementations have gone smoothly. The Dow Chemical Co. recently appointed a new contractor to install a converged voice and data network for its 46,000 workers. The move followed problems at Midland, Mich.-based Dow that went back three years, when VoIP was still cutting-edge technology, several analysts noted.

Dow's experience has been "unfortunate," Adams said this week. Pointing to his own experience at SouthTrust, he said, "It is apparent that the technology works reliably and on a reasonably large scale." VoIP installations require thought and planning, and information about the technology is more widely available now than in 2001, Adams said.

"I'm pretty positive on VoIP, and it's going to happen, so it's more a matter of when than if," said Zeus Kerravala, an analyst at Detwiler, Mitchell, Fenton and Graves in Boston. But he cautioned that the pace of deployments this year has been "certainly slower that it was supposed to be," with trial deployments for a branch office or a single department more likely to be announced than companywide installations.

Elizabeth Herrell, an analyst at Forrester Research Inc. in Cambridge, Mass., said that while the pace of VoIP deployments is accelerating, large companies are still resorting to small rollouts. "It's a replacement market of traditional switches, regardless of the hype, and it's not going to move faster than the financial payback," she said.

Still, new VoIP lines are on track to hit 40 percent of all U.S. lines installed this year and should pass the 50 percent mark in 2005, said Allan Sulkin, president of TEQConsult Group in Hackensack, N.J.

Sometimes VoIP equipment costs more than traditional replacements, analysts said. In some cases, converged networks cost 10 percent to 40 percent more because of new management software and site upgrades to add power for Power-over-Ethernet switches, Kerravala said.

Herrell released a report last week listing a series of site upgrades required for VoIP, as well as the need for additional security for voice running on a data network. While Herrell remains a VoIP proponent, she said, "You also have to look under the covers at what the vendors aren't mentioning."

In contrast to large companies, where installation costs might diminish ongoing savings, the savings from a VoIP installation at a smaller company with fewer than 500 workers is a "slam-dunk," Kerravala said. In one example, Coldwell Banker Elite in Stafford, Va., saw an 80 percent reduction in monthly telecommunications costs after installing a VoIP system six months ago. The system, which cost about US$280,000 for phones, switches and related hardware from Zultys Technologies Inc. in Sunnyvale, Calif., is used by 150 independent sales agents in three offices.

A major part of the savings resulted from eliminating 80 business lines that cost $60 a month apiece and replacing them with three T1 lines between the offices, each costing $850 a month, said Kevin Breen, president of the real estate company. In addition, long-distance calls have been replaced by IP calls between offices, and the cost of moving, adding or changing phones for new or moved workers has dropped to nothing.

Aside from a steep learning curve for users unaccustomed to the technology, Breen said the VoIP technology has improved communications by enabling videoconferences to agents' homes and instant messaging on workers' laptops

"It depends on the type of business, but for us, (VoIP) is fantastic," Breen said.

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