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Cutting the costs of VoIP

How to reduce hidden costs and find secret savings in a VoIP roll-out.

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One of the key issues in implementing VoIP is cost. Until around 2005, organisations that implemented VoIP did so because of its real or perceived cost savings over traditional telephony.

In many cases, they did find substantial savings by eliminating costly third-party contracts for moves, adds and changes (MAC), reducing the amount of cabling required in new buildings, or leveraging idle capacity in their data networks. Indeed, those savings existed, but so did additional costs - effectively negating any net savings for the first 12 to 18 months.

For the past two years, cost savings has been a secondary driver to "future-proofing" the network. IT executives see IP as the platform for the future, and they want to be prepared for new applications - starting with voice - within a converged infrastructure. As a result, they are more accepting of VoIP's hidden costs, such as consulting, training and ongoing maintenance.

The focus has shifted from proving the business case of VoIP vs TDM to the business-case vendor comparisons. In other words, it's no longer a matter of whether a company switches to VoIP; it's a matter of when.

In Nemertes' benchmark research, 55 percent of the 120 IT executives who participated said they started their VoIP implementations within the past two years. Still, only about 18 percent of companies surveyed have completed their VoIP roll-outs, and those are primarily small and midsize businesses (SMB).

As IT staff assess VoIP, they want to evaluate the cost components - and how key vendors compare. During that time, Nemertes has been tracking VoIP costs for four years and has interviewed nearly 400 organisations.

What companies spend on VoIP depends largely on a few factors: how large their deployments are, which vendors they use and how they design networks. The trouble is that most IT executives cannot calculate accurate costs until they are well involved with their roll-outs, particularly with respect to start-up and ongoing operational costs.

It's vital to understand the cost components of VoIP. For example, it's great to find very low-cost VoIP deployments, for instance, with an open source solution. But if that solution requires significant training and programming and support is mediocre, it may be worth spending the extra money to go with a solution that is not open source.

VoIP cost metrics

Nemertes tracks VoIP costs in the following categories:

  • Operational start-up: These costs include planning, installation and troubleshooting. They cover the amount of hours staff spends on each function multiplied by the average hourly rate of the staff involved. They include the outside consulting costs companies incur.
  • Capital: These costs include IP switches and phones. Although Nemertes gathers the average costs of gateways, network upgrades related to the VoIP implementation, IP video and audio bridges, management tools, unified messaging, and traditional voice mail, the comparisons presented here do not include these additional figures.
  • Ongoing operational: These costs cover the time and money companies spend managing and maintaining their VoIP systems.
  • Operational start-up costs

    On average, organisations spend $355 per IP-telephony user for operational start-up. The per-user costs vary, based on the size of the roll-out. Companies with smaller roll-outs, or those with fewer than 300 end stations, spend an average of $588 per unit on operational start-up, while those with more than 5,000 end stations spend $132 per unit.

    IT and telecom staff distribute their initial planning time, as well as the time spent installing the IP PBX, among more users as the roll-outs get larger. So it makes sense the per-unit cost decreases as the roll-out size increases. With smaller roll-outs, those costs don't get divided by as large a group, so the per-user cost is higher.

    Most IP telephony vendors, including Avaya, Cisco and Nortel, offer branch-office products that aim to simplify operational start-up costs. Others, such as Mitel, NEC, ShoreTel and 3Com, focus on the SMB market, or companies with fewer than 1,000 end stations. Although they do serve larger roll-outs, their products are aimed at simplifying the initial IP-telephony deployment.

    Nemertes research has found that year over year, per-user operational costs have increased among all vendors for three reasons:

  • Many organisations are hiring third-party providers to help with engineering or installation, which increases the operational costs.
  • The average size of the smaller roll-outs for at least two of the vendors (Nortel and ShoreTel) has decreased, resulting in a higher per-user cost.
  • Many larger enterprises have started their VoIP projects within the past two years, and they are spending significant time up-front to launch large projects, but they cannot divide that time among the potential user base - again resulting in larger per-user costs. This affected most vendors, but Cisco and Nortel significantly.
  • Organisations spend a median of $29,000 on consulting costs related to their VoIP implementation, an increase from last year's figure of $23,125. The range, however, is $500 to $2 million.

    Capital start-up costs

    Overall, capital costs hovered close to the same figures as last year. Organisations spend $843 per user, on average, which includes the IP phones and an IP PBX. Like the operational start-up cost, the per-unit capital cost is higher for small roll-outs ($1,157) and lower for large roll-outs ($504).

    Companies spend an average of $309 on each IP phone. The range is $204 for Avaya to $392 for Nortel. The $416 figure for the "other" category in the graphic below is a compilation of figures from numerous IP-telephony vendors that didn't have enough statistical response to be counted individually. They include Alcatel, Siemens, NEC and 3Com.

    Why such a disparity among vendors' handset costs? It depends on customers' requirements. Most IP telephony vendors offer handsets that span quite a price range ($100 to $450), depending on the features customers want, which is using the handset and the expected life span of the device.

    Avaya customers, for example, frequently use handsets for contact centres. Agents may share them and are rough on them. So customers opt for less-expensive phones, knowing they will replace them frequently.

    Cisco and Nortel customers tend to lean toward feature-rich handsets for their knowledge workers and executives, because the IT department has "sold" the system internally on the multifunctional devices that will improve productivity.

    Handset costs often are the most expensive part of an IP-telephony implementation. Several IT executives said the high costs slowed their adoption and they are looking toward lower-cost Session Initiation Protocol-based handsets or soft clients to reduce overall end-station costs. In some cases, companies will wait to deploy IP handsets until they are satisfied with the costs of PBX-vendor devices or the quality or interoperability of SIP phones. In other cases, they are looking to use more open source devices when it's time to upgrade or replace existing IP handsets.


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