Unplugging the PBX to sell a VoIP installation or hosted VoIP

Unless your clients have just returned from a stint on Mars, there is every chance they will already have used VoIP, though they may not call it that. VoIP, or Internet telephony, has been one of the undoubted technology success stories of the last few years. Skype alone claims 200 million users, many of whom work in small and mid-sized businesses.

But despite the success of Skype — and other consumer-oriented services such as Vonage or MSN Messenger and BT Softphone — many businesses still cling to their conventional phone systems and PBXs. Industry regulator Ofcom calculates that there are 10.2 million conventional business PSTN phone lines and only 14% of UK Internet users have used VoIP to call a regular phone line.

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This is despite attempts by the telecoms industry to persuade companies, especially small and mid-sized firms, to do away with the ugly box on the wall in favour of hosted services. Centrex, marketed in the UK by BT as Featureline, as well as being sold by rival carriers, provides many of the features of a PBX without the need for expensive and often dedicated hardware in the form of a switch and phones.
Centrex, however, has its limitations. It is not as flexible as a hardware-based phone system and lacks some of a PBX’s features. It can also be a relatively expensive option, especially for mid-sized installations of 25 to 50 users. This is because each user who wants a phone extension needs a Centrex line, whereas phone systems can support several users per line. Moreover, telecoms providers charge a monthly premium for Centrex, over and above the regular business line rental.

Virtual voice
One inherent advantage of IP telephony is that it unlocks the relationship between phone numbers and phone lines. The number of calls that a company can run over an Internet connection depends only on available bandwidth. There is no theoretical limit to how many phone numbers can run over a broadband connection either, as long as those numbers can be linked to a physical client, such as a handset, or a virtual client, such as a softphone (an application that mimics phone functions on a PC).

One user could even have more than one number. Potentially that number could be from anywhere in the world, as there is no longer a direct link between the phone ‘line’ and the local exchange. Instead, all the traffic is handled as data packets over the IP network.

Nor does IP Centrex, or hosted VoIP, tie companies into their telecoms provider in the way that conventional, or TDM, Centrex does. With TDM systems, businesses had to buy all their services — outside (or trunk) lines, voicemail and internal calls — from their Centrex provider. This tie is one reason telecoms and facilities managers were wary of Centrex: it meant handing over a critical piece of business infrastructure to one supplier.

IP-based systems are much more flexible. As most providers use one standard, the Session Initiation Protocol, or SIP, switching between suppliers can usually be done in a few minutes using a Web-based console. There is no need to contact suppliers, to organise a migration.

A pure IP-based telecoms system also uses standardised components such as Ethernet phones and switches, so if a company does need to switch telecoms vendors, any investment in hardware should be preserved.

It is even possible to use a combination of hosted Voice over IP providers in one network. This is helped by the fact that several of the better-known VoIP companies peer with each other, allowing free calls between their networks.

In this way, for example, a UK-based business using Gradwell could benefit from free calls to a branch office in Germany, connecting via Sipgate. The UK office could even be equipped with a German number, so German staff calling from outside their office could ring the UK, without making an international call.

“A company does not need large upfront CAPEX or debt to pay for hardware with hosted VoIP,” says John Rees, commercial director of VoIP service provider 8el. “This allows companies to gain the benefits and the flexibility of a hosted solution with no upfront cost. There is also a range of cost benefits, including free local and national calls, plus a 20 to 30% cost saving on traditional PBX systems.”

Add in the fact that VoIP calls can cost a tenth of standard landline calls, and that consultants and resellers can ‘white label’ VoIP and share a percentage of revenues, and the proposition starts to look very attractive indeed.


Looking inside hosted VoIP
Putting together an IP-based telecoms system for clients is not, however, as simple as logging on to Skype or MSN might suggest.

Designing an IP-based phone system is, at one level, very straightforward. Using SIP, anyone with a softphone can connect to anyone else with a softphone or another SIP-compliant client, such as an Ethernet phone or even a Wi-Fi-equipped mobile handset, such as Nokia’s E Series range.

If you know the other party’s SIP address, and their network allows it, you can call them. The call is usually free. Skype — which is essentially a peer-to-peer network — operates in much the same way, although it doesn’t use SIP. As long as you know the other party’s Skype address, calls, including video calls, are free.

Businesses get a lot of flexibility for remote workers and users moving around the office. “As equipment is stored and maintained off-site, customers do not have to worry about having an IT team able to manage their IP PBX. Furthermore, if adverse circumstances affect the company and employees cannot reach the main office, they can still plug a headset into a laptop and be contactable on their usual number. With in-house PBXs, this would not be possible,” explains Neil Watson, channel director of business ISP and VoIP provider, Viatel.

But matters become more complicated as clients want to add features. Today’s technology means it is possible to build an IP-only phone system for a business’ internal communications, and the market for so-called IP extensions has grown rapidly. Telecoms consultancy MZA calculates that out of the 18 million business phone extensions in use in the UK, 4 million are now IP, against 14 million using TDM technology.

However, there are not enough people or businesses connected to public VoIP networks, at least those using the SIP standard, to allow companies to do away with the ability to make and receive calls over the conventional phone network (PSTN). Some form of gateway to the public phone network is essential to any effective system.

And, although it is possible for companies to use SIP and the public Internet to route their internal calls over VoIP, many businesses will want a greater degree of control, as well as the ability to add features such as voicemail or call forwarding.

This is where hosted VoIP providers come in. Hosted VoIP — or IP Centrex — companies typically have enterprise or telecoms-grade phone switches in their data centres. These systems can handle thousands of simultaneous calls and allow customers to manage functions such as multi-party calling, voicemail and extension management within the switch, rather than relying on SIP alone. Crucially, they also offer high-capacity interconnections to the PSTN network, allowing inbound and outbound calls from VoIP customers to people who use conventional fixed or mobile lines.

