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Is Internet Phone Service For You?

Posted on Sunday, July 3rd, 2005 by

Voice-over-Internet Protocol (VoIP) phone services have grown up, and more small businesses are taking notice


Ed Powers lives for vacations—and so do his clients. Powers, 39, helped start Private Escapes Destination Clubs two years ago to manage dozens of high-end vacation homes, from Belize to North Carolina. The firm, based in Fort Collins, Colorado, reserves each home for the exclusive use of members, who count on a full range of amenities, from plasma-screen televisions to thick terrycloth bathrobes. Only one problem: They can’t use the phones to make long-distance calls. “We don’t want to get into managing these folks’ phone bills,” says Powers. “For now, most of them us calling cards or cell phones—but we want to make the whole experience seamless for our customers.”

Private Escapes has other phone-related problems, as well. The firm has grown quickly during the past 18 months, adding between one and two new houses a month, and now has 24 employees—up from just six in late 2003. That growth has tested what Powers calls the “third-hand” communications technology the firm acquired during its startup. The technology lacks key features— for example, Powers must contact a third-party firm to set up each new phone extension.

Powers, who serves as executive vicepresident of operations, wants to solve both of his phone-related problems by shifting from traditional telephone service to Voice-over-Internet-Protocol (VoIP) service. VoIP will route telephone calls through the company’s broadband Internet connection. The company’s IT staff can easily manage the new equipment, saving costs on setup and maintenance. And VoIP will help cut calling costs between the company’s satellite offices in Chicago and Atlanta, and make it easy for Private Escapes’ employees to shift their office extensions to a home office or receive voice mails via email.

Finally, a switch to VoIP means easy long-distance calling for Private Escapes members. Managing billing for those calls will be easy, since most VoIP providers offer online logs and detailed calling histories. “This technology will benefit our members as well as our bottom line,” says Powers.

Vonage’s Mark Lyons says that between 15% and 20% of the company’s plans are used by small businesses with just a few employees, and interest in the company’s business services has been growing.

The Next Big Phone Thing

Powers’ enthusiasm for VoIP puts him in good company. VoIP recently has emerged as the next big use for broadband connections. In addition to offering a wide range of features— many of which aren’t available from your local phone company—VoIP technology offers phone service for a fraction of the cost of traditional phone lines. VoIP technology has progressed in leaps and bounds in recent years, leading more and more small businesses to ditch their traditional phone lines in favor of calling plans from VoIP service providers such as Vonage and 8×8 Inc., which offers the Packet8 VoIP service. Cable companies like Comcast and Time Warner offer their own brands of VoIP, and old-line telephone companies including AT&T and Verizon are getting into the VoIP game, rolling out national VoIP services at an increasingly rapid clip. That growth is likely to continue apace during the coming years. “I expect that most telephone calls will be IP-based calls within the next decade,” says Stephen Pociask, president of TeleNomic Research, a Herndon, Va.-based economic research firm focusing on the
telecommunications industry.

The VoIP solution

VoIP until recently was just another emerging technology beloved by computer geeks, who attached headsets to their PCs and endured walkie-talkie-quality sound and unpredictable service. New chip designs and software technology have changed that, making VoIP a bona fide phone service alternative for residential and business customers, who no longer need to sacrifice quality or reliability. “In many cases, VoIP technology can provide service that’s as good as the old traditional telephone network,” says Pociask.

Better yet, VoIP is cheap. That’s good news for many small businesses, which count their monthly phone bills as a major expense. Pociask recently estimated that an average small business with nine or fewer employees spends nearly $110 a month for local and long distance service on each traditional telephone line in its office.

A firm with a handful of employees can significantly trim its telecommunications spending by switching to VoIP. Vonage, for example, offers small-business packages that include 1,500 local and long-distance minutes in the U.S. and Canada for $39.99 a month. An extra $10 a month buys unlimited local and long-distance calling.

VoIP to Traditional Phone
The caller’s phone is connected to… An adapter, which is connected to… The caller’s router, which is connected to… The Internet, which sends the call to… The VoIP provider, which translates the data into voice… and routes the call to the recipient.

Additional lines cost $34.99 for metered plans and $44.99 for unlimited calling plans, which means a small business with four lines can make unlimited local and long-distance calls for less than $185 per month. That compares very favorably to an average of $440 a month for the same four lines with traditional service. Better yet, VoIP services don’t charge extra for options like call waiting, call forwarding and caller ID—any of which can sharply increase the price tag for a traditional phone service.

