Hosted Voice Dying

by Dave Michels

Recently in Network World, there was an article titled “Is Hosted Telephony Dying?” written by Matthew Nickasch. As with most articles with a question mark in the title, Mattew doesn’t actually answer any questions, but does raise some. I think hosted telephony is hibernating.

When hosted voice started about 5 years ago, I thought it had a bright future.
Not because the technology worked, in fact back then it was pretty bumpy. But
because technology in general tends to get better and cheaper – and the virtual
IP PBX offered lots of impressive features with per user customization from day one. Vonage practically single handily educated the pubic on hosted services (Vonage was always mentioned in the original sales pitch – if not by the sales person then by the prospect).

Nicasch writes:

When considering telephony in a SMB environment, less is usually better than
more. Less infrastructure, up-front-costs and capital investment, etc. But,
where is the tradeoff? Is it worth sacrificing call quality, ease-of-use, and
sustainability to outsource your PBX? I don’t buy it. As much as we all have
become accustomed to the computing-cloud and hosted mentalities (think and Gmail), hosted ‘voice’ is another consideration.

I don’t think call quality has really been the limiting factor. I think the problem really has been price. Evidently, my original forecast that the service would get cheaper, was wrong. The hosted services tend to run about $30-$40/user/mo (still) – the price, if anything, has moved up over the past few years. That is just the service price, you still need to purchase a $200-$300 IP phones and high quality Internet access. Economics alone has prevented this technology from widespread adoption. I believe if the price was closer to $5/user/mo the article would have had a very different title.

Where hosted voice makes a lot of sense is either very small organizations or situations where there are lots of locations (including home locations). Full featured phone systems typically don’t make a lot of sense for sites with less than 10 phones. Enterprise class solutions have a minimum entry point closer to 20 phones (dramatically lower number than a few years ago). The virtual PBX provides all these enterprise class features and many additional benefits for any size organization – and creates a virtual single system for all sites. Here the economics favor the hosted solution.

Even if the customer utilized a PBX at the HQ office, with SIP trunks the customer could realize many powerful benefits of a physical/virtual telecom solution. Again, the chief limiting factor (IMHO) is the economics. The secondary limiting factors are 911 and fax. These factors are fixable though, but why bother with economics killing the conversation.

There are several strong vendors in the PBX hosted market. Surprisingly, many are still local vendors (surprising because local really doesn’t matter in a hosted business). In Denver, we have 5280, Unity, VoicePipe (now Zayo), and national players like Packet8 and even Vonage. They are all pretty similar in price and features, the big differences tend to be more around how proprietary their service and equipment bundles are.

If you are considering a hosted VoIP solution, here are my tips:
  • Understand modems have issues with hosted IP traffic and understand what uses modems. People forget about modems – burglar alarms, fire alarms, and fax machines are the primary remaining culprits.
  • Understand 911. You want the fire truck to pull up to the location of the caller, not the location of the billing address.
  • Understand what is proprietary. I recommend going with a service that uses standard SIP protocols and no proprietary phones or other hardware.
  • Understand number portability: Who owns the phone number and can you take it with you. More and more we see number portability being supported, but many hosted partners do not to comply with number portability rules. Some support number portability in, but not out.
  • Understand that this business is still immature and partners come and go and few are actually making money in it. Sunrocket closed down their service with very short notice to their customers. Many ISPs are doing it with a simple Asterisk server and little discipline. Delivering dial-tone is easy, delivering customer service and accurate billing are different matters.
  • Understand voice prioritization. There are a number of inexpensive products from companies like edgewater networks that solve this problem fairly cost effectively. A big pipe alone is not a solution.
  • Understand firewalls and SIP don’t always get along.
I love the concept of cloud computing and believe the phone system is as viable an application as any other, but phones are a bit unique in their potential impact to your business. They also have some unique demands on bandwidth and security. As a result, I tend to favor equipment based phone solutions.