Fighting for the Phone

Business 2.0: VOIP technology is appealing and a potential money saver, but large companies should take their time in switching to it. (PDF)

The latest technology battle is over the office phone. Voice-over-Internet-protocol technology is the new force ready to take on the tried-and-true private branch exchange (PBX). With nearly $2 billion a year at stake, it comes as no surprise that this normally staid business is suddenly a game of one-upmanship and, yes, more than a little hype.

The myriad news releases and breathless media coverage make it seem like office VOIP networks will take over the business world tomorrow morning. But the case for office VOIP is even more overstated than that for consumer VOIP. For example, Insight Research of Boonton, N.J., claims that the number of IP phone extensions — a healthy indicator of the deployment of office VOIP — will grow to 56 million, four times the current number of lines, by 2009. During the same time, old-fashioned phone extensions will drop by almost half, from 80 million to about 48 million.

The slow growth of IP lines shows that the technology doesn’t make any business sense, at least for now. I’m a big believer in technology, but I also understand that VOIP will win only if corporate IT managers are convinced it will save them money. It’s just not clear that it will.

The new VOIP PBX boxes are about a third cheaper than old-fashioned PBX boxes. But VOIP handsets cost about $600 each — twice as much as the old technology. That’s the lion’s share of the cost of a transition, as you need a handset on every desk. Since many companies upgraded their office phone networks during the run-up to 2000, they have little incentive to upgrade again during this decade. Why shell out $12 million if the phones will work fine for another 10 years?

An upgrade might make sense, however, if the IP network were less expensive to run. With VOIP, a company can get rid of the IT staff that manages the phones, but that won’t save much cash. Most of the cost is in the calls themselves. But voice service is getting cheaper all the time: The price for regular voice traffic is now down to 2 cents a minute. “VOIP never was and never will be the least expensive way to deliver voice to the enterprise,” says Bob Rosenberg of Insight Research.

In reality, it could take a decade for VOIP to become the standard in the workplace. Pete Wilson, CEO of Telwares, a telecom consultancy based in Destin, Fla., thinks VOIP will gain favor with consumers and small businesses but that large companies will take their own sweet time in making the switch. He says, “Penetration into enterprise will take a lot longer than people think.”