In this way, a hosted VoIP provider offers a viable alternative to a conventional, on-premise PBX. “Hosted IP telephony allows the customer to avoid the heavy investment on-site technology demands,” says Peter Gradwell, founder of “Businesses no longer have to install their own PBX as they simply connect their phone system to a router. Phones purchased from Gradwell are pre-configured so can be plugged straight into the broadband connection and the whole phone system can be managed from our online control panel.”

Presuming that a business has sufficient available bandwidth, or at least a relatively easy upgrade path, there are now few reasons not to run all telephony services over the Net. Call quality, which was a concern a few years ago, has largely been addressed and is certainly good enough for most business purposes.

Improvements in ease of use mean that most companies can configure their VoIP systems over the Web, in a way that at the very least replicates the most-used functions of a PBX. They can set up hunt groups, call diversion and even conditional routing to an external number, such as a mobile, although customer-configurable options can vary from provider to provider.

The quality and range of wired handsets has also improved significantly, to the point where most units equal or exceed the functionality of dedicated system phones, often at a lower cost. The SIP standard also allows businesses to mix and match equipment from different vendors.

Potholes in the path to VoIP
There are, though, issues that you should be aware of, when considering installing VoIP on behalf of clients. The most important (other than the selection of the hosted service provider) is bandwidth. A typical VoIP call uses up to 90kbps in each direction, more than is required for a high-quality call over ISDN. Companies running over conventional ADSL circuits could quickly find that their upstream connections become congested.

“Traditionally, hosted IP solutions have not lived up to the quality of a hardware-based VoIP service,” concedes 8el’s John Rees. “However with advancements in the switching technology, high-quality Centrex solutions offer key advantages over PBXs. By housing multiple switches in the cloud, hosted solutions eliminate single points of failure whether it be an individual piece of hardware or phone line outage.”

Within a business’ premises, using intelligent switches and routers that prioritise voice calls, using service levels (QoS), will help with internal calls and might make some slightly more efficient use of external bandwidth.

However, such Ethernet switching upgrades can represent a significant investment for smaller businesses, and are no substitute for upgraded Internet connections. Hosted VoIP providers often recommend that companies buy a second ADSL, or ideally, SDSL circuit purely for voice traffic. IT advisers will, of course, need to help clients to configure their systems to make the best use of such systems.

Unless a company is happy to use softphones alone, it might also need to invest in Power over Ethernet (PoE) to run VoIP. Unlike traditional phones, Ethernet desk phones need power and the most convenient way to provide that is often over the Ethernet cables themselves. This applies especially in manufacturing, warehousing, retailing or health and education environments, where phone extensions might run to places where it is not easy to supply power.

This can mean upgrading not just switches, but power distribution units and rack cabinets too. Of course, a client’s structured cabling might also need upgrading, in order to handle the extra loads.

One disadvantage of a fully hosted VoIP implementation is that, for it to work, businesses will have to make any infrastructure upgrades in one go. Without sufficient Internet access bandwidth, cabling and power infrastructure, clients will not be able to switch over to VoIP and make the savings from cancelling their legacy PSTN line and equipment contracts.

For businesses that are not setting up a green-field site, or undertaking a complete refurbishment, retaining some or all of their existing telecoms infrastructure might be a viable way of spreading the cost of a move to VoIP.

Selling VoIP
If this makes VoIP appear to be a complicated proposition, in many ways it is, at least for IT consultants new to the world of telecoms. As a product of convergence, success in selling VoIP needs expertise in telecoms and IT, and especially in network design, installation and management.

However, there is a significant opportunity for consultants to gain access to a rapidly growing market. Industry research firm Infonetics calculates that the worldwide market for hosted VoIP is worth more than US $24 billion, and is growing at more than 50% year on year. It is also the case that traditional telecoms resellers — those used to installing and maintaining PBX systems — will have as steep a learning curve on the IT side of VoIP as IT consultants will have in telecoms.

Entering the VoIP market will mean investing in both expertise and support capabilities. In return, IT experts can expect a regular income stream.

According to Kate Covill, partner solutions director at service provider iHub, VARs can buy the iHub solution on a cost plus basis, and add up to 40% to the wholesale cost. But the VAR is responsible for both customer support, and billing. Competitor Voxalis offers resellers a margin of up to 30%, based on a three-year contract with the end user.

Gradwell offers resellers two options: conventional wholesale, where the reseller handles billing, or co-branded partnership. For partners, the VoIP provider initially pays its partners receive 10% commission on line rental, setup fees, calls, and pre-configured hardware. This rises to 20% on call charges and 35% on line rental, once a partner’s monthly revenue exceed £1,000 a month (ex VAT).

But with simple hosted VoIP connections starting at as little as £3 a month, and fully-featured IP Centrex lines, with bundled UK calls, widely available for around £15 a month, you need to bring in significant volumes of business to justify investment in support and billing.

For that reason, the level of assistance available from the hosted service provider becomes critical. This is why Voxalis, for example, offers an introducer programme for IT consultants, according to director Robert Walton. Under the scheme, consultants introduce clients to Voxalis, and the service provider arranges the service and handles billing and support.

To make a success of supplying VoIP you will need to evaluate the hosted VoIP services in the marketplace and find a range of partners that fit clients’ needs — and find that you are comfortable selling to clients.

Despite the challenges, you may find that increasingly you need to offer hosted VoIP; either alongside on-premise hardware solutions, in order to retain networking business in the face of growing competition from telecoms companies, or as part of a wider portfolio of ‘cloud-based’ offerings, as revenues shift from hardware to services.


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