VoIP On The Cheap

The promises of VoIP are just too good to pass up, but you can't get past the cost of the investment in hardware and network infrastructure upgrades. Does that mean you have to remain out of the VoIP loop forever? What if you're a small company and just don't have the budget to go whole-hog all at once?

"VoIP can be very expensive, particularly for smaller companies," says Infonetics analyst Matthias Machinowinski. "Large companies can start by consolidating long distance traffic on VoIP and don't have to rip out their PBXes to do it --- they can use gateways."

Indeed, there's an economy of scale in VoIP that favors the large organization over the small. To a certain extent, the larger the number of phones you have behind an IP private branch exchange (PBX) or gateway, the more economical it is to deploy VoIP across the organization. But if you’re a retailer with a couple of locations and 20 phones, the savings-per-call divided by the overall capital cost of deployment probably aren't big savings anymore.

Moreover, knowledge costs money, and VoIP requires a considerable amount of technical expertise to pull of successfully. A Fortune 500 corporation probably has enough of that expertise in its IT department to at least get the VoIP ball rolling, but a company with 50 employees probably doesn't.

For smaller organizations hell-bent on doing VoIP then, the big question is "how do I do this on the cheap?" In fact, there is a whole list of inexpensive VoIP solutions, ranging from Skype --- a favorite of journalists and analysts who talk to each other via computer soft phone ("very soft phone" as one analyst has said) --- to any of a number of service options targeted at individuals and small businesses."In the short term, a service provider option would be a much cheaper way to start, since you're looking at service charges rather than capital expenses," Machinowinski says. "That's definitely the market that service providers are going for: smaller locations and remote offices with 10 to 20 employees."

And the market is definitely heating up, with outfits like Fonality and the king of consumer VoIP, Vonage, having introduced or planning to introduce low-cost, small business services recently. "It's a pretty attractive option for some companies," Machinowinski says. "You can start with a $1000 server for a lot less than a $10,000 to $15,000 phone system."

Though it's never quite plug-and-play, even for small businesses, the low-cost service option can be really low-cost. Fonality's line charges come out to about $18 per month per line, with long distance costing less than a nickel per minute. Vonage's own soon-to-be-launched multi-line business plan, Business Plus, will offer deep toll savings with low initial capital costs of $750 to $2500.

"If you look at where Vonage is in the residential space, there's no debate at all," says Vonage vice president of value added reseller (VAR) sales Mark Lyons. "You unplug the phone company and you cut your bill in half. We've created Business Plus plans ranging from $150 per month."

The fees will add-up over the long-term, however, and any company that chooses the service provider option to do VoIP on the cheap will come to a point where the continued fees outweigh the cost of doing it yourself. Having said that, however, it's inevitable that the VoIP equipment of, say, 2007 will be more advanced, fully-featured and probably a little cheaper than what's available today. By putting off the upgrade until the prices come down, companies can conceivably save in the long-term, too.

Indeed, one of the biggest long-term expenses associated with VoIP is training and maintaining staff with the skill sets to manage both voice and data networks simultaneously. "In the long run, the service provider option can help reduce your IT staff, Machinowinski says. "But you really have to look at your business. It might just be cheaper for a small retail location without an inside IT department to go with the service option."For all of it's attractions, however, the low-cost service provider VoIP service is not quite as feature-rich as a full-blown and home-grown enterprise system. The principal attraction of Vonage and Fonality are their considerable cost savings and the fact that they offer small businesses the opportunity to dabble in VoIP without committing to a large-scale network infrastructure upgrade, capital expenses and a round of IT hiring.

"Above and beyond cost, we don't have a lot of killer apps." Lyons says candidly. "It's a feature match for a SMB phone system. We offer a competitive solution, but we haven't developed the enhanced services that an SMB would get anyway."

Nevertheless, plain vanilla works, particularly when it is the cheapest flavor around. And for small companies seeking to jump into the 21st century of telecommunications at low-low cost, vanilla will probably taste just fine.