Intro to Voice over Internet Protocol: What does VoIP Mean for My Business?

White Paper Intro to Voice
over Internet
Protocol:
What does VoIP Mean for
My Business?

Written by John Macario,
President, Savatar
Commissioned by
XO Communications

© Copyright 2009. XO Communications, LLC. All rights reserved.
XO, the XO design logo, and all related marks are registered trademarks of XO Communications, LLC.

Table of Contents

ABSTRACT . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .1
KEY QUESTIONS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .1
THE INTERNET PROTOCOL . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .1
THE PSTN . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .2
THE VOIP ADVANTAGE . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .2
INTERNET PHONE CALLS? . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .2
TYPES OF VOIP SOLUTIONS FOR BUSINESS . . . . . . . . . . . . . . . . . . . . .2
IP PBX . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .3
Hosted IP PBX . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .3
Converged Voice and Data . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .3
THE SMB DILEMMA: GETTING STARTED . . . . . . . . . . . . . . . . . . . . . . .3
SURVEY RESULTS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .4
Perception vs. Reality of the Benefits of VoIP . . . . . . . . . . . . . . . .4
No Single Category of VoIP Providers Winning SMBs . . . . . . . . . .5
Reasons for Switching to VoIP . . . . . . . . . . . . . . . . . . . . . . . . . . . .5
WHAT DOES VOIP MEAN TO A BUSINESS OWNER OR MANAGER? . . . . . .5

Intro to VoIP

Intro to Voice over Internet Protocol:
What does VoIP mean for my business?

by
John Macario
President, Savatar

Abstract
Savatar, a strategy and technology consulting firm, and XO Communications,
a leading provider of telecommunications services for businesses, explain
Voice over Internet Protocol (VoIP) from the perspective of small and medi-
um-sized business (SMB) owners, specifically SMBs who are seriously consid-
ering moving to VoIP, but are unsure what approach is right for them. This
paper presents key findings of a Savatar survey in which 500 SMB owners “This paper presents key findings
and decision makers were asked how they thought a VoIP system would com- of a Savatar survey in which 500
pare to their current phone system in four areas: cost, system management, SMB owners and decision makers
migration to a new system, and feature availability. Key benefits of VoIP for were asked how they thought a
business include reliability and efficiency, cost savings, and convenience. VoIP system would compare to
their current phone system in four
areas: cost, system management,
Key Questions migration to a new system, and
“VoIP,” or Voice over Internet Protocol, uses the same communications protocol
feature availability.”
to carry voice traffic that the Internet uses to carry data traffic. To understand
what that means in practice, let’s first take a look at the Internet Protocol (IP)
and today’s conventional public telephone system, and then VoIP itself. Then,
let’s answer some key questions for owners and managers of small and medi-
um-sized businesses (SMBs):
I What does VoIP mean?
I What are the key types of VoIP solutions for business?
I What do other SMBs think about VoIP?
I What does VoIP mean for my business?

The Internet Protocol
The Internet Protocol has a long history in data communications, where for
years it has been doing two things reliably for computer networks. First, the
IP has been putting an address on network traffic. When you type
“www.xo.com,” IP is the protocol that sorts out where that is. Email couldn’t
go anywhere without it. Second, IP uses packet switching. In IP, message data
is broken up into discrete chunks called packets. These packets move inde-
pendently across the Internet to the specified address, with each packet taking
its own route from source to destination. Packets might arrive in random
order, but when they’ve all arrived, IP reassembles them in the correct order
and you see what you expected to see.
It’s as if you and nine of your co-workers split up, got into ten different cars,
and all drove off to the same client site. Each driver might take a different
route to get from your office to the client’s address, but once all ten cars
arrived, you could reassemble your team and enter the building together. IP is
just like that: it can tell your message where to go, but not how to get there.
It’s connectionless — there is no prior communication between source and
destination about what the message is or what path it should take. 1 Intro to VoIP

