There is no denying that IP voice is growing in public awareness. Although most enterprises still cling to their trusty circuit-switched voice networks, their grip is slackening, with IP PBXs now accounting for a majority of PBX sales and service providers shifting emphasis of their voice product portfolio onto the IP-based services. The lure of IP voice is having a single network to serve all modes of communication, which introduces efficiencies into the network, and allows for tighter integration of the various forms of electronic communication we use every day.

Certainly from the supply side, we can see that IP voice is taking off. IP PBX line shipments were up 52% in 2004, while TDM PBX line shipments decreased 29%. 2004 was the inflection point, when IP systems finally started to out-ship TDM systems on a yearly basis. But new equipment sales are one thing; what about all the legacy equipment still in use? (I personally don’t know many people who actually use IP voice.) To find out more about adoption of IP voice at North American organizations, we embarked on some research earlier this year. We found that, despite the considerable buzz surrounding voice over IP, actual adoption of the technology at small (20 to 100 employees) and medium (101 to 1000 employees) organizations is still low: only 4% of small and 16% of medium organizations are expected to be using the technology by year-end. Uptake at large organizations (more than 1000 employees) is quite a bit better, with almost a third using it in 2005.

IP voice is still in the early stages of adoption, but is starting to move into the mainstream. Awareness of the technology, and the available products and services, has increased immensely over the last year. When we spoke with organizations a year ago about their plans for IP voice, a good portion just didn’t know what their plans for the technology were, or weren’t even familiar enough with it to comment. But a year later, it’s evident that plans are starting to take shape. Awareness doesn’t necessarily translate into deployments, but it certainly is the foundation, and one of the first obstacles that a new technology must overcome.

Among the top reasons companies cite for moving to IP voice are ease of use/manageability, flexibility and operational cost. Ease of use and manageability get high ratings because IP voice equipment can overcome the irritations of performing mundane common administrative telecom tasks, such as adding or moving users. For example, to change a user’s location within the building in a TDM world, but still maintain the user’s current extension, physical changes would have to be made to the network. For companies that don’t have qualified staff, a call to the service organization is in order. As an alternative, the user could accept a new extension, but that would change the user’s contact information. These scenarios result in operational costs. In an IP world, user identity is coupled to the phone’s MAC address, and not to a particular port, so a user can simply pack their desk phone, plug it into the LAN port at the new desk, and be up and running. A company might have held off on moving individuals or workgroups because of the expenses involved. Now that operational costs associated with user moves are minimized, and are no longer a factor in the decision-making process, organizations end up with greater flexibility in how to respond to changes in their business environment. For example, the creation of short-term, ad-hoc work groups (e.g., for one-time or seasonal projects) is no longer an issue from a PBX management perspective.

Other drivers include scalability and the desire to consolidate voice and data networks. Implementing and managing multiple wide area networks is expensive, and complexity only increases as the number of networks and sites grows. Large organizations especially are interested in network convergence, and IP voice is the way to get there.

Vendors are focusing a lot of energy on developing new applications and features that were previously unavailable or technically not feasible, with the hopes of luring new buyers and setting their product apart from the competition. But interestingly enough, the availability of these new apps and features is not yet among the top reasons for deploying IP voice. This comes as no surprise when looking at the types of applications for which companies use IP voice. One of the top applications today is long-distance/toll-bypass. Conference calls are popular as well. In both cases, IP voice can help deliver immediate cost-savings, whether through the elimination of T1 lines tying multiple offices together, reduced administrative efforts for managing multiple wide area networks, or decreased reliance on outsourced conferencing providers. Those cost savings will result in a rapid and relatively certain positive ROI, which in turn will ensure that upper management signs off on purchase approvals.

New apps and features are designed to enhance the productivity of the workers, but figuring out the ROI of this new productivity level can be a little trickier. Take click-to-dial for instance, the ability to place a call via the user’s computer desktop by clicking on a contact in a buddy list, or a phone number in a database record or on a webpage. This will save around 5 seconds or so per phone call. For somebody who’s making a lot of phone calls, this feature will certainly enhance their productivity level. But in an organization where call volumes are low, it’s tougher to make the case that 5 seconds saved per phone call will pay for the deployment.

I don’t mean to diminish the importance of new apps and features, but for the average organization, a fast ROI (which is important for purchase approval) for IP voice deployments is easier to obtain with hard dollar cost savings. Once the IP voice infrastructure is in place, and the incremental cost of applications is lowered, and organizations will start looking more closely at what kind of new features are available and how their business processes can benefit from them. This is similar to the trend that we observed in the service provider market.

Consumer adoption of VoIP services may also spill over into the enterprise world, as was the case with wireless LANs. Once people get used to advanced features available at home--for example, visual voicemail--they may end up pushing for the same capabilities at work.

For companies that are deploying IP voice, the drivers naturally outweigh the barriers. However, there are some hurdles, with the main one being the initial cost of deploying the technology. Whenever a new technology is introduced into a network, there are capital expenses associated with buying the equipment, as well as installation expenses, which have an effect on the ROI equation.

There are technical hurdles as well, like reliability, voice quality, and security. The basic premise of IP voice is: now that you’ve built out a high-speed data network, use it to transport voice. However, the reality is, as capable as today’s data networks are, they’re not necessarily ready to handle the latency-sensitive real-time traffic IP voice generates. An astoundingly high number of organizations have to make upgrades to the underlying data network infrastructure so voice services have the same quality and reliability we’re used to. Network upgrades can range from adding WAN bandwidth to swapping out switches and routers.

One area that is getting much attention is security. Concerns about security are on the rise as organizations realize that moving voice traffic from the relatively safe and sheltered TDM networks to IP subjects it to the same host of potential security problems that data traffic faces. However, companies aren’t content with just being concerned, they’re actively developing strategies to deal with potential vulnerabilities and are investing in network security upgrades.

So what about companies with no immediate plans to deploy IP voice? The two reasons they most often cite are that their current TDM phone system works fine and the initial cost of IP voice deployments is too high. These top barriers are generic ones faced with any new technology rollout: why should I change, and how much will it cost? One of the inertias a new market must overcome is that users don’t always know what they’re missing.

From a technology perspective, organizations see IP voice as a relatively mature technology that is safe to deploy. By moving from immature technology to “safe to deploy,” IP voice has cleared an important hurdle that will help future adoption. However, it can still lead to heartache when expectations aren’t being met. Poor voice quality that is the result of the underlying data network’s inability to handle real-time traffic can reflect poorly on the voice vendor, even though the fault lies elsewhere.

Looking ahead, our forecasts show a continued steady uptake of IP voice over the next few years. Adoption won’t be exponential; it will be gradual. The reasons for adopting are manifold, and organizations will adopt when it makes most sense to do so given their businesses and situations.

Matthias Machowinski is Directing Analyst for Infonetics Research.

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