Hosted VOIP Isn't Always Up to the Job

Businesses turning to managed and hosted services for a smooth path to voice over IP are discovering an uncomfortable reality—not all offerings are enterprise-strength.

For Micro Office Solutions LLC, an office space rental company in Manhattan targeting small businesses, the attraction to VOIP's savings and simplicity led to just such a disappointing false start.

"It [was] really important to keep the initial build-out cost low," said Wellie Chao, managing partner at Micro Office, which signed on to service from consumer VOIP provider Vonage Holdings Corp., in Edison, N.J. But by this summer, it was clear Vonage couldn't handle Micro Office's call volume, forcing the company to switch providers.

Of the 400 VOIP service providers in North America, only a handful deliver services that can be considered business-grade, such as IP PBX support, business broadband VOIP or VOIP over IP-VPN.

Businesses seeking cost reductions by running voice and data traffic over one network need to carefully weigh the growing number of hosted or managed VOIP service offerings. The good news is that an increasing number of providers are now taking business concerns into account.

In October, Qwest Communications International Inc. rolled out an IP Centrex service, called IP Centrex Prime, for enterprises with multiple locations, and earlier in the year, Qwest launched its OneFlex hosted VOIP offering. OneFlex, aimed at small and midsize businesses, provides local, long-distance and high-speed Internet access, using VOIP phones and enabling users to administer their own functions, including setting up conference calls and voice mail and adding users.

Click here to read more about the spread of hosted VOIP.

SBC Communications Inc.'s PremierSERV Hosted IP Communication Service allows midsize and large businesses to manage their customized features online, including find-me/follow-me capabilities. Users must have SBC's dedicated Internet access with a frame relay connection. Like MCI Inc.'s Advantage IP service, PremierSERV delivers calls both over pure IP networks and over the PSTN (Public Switched Telephone Network), but it is not available everywhere nationwide.

Despite a flurry of additional announcements over the past year, the large incumbent carriers for the most part have not aggressively targeted SMBs. So far, they have left the lion's share of the hosted and managed VOIP market to smaller, regional carriers and CLECs (Competitive Local Exchange Carriers).

Next Page: Smaller providers rush in.

"The [Regional Bell Operating Companies] have been moving the slowest because they have the most to lose," said Raul Martynek, CEO of Eureka Networks Inc., a small provider serving New York City. "They have the benefit of being able to take a slower approach. They're going to turn up their engines when they need to."

New entrants and other competitors to the incumbent carriers are moving quickly to lure business users with VOIP offerings and exemplary customer service. With five points of presence in and around New York City and no plans to expand into other regions in the immediate future, Eureka this year decided to add voice service via VOIP to its data delivery network.

In a similar vein, Covad Communications Group Inc., a San Jose, Calif., CLEC specializing in DSL services, added a managed VOIP offering tailored to businesses in August. Covad plans to offer by the end of this month VOIP in more than 900 cities throughout the United States.

These startup providers, unlike their more traditional rivals and equipment vendors, champion the savings that business users can achieve through VOIP. When Micro Office outgrew its Vonage service, it switched to Eureka's VOIP service. So far, it fits the bill.

"We just plug in analog lines to the jacks," said Chao. "People use whatever phone they want to bring in. If they want to use a $15 phone from Radio Shack [Corp.], they can do that."

Micro Office's business plan is compatible with Eureka's in that both provide a flexible, simple, low-risk service. The office space provider uses about 45 VOIP lines today but plans to add 200 more at a second location next year, Chao said.

Hosting concerns

While a hosted or managed VOIP offering presents none of the capital risks that investing in one's own converged networking gear does, it comes with pitfalls.

Most hosted VOIP providers rely on the local telephone loop to connect to the customer, and if the loop goes down, service goes down with it. However, Eureka subscribers will be directed to voice mail if the local connection is lost, rather than hear a busy signal as they would over a traditional PBX system.

"One of the drawbacks of the hosted system is that if you lose the local loop, you're out of business," Martynek said. "With a hosted solution, if the T-1 goes down, the incoming call goes into voice mail. Unless switches go down, you don't get a fast busy [signal]."

Next Page: Entrepreneurs flock in.

The extremely low economic barrier to entering the VOIP delivery business has lured hundreds of entrepreneurs, who are continually adding and enhancing services. SimpleTelecom Inc., a Reno, Nev., provider of wholesale VOIP services for carriers, last month launched SimpleConnect, a VOIP service for businesses that have bought or plan to buy VOIP-capable PBX systems. The marketing strategy emphasizes a low-cost monthly contract, with calls over most of the globe priced at 1.7 cents a minute.

1st Rate Mortgage Group has been testing SimpleConnect for about six weeks, said Ethan Lee, IT director at the mortgage company in Los Angeles. Like Micro Office, the company tried using Vonage's service but found it didn't adequately support call volume. With one low-end IP PBX and about 20 employees, almost the entire staff can call simultaneously, Lee said.

"You can be any-size company and have enterprise-level communications tools," Lee said. "But after about 18 people are using the phone at once, I become a little bit worried."

Apart from cost savings, SimpleConnect offers a variety of features that can be managed easily from the Web, Lee said. Supervisors at 1st Rate can monitor sales agents based on their call logs, and a number of data applications can be easily integrated with calls.

"You can click to dial, and your CRM [customer relationship management] is basically a mouse click away," Lee said.

Equipment makers are trying to make it easier for carriers to offer more business-quality VOIP services next year. The carrier VOIP equipment market rose 69 percent from a year ago, according to a study released by Infonetics Research Inc. last month. High growth in the market for voice application servers, session border controllers and softswitches suggests that service providers are investing in equipment that enables them to deliver more new services, according to the Boston-based research company.

In October, Avaya Inc. rolled out an offering that lets service providers offer business-grade VOIP and contact center applications on a usage-based monthly fee. The technology aims to make it easier for providers to give midsize companies the kind of communications services that large enterprises enjoy.

Covad

Service Virtual PBX Service

Voice, Internet, management console

Visual voice mail, call logs, find me/follow me

Conferencing, instant messaging, collaboration

SBC

Service Hosted IP Communication Service

Voice, Internet, Web-based portal

Click-to-call, find me/follow me

Conferencing, unified messaging, plug and play

Qwest

Service OneFlex Hosted VOIP (Basic package)

Voice, Internet, online dashboard, call logs

Click-to-call, voice mail, abbreviated dialing

Caller ID, call waiting, hold, block, transfer, forwarding

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