The PSTN
Contrast this with today’s phone system, the Public Switched Telephone
Network (PSTN). For decades now, when you place a telephone call, your
voice is carried over the PSTN. The PSTN is fundamentally different from IP
because it is circuit switched. When you place a call, a dedicated circuit is
established between your phone and the phone of the person you are calling.
That dedicated circuit stays open continuously, whether you are talking or not,
until you break the connection by ending the call.
Using the PSTN to make a call is like you and your co-workers driving your
cars in strict order along the exact same route to your client’s address. Once you
start on that route, it is closed to all other traffic and dedicated to your car cara-
van, and the route is not reopened until all of you reach the destination.
Further, that route might be a toll road. Phone companies who own and oper-
ate the PSTN typically charge a toll for using their routes, too — the per-
minute charge for a long-distance call, for example.

The VoIP Advantage
VoIP, which is sometimes called IP telephony, combines the technology of IP
with the function of the phone company. VoIP incorporates software that
knows how to treat phone numbers like addresses and set up connectionless
calls between end points. When you place a call on a VoIP network, your voice
is digitized and broken up into voice packets that move across the network in a
“VoIP incorporates software that
way that is similar to data packets.
knows how to treat phone numbers
like addresses and set up connec-
tionless calls between end points. Internet Phone Calls?
When you place a call on a VoIP Using the Internet Protocol for phone calls is not the same thing as using the
network, your voice is digitized and Internet for phone calls, especially when it comes to VoIP systems that are used
broken up into voice packets that in businesses. Keep in mind that the public Internet is a chaotic place. Your
move across the network in a way packets are moving across the Internet along with those of tens of millions of
that is similar to data packets.” other people. Packets do sometimes get lost and never make it to their destina-
tion address. For routine data traffic like web pages, this is not a significant
problem, but for applications like video or voice, it is big issue.
If voice packets get lost or don’t arrive on time, the call quality suffers and the
conversation sounds like one over a bad cell phone connection. For that reason,
business-class VoIP calls are carried over private, managed IP networks to
ensure Quality of Service (QoS) for both voice and data traffic. These private
networks connect to both the PSTN and the public Internet to enable voice
and data traffic to reach users who are outside of the private network.

Types of VoIP Solutions for Business
For most businesses a telephone system means one or more pieces of equip-
ment, housed at one of your business locations, that connects your business to
the PSTN. Often, this equipment is a key system or Private Branch Exchange
(PBX).
The equipment provides several services. First, by connecting outside telephone
lines or trunks, to the equipment it manages the flow of voice traffic to the
PSTN to allow for incoming and outgoing calls. Second, the equipment pro-
vides a set of calling features like call transfer, conference calling, putting calls
on hold, etc. Finally, the equipment may have a voice mail system associated
with it.
If you walked into the telephone closet of most SMBs today, you would find a
data connection (T-1 line, DSL or cable broadband) to carry the “data packets”
and a connection (line, Centrex, trunk or ISDN PRI) to the PSTN to carry
Intro to VoIP 2

voice traffic. If the company were using VoIP, you’d find just one connection
because, for VoIP, “voice packets” and “data packets” use the same network.
And, if the company were using VoIP, they would typically be using one of
three key types of VoIP solutions for business: IP PBX, Hosted IP PBX, or
Converged Voice and Data.

IP PBX
In the VoIP world, many manufacturers now offer IP PBXs. They operate
much like standard PBXs except that they carry voice traffic as packets using
the Internet Protocol (IP). An IP PBX gives you the greatest control over your
communications capabilities since the equipment resides on your facilities,
and you manage it yourself. You will enjoy lower-cost calls and a broad suite
of features, including many new ones that can enhance your company’s pro-
ductivity.

Hosted IP PBX
Hosted IP PBX makes all of the IP PBX features available to a customer,
while shifting ownership and management to the service provider. In this
approach, the functions of the IP PBX are “hosted” in the service provider’s
network. Typically, the service provider will charge the business a small
upfront fee to start the service, plus an ongoing monthly fee that includes all
voice (local and long distance) and data (Internet access) charges.

