Small Business Quick to Embrace VoIP

Published April 14, 2005

For Hoffman Estates-based Serta Inc., competing in the mattress industry required providing better communications between offices and to customers. And that meant moving from traditional land-based phone lines to Internet-based calls.

About a year ago, the company implemented Voice over Internet Protocol technology, connecting its 22 locations on a single voice and data network and slashing telecom cost by at least 55 percent. VoIP offered Serta more voice and messaging capabilities than traditional phone services, said Donna Zett, Serta's chief information officer.

"We finally felt it was at a point where it was ready to be utilized by Serta," Zett said. "We don't go bleeding edge, but we do like to go with the current technology that is proven."

A few years after its inception, VoIP is gaining ground among businesses, particularly small- and medium-sized companies that can benefit greatly from the cost cuts and increased efficiencies. VoIP usage among U.S. businesses grew from 3 percent in 2003 to 12 percent in 2004, and the number is expected to be near 20 percent by the end of this year, according to research firm In-Stat. The Small Business Administration last year placed the number of small businesses using VoIP at around 3 percent, a number also expected to soar.

VoIP allows a caller to place a phone call over a broadband Internet connection. The person's voice is digitized and sent over the Internet in data packets. Callers can still use traditional telephones or make calls between computers or from phones to computers, but the form of the data is different than traditional calling.

Since VoIP is managed using software and a single data network, it opens the doors for a host of capabilities. For Serta, features such as four-digit dialing to other offices across the country and the ability to e-mail voice messages made VoIP an attractive option.

"For us, it was a no-brainer," Zett said. "They love it. The resistance was nonexistent."

Margi Shaw, vice president of business development at CIMCO Communications Inc., an integrated communications provider headquartered in Oakbrook Terrace, said the word is getting around.

"This technology is in about its fourth generation now," Shaw said. "It is proven and people are seeing their peers in the industry who have already been through a deployment and who fully understand the advantages."

Businesses offer more growth opportunities for telecom service providers than residential customers, because companies stand to same more money and get more out of the options, said Rob Kunzler, director of marketing at Telution Inc., a Chicago-based company that sells software to large telecom companies.

A 130-employee company typically spends $200,000 to $400,000 a year on telecom and data services. An IP-based system can cut that in half, he said.

Todd Landry, vice president of marketing for Lincolnshire-based Sphere Communications, Inc., which provides Serta's VoIP services, outlined the cost savings for one customer, a mortgage broker.

The 300-employee company with three office locations had three telephone networks requiring two full-time workers. Now only 30 percent of one person's time is needed to run the system, which has cut the tab for outside calls by two-thirds. The system cost around $175,000, which the company made back in about three months, Landry said.

And to move an employee to a new desk or office can cost $75 to $135 for a land-based phone line, Shaw said. VoIP systems essentially eliminate that cost, since the network is managed using software, rather than by physically moving the phone line.

However, concerns about call quality still linger, and business calls often require a high level of quality, Guy said. Since the voice packets are sent over the Internet, they are mixed with other voice and data, which can lead to echo, static and dropped calls.

VoIP's long-term success will depend in part on the ability of providers to guarantee a level of call quality.

"Typically we say the quality over the Internet may be less than a land line but greater than cell phone quality, which usually makes that acceptable," Landry said. "But when you go inside an enterprise, running on a private network, we can put priority controls on network" to improve reliability.

Because IP-based services rely on already-deployed broadband Internet connections, the capital costs are much lower than for land-line systems, allowing smaller companies, usually eclipsed by the larger telecom heavyweights, to dominate the VoIP scene.

Larger phone and cable companies have started to compete in VoIP. SBC Communications Inc. has been providing VoIP to businesses since 1999, for example.

But Shaw said the larger companies may be at a disadvantage.

"The Voice over IP services are a more nimble technology and you don't see the larger companies like the incumbent local exchange carriers demonstrating a lot of forward thinking," she said.

As the competition heats up, the differentiator will be the level of options.

"With IP as an enabler of new technology, services are becoming a lot more refined in personalization," said Apollo Guy, vice president and general manager of broadband and cable for Telution. "All the rage today with cell phones, whether it's playing Usher or Black Eyed Peas, is a level of service personalization. For the incumbents to compete in this new environment, they are going to have to look long and hard at how they can offer special tools."