What is the compelling reason to switch to VoIP? Is it right for you? Akhtar Pasha finds out if it makes sense for large enterprises, SMEs or even home users to go in for VoIP or Internet telephony, especially in the light of the new government guidelines for Net telephony in India

While IP Telephony, and the resultant savings in communication costs, has been gaining considerable attention over the last year, its adoption has been slow because of the high initial investment required to set up a Voice-over-IP (VoIP) network. And with the recent cut in national long distance (NLD) charges, a question mark has formed around the cost-effectiveness of this technology. Enterprises are reluctant to invest lakhs of rupees on VoIP, with concerns that they may not get decent RoI (Return on Investment). And end-customers are still confused about the ramifications of Net telephony being thrown open from April 1.

Enterprise view

But since the needs, options, and viability patterns are wildly different for enterprises and customers, lets look at the enterprise angle first. Ravi Chauhan, vice president, Enterprise Solutions-India and SAARC, Nortel Networks, says, “Given the fact that 70 percent of a company’s communication costs are in the form of intra-office STD bills, VoIP continues to make sense. We have seen cases where communication costs have reduced by 60 percent after implementing an IP telephony solution. The period for return on investment on equipment has dropped from ten years to three.”

It’s not just about saving money. VoIP lets corporates take advantage of a host of value-added services like integrating voicemail, video, e-mail and fax. Raj Pawate, director-DSP Application, TI India, says, “IP networks are easier to maintain and manage than switched circuits.”

And if an organisation already has an enterprise WAN set-up with an existing data network, with a 64 Kbps

leased-line facility, there is all the more reason to add voice capabilities to the data network, thus making even better use of precious bandwidth.

A typical implementation

Consider a typical enterprise WAN set up headquartered in Mumbai, with branch offices in multiple locations Delhi, Chennai, Bangalore and Pune. At Mumbai the enterprise has 50 phone connections, while Delhi, Chennai, Bangalore and Pune have 20, 10, 2, and 5 phone connections respectively. The two prominent players in this niche Cisco and Nortel would endeavour to provide solutions as follows:

Cisco’s solution

To set up a data network, which consists of LAN and WAN (switches and routers) the investment in equipment will be Rs 27.3 lakh. The cost of cabling will be Rs 2.5 lakh and, for IP telephony solution (Call Manager, IP phones and DSP resource), another Rs 25.4 lakh.

With Cisco’s solution the equipment will cost Rs 55 lakh, inclusive of all the IP telephony features. An additional Rs 6 lakh per year would go toward leased line charges for one 128 Kbps line and four 64 Kbps lines. The total investment would amount to Rs 61 lakh. The depreciation on the equipment over three years would amount to Rs 18 lakh per annum plus Rs 6 lakh for annual bandwidth charges. The enterprise would have a fixed annual inter-office communication cost of Rs 24 lakh using VoIP. This investment is justified if the enterprise has an annual inter-office communication in excess of Rs 60 lakh.

Nortel’s solution

The cost of the IP-PBX (hardware, software and 50 digital phones) is Rs 10.1 lakh, routers Rs 11 lakh and 37 IP phones would be Rs 6.4 lakh. The equipment cost would be Rs 28 lakh (voice and data) plus Rs 6 lakh for the leased line charges. This works out to Rs 34 lakh for the equipment.

Depreciation on equipment over three years comes to Rs 9.3 lakh per annum plus Rs 6 lakh for annual bandwidth charges. Using VoIP, the enterprise would have a fixed annual inter-office communication cost of Rs 15.3 lakh. In this case, the investment is justified if the enterprise has annual inter-office communication cost of Rs 40 lakh and above.

From the example cited above, it is clear that if an enterprise’s inter-office communication cost is more than Rs 50 lakh then the investment in the VoIP is justified, otherwise it does not make economic sense. Secondly, the higher the communication, shorter will be the payback period.

Jayesh Chaitania says enterprise VoIP solutions make sense if a user’s annual spending on inter-office communication is above Rs 50 lakh

According to Cisco’s Chaitania, “The investment in VoIP for enterprise WAN makes sense if an enterprise has offices in multiple locations or even if they have offices in two locations and their average annual spending on inter-office communication goes above Rs 50 lakh, then the investment will be justified.”

Cisco’s philosophy for the VoIP solution is to give the enterprise headroom for growth, keeping the future requirements of the enterprise in perspective, whereas Nortel’s approach is to give the enterprise a low-cost alternative solution at the outset, that can be scaled up in future.

Any mid-size or large enterprise whose annual communication cost is more than Rs 50 lakh and has offices in multiple locations should go in for a VoIP solution. Besides the cost it’s the value-added services voice, data and video that it brings in, which make it even more worthwhile.

While this clearly means that it may not make sense for SMEs to go in for their own VoIP networks, what the government’s decision to allow Net telephony will do in the SME space is to encourage companies to replace their legacy PABX systems with IP systems. And since SMEs usually use third-party service providers to meet their network infrastructure needs, ISPs could take over the role and allow SMEs the benefits of VoIP too.

Small customer angle

The Net Telephony guidelines, announced late last week by the Indian government, are particularly relevant to small customers. The guidelines say that only Internet service providers (ISPs) will be permitted to offer Internet telephony, and after they have signed an amendment to their original licence agreement. The restrictive guidelines do not allow a PC to call up a phone within India. What’s being allowed are PC to PC calls and PC to overseas telephone calls.

Ravi Chauhan says the ROI period for enterprise VoIP has dropped from ten years to three

This also means that users cannot utilise sites such as Dialpad.com, Mediaring and Net2Phone, which allow Net users globally to call up any phone number. But the point to note is that even if this was allowed, it wouldn’t be really viable for customers in the first place. Going by international trends, subscribers using Internet telephony pay around Rs 5 per minute the sites mentioned above are now charging anywhere between $0.39 to $0.55 per minute for calls made from Indian cities to any place outside India. But with the highest peak hour STD rates down to Rs 9 per minute, and off-peak rates down to Rs 4.50 per minute, with further cuts expected once Reliance jumps into the national long distance fray, it just doesn’t seem to make sense. In addition, there is also no guarantee of Quality of Service (QoS) using Internet telephony.

But the good news is that the government’s decision to allow PC to overseas telephone calls is a viable proposition for consumers. For instance, an international call between Bangalore and New York costs Rs 49.20 per minute and Rs 43.20 per minute during peak and off-peak hours respectively. And once ISPs start offering the facility, perhaps jointly with players like Yahoo, Net2Phone or Dialpad, international calls would be cheaper by 50 percent. This will benefit both individuals and even enterprises that have WANs only in India and use PSTN to connect to overseas locations.