Converged Voice and Data
One of the simplest ways for SMBs to switch to VoIP is Converged Voice and
Data solutions. This VoIP solution allows a business to take advantage of the
benefits of VoIP (reduced calling costs, dynamic bandwidth allocation, fea-
tures, self-administrative portal, etc.) without replacing the existing key tele-
phone system or PBX.
In a Converged Voice and Data solution, voice and data are carried over a sin- “VoIP allows a business to take
gle data circuit with part of the circuit used for data, the other part for voice. advantage of the benefits of VoIP
Because data capacity needs continuously fluctuate, Converged Voice and (reduced calling costs, dynamnic
Data solutions dynamically allocate bandwidth on the circuit to adjust for bandwidth allocation, features,
heavy data demands. When a business’s voice traffic is low, the circuit allots self-administrative portal, etc.)
most of the bandwidth to data traffic. As soon as a call is placed, voice traffic without replacing the existing key
gets priority, and the circuit will dynamically allocate more bandwidth to
telephone system or PBX.”
voice to ensure call quality.

The SMB Dilemma: Getting Started
If you are feeling confused about what VoIP might offer your business, you
are not alone. Our most recent study, conducted in the first quarter of 2006,
found that SMB owners and decision makers with less than 100 employees
are aware of and interested in VoIP and thought switching to VoIP could pro-
vide real business cost savings. However, they are unsure of:
I What benefits VoIP can bring to their businesses
I Which type of VoIP system is right for them
I What kind of service provider they ought to contact to learn about
VoIP
In this survey, Savatar asked over 500 SMB owners and decision makers how
they thought a VoIP system would compare to their current phone system in
four areas: cost, system management, migration to a new system, and feature
availability. Below are some key findings of the 2006 survey.

3 Intro to VoIP

Survey Results
One survey question asked, “How would you expect a VoIP system to compare to
your current phone system?” Did they think VoIP would be better, worse, or
about the same? Some of the results, as illustrated in Figure 1, were surprising
and showed that SMBs have some misconceptions about how VoIP could bene-
fit their businesses.

How would you expect a VoIP system to compare
to your current phone system?

Cost Management Migration Features

Figure 1. SMB Owners’ Perceptions of VoIP
Source: Savatar SMB VoIP Study, 2006

“SMBs are very clear on why they
would switch to a VoIP solution: Perception vs. Reality of the Benefits of VoIP
45% of the SMB owners who I Cost – SMBs are very clear on why they would switch to a VoIP solution:
responded said they thought VoIP 45% of the SMB owners who responded said they thought VoIP would be
would be more cost effective than more cost effective than their current system. This is true, particularly when
their current system.” you consider the Total Cost of Ownership (TCO) of a VoIP system.
I System Management – Only 28% of the survey respondents thought that a
VoIP solution would be easier to manage than their current phone system.
This is not true. With a VoIP solution, you make most of the
moves/adds/changes (MACs) yourself, with a simple web application; no spe-
cial technical skills are required. With most non-VoIP systems, routine
changes require the intervention of a service provider (usually at some cost)
or a skilled technical specialist.
I Migration – Just 24% of the survey respondents thought that switching to a
VoIP system would be easier than switching to another traditional phone sys-
tem. Again, it’s just not true. For a Hosted IP PBX or Converged Voice and
Data solutions, there is little or no new equipment to buy, install and config-
ure. With Converged Voice and Data systems, you can use your current
phones and can be up and running soon after you select your solution
provider.
I Features – Only 17% of the respondents thought that a VoIP solution
would have more features than their current system. Once again, not true.
All VoIP systems have all of the features you count on now (voice mail, call
transfer, conference calling, etc.) and offer advanced features that are only
available with VoIP.

