VOIP: More snakes than ladders?

It is five months after the legalisation of VOIP in SA, and no doubt there are a lot of corporates out there left pondering the hype: why they have not yet had the benefit of this miraculous technology? Why are salespeople not beating down their doors with offers they can`t refuse? Why do their communications costs continue to rise? And if they have implemented VOIP, more than likely why have their costs not gone down like a homesick mole?

The simple truth behind all this is that VOIP is just not viable as a cost-cutting solution in the South African market yet. We can attribute this to a handful of inhibitors, which are discussed below.

First, in order to discuss the current status of VOIP properly, it is important to distinguish between VOIP, least-cost routing (LCR) and fixed cellular. LCR and fixed cellular are widely and easily confused, though the distinction is quite simple: fixed cellular is the specific process of initiating GSM calls directly onto the GSM networks using "fixed cellular" terminals. In contrast, LCR is the broad term used to describe the total management of a customer`s call traffic with the objective of directing all calls via the cheapest available telephony route. Therefore fixed cellular and VOIP are simply available routes that LCR can address, and can be called "subsets of LCR".

Bandwidth is still too expensive:

This remains the single biggest factor inhibiting the takeoff and growth of VOIP in SA today. While bandwidth costs are coming down slowly, which is indeed encouraging, in most instances the cost of bandwidth will tip the financial balance against a VOIP implementation. Realistically, VOIP will only become truly effective for cost saving against the current call costs in SA once the bandwidth costs are low enough so as to be negligible in the total equation.

Telkom is not the competition:

Most people look to VOIP to provide cost savings as a primary motivator for implementation. The early adopters of VOIP in SA have almost all made the mistake of judging these savings against Telkom call charges, and it is no accident that VOIP providers all quote their savings against Telkom rates - because it makes their product look better. But Telkom is not the competition here: a discerning company can already get savings of up to around 40% on its bills by making use of the alternate telephony routes already available, the most well known of which is the ubiquitous fixed cellular. Once you measure VOIP savings against the savings you can already make, some VOIP proposals can actually offer the client a step backwards!

VOIP implementation is more complex than other savings routes:

This is another factor which is making companies think twice before rushing into VOIP. A VOIP installation involves some pretty complex co-habitation of voice and data on your bandwidth, plus extra work for the IT department to manage the bandwidth, services and quality-of-service, plus extra responsibilities for them that they did not have before and probably do not want, plus more equipment to buy and manage - the technical list is pretty long. Compare this to currently available LCR techniques where the LCR provider will generally install and manage everything, free of charge, with no impact on any other services such as data.

VOIP has hidden and unquantifiable costs:

In line with the previous point, there are costs to VOIP installations which in many cases cannot be quantified, and do not apply to other LCR routes. These include the cost of IT staff, the cost of additional bandwidth, network software and hardware upgrades, enhanced security requirements and configuration, capital purchase amortisations and the cost of managing and reconciling another supplier in the chain. A lot of these costs are "hidden" or difficult to quantify, and are generally (and conveniently) left out of VOIP proposals.

The factors above are all inhibitors to VOIP taking off in SA, and generally revolve around financial viability. So what of the loud voices in the market singing the praises of VOIP? Unsurprisingly, the main proponents of VOIP are the VOIP providers themselves. Most technology-independent players, including the few true LCR providers, have been notably hesitant to recommend VOIP as being any more effective than existing cost-saving routes.

Large billing increments load the bill:

VOIP rates per minute look great on paper, that is, until you get your bill and find it is higher than it was before VOIP! This is primarily caused by what is called billing increments - most VOIP services are billed in units of 30 seconds, and some even in full round minutes! In contrast, Telkom, fixed cellular and some other LCR technologies bill per second, which gives much lower effective costs at the same "perceived rate".

Bundled offerings cross-subsidise traffic and hide the true picture:

Fixed cellular technology currently provides the most lucrative alternate telephone route to LCR operators, and the biggest savings to the client. Most VOIP operators have realised this and incorporated fixed cellular calls into their VOIP services. This is nothing more than poorly disguised cross-subsidisation of VOIP with the more viable fixed cellular traffic. Apart from the practical inefficiencies of unnecessarily carrying traffic to a remote point via costly data bandwidth, the client also loses the distinct advantage of having Telkom-independent backup lines on site. And all VOIP providers, when challenged to provide the client VOIP service at the advertised rates but excluding the cellular traffic, have so far refused!

So where are the ladders? Well, there is no denying that despite the installation complexity and cost, VOIP will make handsome savings on branch-to-branch calls and international calls if these form a large part of your total bill. However, the debate rages on over the viability of local and national calls via VOIP, while sending cellular calls over VOIP is clearly not a good option.

In conclusion, the bottom line is: VOIP is not pitching against Telkom, it is pitching against a strong and established LCR industry in SA, which offers customers tried and tested existing LCR routes, giving good solid proven savings with no up front costs, no monthly charges and no extended payback periods.

So who would be king?

This is the million-dollar question. A local VOIP provider recently claimed that "LCR will die", seemingly without understanding what LCR really is or realising that without LCR, VOIP is about as useful as an arrow without a bow. The reality is, LCR can take VOIP or leave it - it is route-independent and will long outlive any and all of the communications routes available today. And with more and more routes becoming available, of which VOIP is but the most recent arrival, LCR as a core service will become more viable and more necessary than ever. And VOIP? Well, when the costs finally sort themselves out, then the much-hyped VOIP boom will surely happen - unless a better, lower cost route arrives before then!