Finding a crack team of developers in St. Petersburg, Russia, nearly 10 years ago was a boon for software company Relativity Technologies, says Chief Executive Vivek Wadhwa. Among other things, his engineers there (plus a smaller team in Novosibrsk, Siberia) are highly skilled and earn much less than their U.S. counterparts. There was only one downside for Wadhwa's North Carolina company -- the $2,000 a month in phone calls required to stay in close touch with his Russian staff.
About six months ago, though, he found a way to cut those charges to next to nothing -- by routing the calls over his IP (Internet protocol) network. After trying out several approaches, he's using voice-over-IP software from Vedic Technologies in nearby Raleigh, N.C., that provides security, conference calling -- and acceptable voice quality. The sound doesn't match the clarity of AT&T, Wadhwa concedes, but he has weekly two-hour conference calls with his development team. "Given the type of money we save and the length of calls we have, it's worth it," he says.
Internet phone calling is one of those Web revolutions that never really arrived -- at least, not yet. But the buzz over so-called IP telephony is building once again, this time for different reasons than the original expectation that consumers would use their PCs to make free long-distance calls. Consumer voice-over-IP continues to be a mainly a hobbyist market for international calling. Many startups catering to consumers have failed, and Net2Phone (NTOP ), the leader in Internet calling, has shifted its business model to include more profitable niches (like phone cards) and brought in new management.
Today's excitement comes instead from businesses that see an opportunity to integrate voice calling into their current IP networks as a way to save money and add new communications capabilities. The technology is still susceptible to excess hype, partly because upgrading systems to handle voice can be expensive and requires complex engineering. Yet many midsize businesses with lots of broadband capacity can benefit from using voice-over-IP.
"We're starting to see more clear-cut cases where a company can save a lot of money," says Jim Slaby, senior industry analyst at Giga Information Group in Cambridge, Mass. "But you really have to pick your spots carefully for it to make sense." Slaby estimates that 15% of large companies are now experimenting with IP telephony. In two years, he thinks 40% will be -- but that only half of those may end up buying systems.
Today the technology works best for calls within one location. Within a local area network (LAN), the sound quality of voice-over-IP is often just as good as over traditional phone lines, experts say. Calling quality is also quite acceptable between offices over a corporate Intranet, analysts say -- although companies can start to run into sound-quality problems as calls compete with other data applications over a wide area network.
For companies that make a lot of high-cost calls to developing nations, the savings are especially clear. Research firm Gartner estimates that businesses can save 50% or more on international voice and fax calls over an IP telephony network. It says companies can also lower their network-management costs by consolidating voice and data into a single communications infrastructure. But it estimates that only 20% of current corporate networks would be able to handle voice traffic without a significant upgrade.
What makes IP telephony worth that extra effort for many companies is the promise of features that only the Net makes possible. Internet conference calls can include video, display who's logged onto the call, and identify the speaker. Web sites are being built that allow users to reach a live customer-support rep by clicking a link on a Web page. At the same time, the rep can see exactly where on the site (for example, in the middle of an order) the caller's question arose.
"The kind of enhanced service that this platform allows is so much wider and cheaper to deliver that the legacy stuff isn't even competitive," enthuses Net2Phone CEO Stephen Greenberg.
Tarantella (TTLA ), a software company in Santa Cruz, Calif., has bought that argument. It's currently adding IP telephony to its network, mainly to better provide 24-hour support to customers -- along with more flexible working arrangements for its customer-support team. It plans to build a system that can route calls to either U.S. or British offices, depending on the time of day, or to employees who are working from home over a broadband connection.
While CEO Doug Michels expects to save money, "the [main] issue is to provide an economical yet flexible system that can accommodate our very distributed and mobile work force," he says.
Already, major telecom equipment and Internet infrastructure companies are betting that more companies will follow the path Reliability and Tarantella are taking. Of those, Cisco Systems (CSCO ) is probably making the biggest bet on IP telephony now, developing and heavily marketing new products for the market, says Slaby. Indeed, if lots of large companies decide to integrate their voice and IP networks, they'll need better routers and IP switches than their existing networks have. So far, Slaby says, "Cisco is ahead of actual market demand with its technology."
Cable companies and regional telephone companies are also experimenting with voice-over-IP services. Net2Phone's Greenberg thinks that eventually only one broadband pipe will be going into the home, and phone and cable companies will battle over control of customer, though "nothing like that ever happens overnight," adds Slaby.
For now, traditional phone companies are trying to make their investment in current voice networks last as long as possible while simultaneously making the most of their new investments in IP-related infrastructure, says Slaby. Gartner Research Director Richard Costello has little doubt that traditional phone companies will be able to provide voice-over-IP, if that's what their customers want. For now, the most important thing is for them to remain flexible as IP technology evolves, he says.
Vedic Technologies CEO Percy Rajani, who sells the IP telephony product that Relativity uses, says his software occupies a middle ground between the poor-quality solutions that initially popped up for consumers and the high-end systems sold by the likes of Cisco. But to make sales, he still has to overcome the technology's lackluster image from its early days. Potential clients "say, 'We tried that stuff, and it's garbage,'" he admits. To get them to buy, he usually offers a free trial and has a range of pricing plans, including one where his company takes a cut of monthly savings on phone bills.
In today's tough tech environment, with companies looking to save money every way possible, Internet calling is getting a second start. For companies that sell it, however, the best approach may be to underpromise and overdeliver. Because nothing can kill a technology faster than two disappointments in a row.
By Amey Stone in New York