Intro to VoIP 4

No Single Category of VoIP Providers Winning SMBs
Confusion was also the rule when we asked what kind of VoIP system (IP
PBX, Hosted IP PBX or Converged Voice and Data) the survey respondents
would be prepared to consider: 62% said that they weren’t sure. Nor did the
respondents have a clear idea on what kind of service provider could help
them make the choice. We asked, “Whom do you think of as a business VoIP
provider?” As illustrated in Figure 2, there was no single kind of service
provider that garnered a majority of the response.

Whom do you think of as a
business VoIP provider?
Traditional
Telcos Comm Services

Cable 13% 10%
10% ISP
11%
2% Other
No One 15%
25%
14%

Equipment
Providers
Non Traditional
Telcos

Figure 2. SMB Owners’ Perceptions of VoIP Service Providers
Source: Savatar SMB VoIP Study, 2006

Reasons for Switching to VoIP
Despite the confusion, there was remarkable agreement in two areas: the types
of problems SMBs had with their current phone system and why they would
switch to VoIP. The problems most often cited included issues with making
changes to their systems (like adding, changing or removing extensions), sys- “Over 85% of SMBs in the survey
tems lacking features that were critical to business productivity, the cost of said that lowering cost was the
adding features, the difficulty in managing their system across multiple office most important factor they would
locations, and the expense of adding capacity to the system. Again, VoIP pro- consider when contemplating a
vides solutions to these problems. switch to VoIP.”

When asked, “How important are each of the following factors in your decision
to switch to a VoIP system: cost, system management, features, age of your current
system?” SMBs were very clear. Over 85% said that lowering cost was the most
important factor they would consider when contemplating a switch to VoIP.

What does VoIP mean to a business owner
or manager?
I Reliability and efficiency: IP is connectionless and doesn’t require the
always-open dedicated connection of the PSTN, and routing calls over
VoIP private networks guarantees a high quality of service. In short, your
calls are routed reliably and efficiently.
I Cost savings: You don’t need separate infrastructures to handle voice and
data traffic, and you are less likely to need to budget for long-distance toll
5 Intro to VoIP

calling either because VoIP treats your toll calls more like email than PSTN
calls, covering all traffic under more predictable rate plans, which vary based
on provider.
I Convenience: The administrative burden is far smaller than that of a con-
ventional system. Moreover, routine changes are easily made, and business-
oriented features (e.g., call waiting and conferencing) are built in, not
added on.
As VoIP has matured, it has truly emerged as a breakthrough technology – one
well within the reach of any business, any size.

About XO Communications
XO Communications is a leading provider of telecommunications services exclusively to business-
es. XO services include local and long distance voice, dedicated Internet access, private network-
ing, data transport, and Web hosting services, as well as bundled voice and Internet solutions.
With more than a billion dollars in annualized revenue, XO is a proven provider of IP bundled
services, including the award-winning Voice over Internet Protocol (VoIP) services bundle,
XOptions® Flex. XO operates an 18,000 route mile nationwide network that connects more than
70 metropolitan markets across the United States and operates 9,100 route miles of local fiber.
XO has been delivering services with VoIP technology for more than five years and has a proven
track record of handling more than 10 billion minutes of VoIP traffic a year. And, the XO VoIP
product portfolio offers an array of premise or network-based solutions to meet your company's
business needs. For carriers and service providers, XO offers a full suite of wholesale services.
For more information, visit www.xo.com or call 1.866.963.9696.

About Savatar
Savatar is a Boston, Mass.-based research and management consulting company that helps
telecommunications clients succeed in selling VoIP solutions to the Small and Medium Business
(SMB) market. The firm has worked with large carriers, wholesalers, equipment providers, and
software developers to define product, establish sales channels, and optimize sales techniques for
VoIP products in the SMB market.

Intro to VoIP 6

Intro to Voice over Internet Protocol: What does VoIP Mean for My Business?

More Related Content

What's hot (20)

Similar to Intro to Voice over Internet Protocol: What does VoIP Mean for My Business? (20)

More from XO Communications (20)

Recently uploaded (20)

Intro to Voice over Internet Protocol: What does VoIP Mean for My Business?