Almost anyone with an Ethernet-based broadband Internet connection—cable, DSL or even satellite—can sign up for VoIP service. And installing the service doesn’t require complicated procedures like configuring ports or installing loads of software. In most cases, getting VoIP up and running is as simple as plugging in a specialized adapter (typically supplied free by the service provider) into your broadband modem or router. Plug an ordinary telephone into the adapter, and you’re good to go. “Anyone with broadband service can use VoIP service,” says Pociask “They don’t have to understand the technology. They just have to know that when the phone rings, they should pick it up.”

Customers also like VoIP because of the wide range of features it offers—most of which are included in VoIP service packages. Here are a few of the most popular:

Virtual numbers: VoIP lets users sign up for virtual phone numbers in any U.S. or Canadian area code. Let’s say your company is based in Los Angeles, but you’ve got a lot of customers in New York City. You can sign up for a virtual phone number with a 212 area code, so customers 3,000 miles away can reach you with a local call. Vonage and Packet8 both offer subscribers unlimited virtual numbers for around $5 a month.

According to Packet 8’s Dave Immethun, the company’s Virtual Office service has “eliminated the cost justification for a PBX system. Virtual Office can benefit companies with three lines or 50 lines.”

Mobile calling: A number of VoIP providers offer their customers the ability to make IP-based calls on the road. If you’re a road warrior, you’ve noticed that many airports and hotels are equipped with wireless Internet, or WiFi—so that passengers stuck at Starbucks can boot up a laptop and get online. Vonage’s SoftPhone service, which costs an additional $9.99 a month, uses software to turn your computer into a telephone, allowing you to place calls through your Vonage account from anywhere with a broadband connection. Mark Lyons, vice president of VAR (value-added reselling)
sales at Vonage, notes that SoftPhone is among Vonage’s most popular add-on features.

Across the pond: Making international calls with a traditional phone service is a dicey proposition. Unless you’ve specified an International calling plan—which can cost several dollars a month whether you use it or not—calls to your overseas clients or colleagues can show up as a surprisingly large item on your monthly bill. By comparison, Packet8 touts the fact that customers using its Virtual Office small-business offering don’t have to choose an international plan: All international calls instead are billed at the company’s lowest rates. In most cases, VoIP international rates are lower than traditional phone services.

You’ve got mail: Many VoIP providers offer new ways to check your voicemail. Vonage, for example, offers three approaches: You can dial into your account using your phone; you can log onto your account on Vonage’s website and listen to your messages over your computer; or you can receive an email with the messag attached as a sound file.

For the big guys and the small fry

A company with 30 employees and $5 million in annual sales won’t have the same communications needs as a one-person show with annual revenues of $100,000. That’s why most VoIP providers offer services to fit the needs of a wide range of small companies.

Vonage’s Lyons says that between 15% and 20% of the company’s plans are used by small businesses with just a few employees, and interest in the company’s business services has been growing. Meanwhile, the firm is preparing to launch its Business Plus program, aimed at small firms with more complex telecommunications needs. And Packet8 already offers special plans for both ends of the small-business spectrum.

Here’s a quick review of how various types of small firms might take advantage of VoIP service:

One-man shows: Take a freelance graphic designer who works out of a home office. His most important tool is his computer, but he also spends plenty of time on the phone every day discussing work with clients—and he occasionally makes international calls to a friend he met in design school, who happens to live in France. Vonage will charge him $39.95 a month for 1,500 minutes of local and long-distance calls. If his business phone doubles as his home phone, he might want to consider Vonage’s unlimited plan for $49.99.

Meanwhile, Mr. Graphic Designer could forward all of his calls to his cell phone while he takes a break from his office to work at the coffee shop down the street. And, if he doesn’t want to be bothered with a ringing phone, he can flip open his laptop, hook up to the coffee shop’s Wi-Fi signal and check his email for voicemail. If his French friend has left a message, our designer can open Vonage’s SoftPhone application on his laptop, slip on his headset and dial Paris for just $0.03
a minute.

A small office: The four shipping coordinators at Acme Logistics’ headquarters are
constantly on call to help link up buyers and suppliers. As a result, each coordinator needs a dedicated line where customers can always reach them. A small-business service might let Acme set up four lines on the same account with each line wired to the same broadband connection.

VoIP services offer some nifty features for such multiple-line subscribers. For example, Acme employees don’t need to worry about missing a call if they have to run out to grab lunch or a cup of coffee. Vonage’s “call hunt” feature will transfer the call to the next predetermined extension until it is answered.

