Jeff Ott President & C.E.O.
Jeff Ott President & C.E.O.
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The pros and cons of various voice over Internet protocol systems, plus a telecom glossary for small business owners
By Inc. staff | Nov 1, 2008
Until recently, few small businesses could afford the feature-rich telecommunications systems used by their larger competitors. But much has changed in the past few years -- most important, the development of technologies that send voices as packets of data via the Internet. "When I began experimenting with IP" -- short for VoIP, itself short for voice over Internet protocol -- "it would drop calls or sound like you were in the bottom of a well," says John Lundin, a technology consultant for several Small Business Development Centers in Northern California. "That's pretty much gone away in the past two or three years."
As a result, even the tiniest businesses not only have access to all the features of a fancy private branch exchange, or PBX -- extensions with transfers and direct internal dialing, conference calls, and auto attendants, to name just a few -- but can fully customize them as well. More than that, VoIP makes available elements of so-called unified communications: Branch offices can now be incorporated directly into the phone network; a branch can be anywhere an employee has a computer and high-speed Web access; a call can be directed to ring on an office, cell, or home phone, a laptop, or all these simultaneously. Employees can dial in for voice mail or find those messages stored in e-mail.
Be forewarned: The options are dizzying -- and ever-changing -- and the choices are made more complicated by the industry's unrestrained use of jargon and abbreviations. But the pages that follow will serve as your introduction and guide to 21st-century telephony. We have even equipped you with a glossary.
Calling the VOIP Way
1. Know Your Options
Before plugging in, it helps to understand how the technology is changing the market. For starters, both traditional and VoIP providers now refer to what they sell as a PBX, meaning a system dedicated to a single business customer.
Old-school PBXs use traditional technology -- known as circuit-switching or TDM -- and are often called proprietary, because they are usually owned or maintained by your phone company. Circuit-switched PBXs remain common with big companies; small-business versions are less robust.
Now there's VoIP. Here, the phone system piggybacks on the computer network's cables and routers; an Ethernet cable from a wall jack connects to the phone at each workstation. Calls among far-flung offices will be routed through the Internet and your IP PBX, meaning you escape telephone charges. The features are mostly functions of software, not hardware. As a result, VoIP lets small businesses get big-time features. And if the sound isn't quite landline quality, it's improving fast.
2. Choosing Among VoIPs
Within the VoIP universe are two basic options, each with its advantages and disadvantages. Use the dollar figures below as general guidelines; prices can vary dramatically, depending on the provider and when you enter this changing market.
Hosted VoIP A hosted VoIP system is housed and managed off-site by an independent company (which may be a traditional telephone company playing in the VoIP arena). Your company connects to the host via the Internet.
Cost This can be an inexpensive arrangement, not least because there are some 700 companies in the U.S. alone competing to sell hosted VoIP systems. And it costs hosts little to add incremental clients to their networks, because they usually route outbound calls over the Internet, which avoids the telephone network's origination and long-distance charges.
Most commonly, the host charges per extension and by the amount of external calling time. Plans can also be tailored for unusual call patterns, such as frequent international dialing or faxing. It's important to analyze your call patterns before selecting a plan. (The list of features -- caller ID, on-hold music, advanced voice-mail capabilities -- doesn't vary much among plans.)
In addition, there are usually one-time fees for installation, licenses, and network equipment; depending on a company's size, the cost can exceed $2,000. Plus, you will need to buy special IP phones, sometimes available only from the host. These start at around $150 per phone. (You can often rent the phones as part of a monthly package, but this is seldom cost-effective in the long run.) Bottom line: After the start-up costs, a company can expect to spend at least $30 to $40 per extension per month for a basic system with unlimited domestic calling.
Pros Hosted VoIP has relatively low up-front costs and fast start-up. Most hosts frequently upgrade their service, which may protect you from technological obsolescence.
Cons After you have bought phones and sometimes a service contract, it's not easy to switch providers to get a better deal. It can be difficult and expensive to obtain specialized applications, such as those for call centers, from a host. Also, a hosted phone system puts you at the mercy of your Internet connection. "If that goes down," says Mike Zygiel, a network consultant in Bridgewater, Massachusetts, "you're down." Finally, the industry hasn't stabilized; companies come and go and offer varying sound quality and reliability. (See "Pick the Host With the Most," last page.)
