VoIP muscling into the business market

About five years ago, when few had heard of Voice-over-Internet Protocol (VoIP) as an alternative to the dominance of the big telephone companies, the promises of dramatically lower long distance charges and more features seemed almost too good to be true.

Initially, it was. Conversations either lagged or sounded like they were routed through a toilet bowl, while calls were mysteriously dropped. It all served to underline the telecoms' assertion that VoIP wasn't yet mature enough for business or consumers.

But since then, the technology's growth - especially in the business sector - has been strong. While the old copper-wire landline still has a few years ahead of it, the evolution of IP-based telephony will become an even bigger story in the telecommunications industry.

Though the technology behind placing voice calls over the Internet had been around for several years, the arrival of bundled services in this country with the 2004 launch of Vonage Canada, gave VoIP a real boost.�

Vonage Canada vice-president Joe Parent acknowledges it was an uphill battle to sell consumers at the outset. In addition to the quality and reliability issues, Vonage spent a lot of time explaining VoIP had moved beyond the crude computer-to-computer mode first popularized by online chat programs like CUCME.

"The breakthrough was when the cable companies came into the market [in 2005] and validated Vonage's business model," says Mr. Parent. "And also more recently with the deregulation of the residential market in Canada."

While the hype isn't as loud as it was initially, there's still a fierce battle for customers going on, with more growth predicted.

Vonage doesn't release Canadian figures but in its 2007 year-end statement last month, the company reported 2.6 million North American subscribers, placing it second behind Comcast in VoIP subscribers, with three million in North America. The company reported it added 356,000 new subscribers in 2007, up 16 per cent.

Toronto-based telephony analyst NBI/Michael Sone Associates Inc. estimates that there were almost 2.4 million residential VoIP subscribers in Canada at the end of 2007. They expect this to grow to almost 4.8 million by the end of 2010 - more than one-third of the total residential local telephony market expected by then.

Rogers Communications Inc.'s 2007 annual report says the company drove its predominately IP-based Home Phone service subscriber base up 79 per cent to 665,800.

While businesses are readily switching to IP-based phone systems as they replace their systems that are at the end of their life cycles, there is still some confusion in the consumer market, says Mr. Parent.

"I think if you ask consumers who have telephony service from cable companies, most of them don't realize they are on an Internet phone service," says Mr. Parent.

The next boost on the consumer side of VoIP, though, may well come from wireless. With more handsets available with WiFi capabilities and more free WiFi hotspots opening up at colleges and universities, coffee shops and even McDonald's restaurants, consumers are seeing the price benefit of switching from cellphone to Internet to make calls using programs such as Skype, which is also serving to evangelize VoIP's benefits.

As it matures, VoIP is taking on a new name: It's more commonly called IP (Internet Protocol) telephony or IP communications. And, on the business side, it is converging with a wider suite of office tools that are commonly marketed as Unified Communications - an umbrella term combining e-mail, instant messaging, SMS, presence (a way of letting your colleagues know if you're in a meeting, at your desk, on the mobile or elsewhere) and video conferencing.

"It's moving from where you are to who you are," says Brantz Myers, Cisco Systems Canada Co. director of industry solutions marketing. "You're no longer bound by copper wires. VoIP is evolving into rich applications for collaboration regardless of where you are, wired or wireless. It only needs to know who you are and what you can access." Cisco sells about 10,000 IP phones a month in Canada.

Because an IP-phone is an Internet device, some are equipped with larger screens that act like computer terminals and can interact with programs, transforming it into a more dynamic tool.

It's these functions that have won converts in areas such as health and education, where issues like safe screening of patients or scheduling can be handled through the phones without necessitating a complete computer terminal set up, says Mr. Meyers.

There are also substantial cost benefits beyond long-distance savings, such as moving extensions without having to pay $150 to a phone company technician. Also seen as a plus: features like per-second tracking of calls; superior voicemail; and calls to an IP-based number ringing on that phone anywhere it is plugged into the Internet.

Small businesses are also buying into the IP wave with several companies offering plug-and-play boxes that provide not just telephony features but also manage their computer networks. Sutus Inc., for example, is a Vancouver start-up that sells an X-box-sized gizmo targeted at businesses with three to 25 phones.

The upshot is that the business market is evolving so quickly, it's almost impossible to quantify or predict, except to say it's growing exponentially, says analyst Bern Elliot of research group Gartner Inc. in Philadelphia.

"Even the vendors don't know whether their customers are buying [IP systems] for video, for voice or whatever."

Jayanth Angl, a senior researcher based in Toronto with market analysts Info-tech Research Group, also notes there's some market confusion about the scope offered by an IP system.

"There's still some disconnect for companies to understand how IP communication is one feature of UC [unified communications] and how it's transforming not just communication but business processes generally," Mr. Angl says.

The shift to IP from copper doesn't mean the venerable twisted pair is dead yet. But, as Mr. Meyers says, it doesn't make sense to run one set of wires for phone and another for Ethernet when one will do. As such, IP-based systems are rapidly becoming the default option.

VoIP - or IP communications - wasn't the revolution some people expected, but an evolution still in progress.

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