Scattered operations: VoIP providers offer a range of services aimed at small businesses with multiple locations. For example, if your marketing firm with offices in New York, Chicago, and Los
Angeles is signed up with Packet8, your interoffice calls are free—in fact, calls to any Packet8 subscriber are free. According to Packet 8’s Dave Immethun, the company’s Virtual Office service has
“eliminated the cost justification for a PBX system. Virtual Office can benefit companies with three lines or 50 lines.

Vonage’s call hunt feature works with companies with multiple locations as well. That means if you’re not in your office in New York City, you can program the call to automatically go through to your partner’s desk in Los Angeles. You also can transfer calls to any phone number in the U.S. or Canada—and it won’t cost you a dime. Let’s say you need to get to an offsite meeting, but you’re in the middle of an important call. Transfer the call to your cell phone and take the call on the road.

An enterprising business: Companies with 10 to 100 or more employees often need specialized functions from their phone systems. For example, employees at such firms may want to forward calls to specific extensions or into a conference room, or call internal extensions without dialing outside the company. Many companies of that size want an automated menu to greet callers, directing them to a company directory or giving them the ability to dial a direct extension. Firms typically shell out tens of thousands of dollars to purchase complex phone systems to handle such high-end functions. PBX, or private branch exchange, systems are still popular, but such equipment can cost $15,000 or more. That’s one reason IPbased PBX systems have become popular choices for companies looking to upgrade or replace their older phone systems. The IP-PBX systems cost as little as $1,500, and
can be adapted to both traditional phone services or VoIP services. Vonage currently is running a pilot program for a service that includes up to 50 lines. Packet8’s Virtual Office service, tailored to the larger end of the small-business market, is already up and running. Dave Immethun, director of product marketing for Virtual Office, says it offers much of the functionality of a PBX system at a fraction of the price.

A PBX system costs roughly $1,400 per extension just to set it up. By contrast, a Virtual Office extension costs just $150— and that price includes a high-function, business-class phone. The price difference is so dramatic in part because much of the system’s “backbone” doesn’t have to be located on-site. Instead, Packet8 hosts it. “We’ve eliminated the cost justification for a PBX system,” says Immethun. “Virtual Office can benefit companies with three lines or 50 lines.”

Nothing’s perfect

VoIP technology continues to make significant strides, but it still has some drawbacks. Among them:

Poor fax service: Many VoIP services tout their ability to handle faxes, but Lyons admits that fax transmissions still aren’t as reliable as voice transmissions. Some VoIP users might wish to use an
electronic fax manager such as eFax, which allows users to send and receive faxes via their personal computers.

One benefit of such services: Each fax you receive comes as an electronic file, eliminating
the hassle of dealing with paper faxes. Alternatively, some small-business owners who use VoIP for their phone service maintain a traditional phone line dedicated to their fax machines.

Some VoIP providers don’t offer enhanced 911 service. To date, few VoIP providers offer enhanced 911, or E911, service, which allows emergency personnel such as the police, ambulance service, or fire department to pinpoint your exact location when you call. All that will change in the future: The F.C.C. has mandated VoIP providers to offer 911 service to all their customers. To make that possible the commission has also strongly urged the traditional Bell telephone companies to open their 911 networks to Internet competitors. For $1.50 a month, Packet8 already offers subscribers E911 service and, in the wake of the F.C.C. decision, Vonage announced deals with SBC and Bell South that will supplement their prexisting agreement with Verizon in enabling the company to offer 911 service to their customers as well.

VoIP to VoIP
The VoIP subscriber connects to… A computer, which connects to… A router, which connects to… The Internet, which sends the call to… The receiver’s router, which connects to… The receiver’s computer, which connects to… The receiver, who gets the call.

Power outages are a problem. Because VoIP adapters are connected through your broadband connection—which is in turn powered by electricity—your VoIP phone service is dependent on the power being on. As a result, a power outage will shut down your VoIP service. Advice: If you live
in an area with frequent power outages, consider maintaining a simple no-frills traditional phone line, which will still work even if the power goes out.

Your phone service relies on your broadband service. Since your VoIP phone service depends on your broadband service, you’ll also lose the ability to make VoIP phone calls when your Internet connection is down. These days, most broadband providers’ deliver reliable service, but it’s good to be aware that your office might lose phone service for an entire morning or longer if there’s a problem with your Internet service provider.

That said, when your broadband service provider takes an unscheduled vacation, you can keep tabs on your voicemail account with your cell phone. Or, better yet, bring your laptop and VoIP adapter to
a coffee shop with a Wi-Fi signal—and get back to work.

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