Note Some providers offer a scaled-down hosted service called vPBX, which allows a very small company with remote branches or employees to receive inbound calls at a single phone number, at which a virtual receptionist passes the calls to the appropriate landline or cell phone. These services generally begin at about $15 a month for a limited amount of inbound minutes. However, you will still have to rely on your carrier for outbound calls.
Private VoIP Your company can buy its own VoIP hardware and software, which manage internal communications such as calls within and among offices. External calls are typically sent over phone lines, but now you have the option of using a technology called SIP, or session initiation protocol, to route them over the Web, with cost advantages similar to those of hosted services.
Cost A proprietary VoIP PBX, designed by a network consultant, runs about $500 to $800 per extension. Add a maintenance contract, and you will pay $10 to $16 per extension per month (amortized over five years), plus phone service charges.
Pros Besides being much more customizable, private VoIP will probably be cheaper than a host over the long run.
Cons There are high up-front or financing costs. You will need to maintain the system, which requires in-house expertise or a service contract (typically 10 percent of the initial investment, says Jennifer Huxley of Telec, a VoIP consultancy in Springfield, Missouri). If your calls are routed over phone lines, you will pay extra. And private VoIP is generally unsuitable for very small companies. "It only starts making sense to buy a system when you've got 10 employees," says Tom Wales, an independent consultant in Maine and Connecticut.
Note Some consultants will install a network at your facilities but maintain ownership of it. They will manage it on your behalf, charging a monthly fee -- a sort of hybrid of hosted and private. This typically costs from $45 to $55 per outbound line per month, says Jeff Ott, CEO of TotalCarrierSolutions.com, a telecom reseller in Missouri City, Texas.
3. Get a Line to the Outside
Whichever system you choose, you will need a hardwired connection to the outside, either to the phone company or to an Internet provider. Phone companies often bundle phone and data services. Any VoIP platform that sends calls over the Web, even to a host, will need substantial bandwidth. A T1 line, says Ott, can carry up to 15 VoIP conversations at a time and costs $300 to $600 a month, plus up to $90 for what's called quality of service (see "A Telecom Glossary" on the following page).
It's a good idea to have separate Internet services for voice and data, to serve as backup should one go down. "I always recommend redundancy, because now, if you lose your Internet access, you lose your voice and Internet," says Ott. "Most businesses can afford to lose one -- but not both." If your proprietary system relies on SIP, consultants recommend that you build in telephone network redundancy as well.
Pick the Host With the Most
Ask for redundancy Choose a company that has prepared for an emergency by investing in redundancies, suggests Don Briggs, who operates Advanced Communications Technology, a hosting service and network designer based in Dexter, Missouri.
Insist on quality Make sure your provider offers quality of service, which is a technical term that refers to a protocol that gives priority to voice packets over data packets. Sound quality and customer service vary widely among providers, and undercapitalized carriers often seek ways to cut corners.
Focus on the metrics "Uptime," the percentage of time the network is running, is important, says consultant Tom Wales. So is bandwidth. "Make sure that they're providing at least 64 kilobits per second for each voice conversation," he notes. "They'll say you need less, but that's the least you should have."
Get it in writing Wales recommends requiring hosts to address these issues in a "service-level agreement" that consummates your telecom deal. If nothing else, says Lundin, take advantage of the 30-day free trial that many companies offer. "You try it out, and if it works, then go with it."
A Telecom Glossary
Few fields are as rife with jargon and abbreviations. Here's a guide to some of the terms you will encounter:
Centrex: a PBX (see below) hosted at the local telephone exchange
DID: Direct inward dialing; lets inbound calls go directly to extensions without an operator
PBX: Private branch exchange, a telephone switchboard used exclusively by a private organization
POTS: Plain old telephone service, i.e., a standard analog line
PSTN: Public switched telephone network, the standard network
QoS: Quality of service, an Internet protocol that gives voice traffic priority over data traffic
TDM: Time division multiplexing, a label for traditional, circuit-switched telephone equipment
VoIP: Voice over Internet protocol, a standard for transmitting voice communication via the Internet
vPBX: Virtual PBX, a scaled-down service for inbound calls