Sometimes VoIP Saves Money, but the Real Potential of IP Communications is Unrealized

July 1, 2008

There is lot of hype surrounding VoIP, and there has been for well over a decade now. People have said that VoIP will deliver new functionality that was previously impossible. Some have touted the fact that everybody will realize significant savings in terms of both operational and capital costs by making the switch to VoIP.

The truth is not quite in agreement with the hype.

Without a doubt, the biggest beneficiary of VoIP has been the individual consumer. Prior to Vonage, Skype, cable operators, and other companies providing service primarily aimed at individuals, people were forced to pay artificially inflated fees to place a "long distance" call. With the Internet, distance is really meaningless and, in truth, so it was with the PSTN, too. But telephone companies certainly did not mind continuing with the same old business model. As long as the phone company could milk more money from individuals to place a simple voice call, they would and did.

The consumer space is very different now with traditional telephone companies losing landline subscribers as an amazing rate, but the changes are not only a consequence of VoIP. VoIP certainly played a role, with cable operators being the biggest winners in the fight for consumer telephony service in the United States. The other major contributor to the decrease in residential subscribers is a shift toward mobile phones. In fact, more and more people are dumping their home phone entirely in favor of mobile phones. It would be interesting to see the actual statistics, but I suspect that money spent on telecommunications has not decreased over the past 5 or 10 years, but in fact has increased on the average. Sure, "long distance" costs might be lower, but I suspect more money is being spent on the combined broadband, VoIP, and mobile phone service than was spent on regular telephone service 5 or 10 years ago, even if we take inflation into consideration.

In short, I suspect that for most people, telecommunication costs have increased over the years, yet the industry still waves a big flag that speaks of the great cost savings with VoIP. One cannot argue with that fact considered in isolation, but it is also not entirely truthful when considering all telecommunication costs as a whole.

VoIP and Small Businesses

If you own a small business with just a few employees and make no long distance calls (at least not many), VoIP will probably save you nothing at all. Most of your costs are relatively fixed and you can't beat the reliability of the fixed phone line for interacting with customers. But, if your small business spends a lot of money on long distance, VoIP could save you a bundle. Skype, for example, provides service with virtually unlimited minutes within the US, Europe, or around the world for a fixed monthly fee (which varies by service plan and currency used). In the US, a monthly plan costs just $2.95 per month per employee, which allows up to 10,000 minutes of calls per month to anywhere in the country.

VoIP and Medium to Large Businesses

VoIP has been extremely effective at reducing costs for inter-office communication and, in general, provides a richer communication environment. Further, since it is IP and all other communication is IP, including e-mail and data conferencing, VoIP might even be viewed as "free", since the cost can often be burried inside the already-existing cost for high-speed network connections. This "convergence" of voice and data has saved money, but not on the scale that people had expected. By and large, big enterprise customers still interconnect with carriers through PSTN gateways and those carriers charge the same for a phone line. And, why change? Will service providers suddenly take an interest in reducing its own profit so that it can help its business customers increase their profits? Of course not! By and large, larger enterprises can only realize a cost savings by consolidating all PSTN circuits and reducing the total number of PSTN circuits purchased from the service provider. The best a large enterprise can do is employ VoIP from all remote offices to the headquarters, and utilize a smaller, shared pool of PSTN circuits in the headquarters.

The next big question for larger enterprises is whether they should use PSTN circuits or VoIP. That's really a matter of preference, I suppose. The big question is whether there is or will be any real identifiable cost savings. Again, I have to ask: will service providers suddenly take an interest in reducing their profits for your benefit? Not likely. So, forget about cost savings when interfacing with the service provider. Will the service provider offer any services other than voice? Not likely anytime soon. So what, then, is the difference between using the PSTN or VoIP when interconnecting to the service provider? To be honest, I am hard pressed to give a good reason for using VoIP for interconnection and if I were the CTO of that enterprise, I would stick with a reliable PSTN circuit. And that's really unfortunate, considering our strong support for multimedia technologies.

Opportunity to Realize

I do not want to end the article on a discouraging note. In fact, that was not my intention. I am an optimistic person and I view the current situation as an opportunity. Just as residential consumers are, by and large, spending more money on telecommunication costs, so would enterprise customers if there was more value for them. Service providers have an opportunity to provide much more than just voice services. The first service that can and should be offered immediately is videoconferencing. This probably does not even need to be stated, given all of the press that videoconferencing is getting these days. But, do not stop with video!

The biggest potential that IP has to offer is multimedia communication, a convergence of voice, video, app sharing, file transfer, whiteboarding, and so on. All of these applications can and should be converged in an intelligent way so as to provide a richer communication experience. The problem with all of the services that have been delivered thus far is that they have all been voice centric, with video just now getting a little attention (relatively speaking).

Imagine sending an instant message to somebody and then lifting the handset to talk if you want to add voice communication. Or, imagine calling somebody and sharing your computer screen with them, perhaps to provide information or to jointly collaborate on writing a document—all without taking extra steps to add this extra mode of communication. This is the power that is possible with IP and the focus of the next generation multimedia communication system currently in development at the ITU called the H.325.

For users, H.325 offers modes of communication that have never been possible before in an integrated way. Before H.325, everything existed in isolation: IM, voice, web conferencing, file transfer. There has been some consolidation in proprietary solutions, but there has never been an international standard that could consolidate the various modes of communication across a multiplicity of devices, making it effortless for users to actually utilize all of the various modes of communication.

The work on H.325 just got started, but the potential is huge. With H.325, "voice" is just one application and, unlike all legacy systems, is not the primary focal point. Service providers have the opportunity to play a very important role in the realization of H.325 and could profit from the deployment of such a system, as it would add value to the services they offer their subscribers. As history has shown, customers are willing to pay for valuable services. The real question, though, is whether service providers will ignore this opportunity and slowly dig a grave for themselves as they cling to the antiquated "voice" business that is starting to erode around them?