VoIP by the numbers

IP telephony can save hard dollars – if you know how to measure them.

Budgets are flat. Staffers are overworked and overstressed. IT executives can be forgiven for wanting to take a pass on emerging technologies.

But IP telephony should not be one of them. Companies that have test-driven the technology report significant cost savings as well as improvements in productivity and mobility.

When the voice-over-IP wheels start turning

Generally, voice-over-IP (VoIP) cost savings fall into three categories: less-expensive moves, adds and changes (MAC); lower bandwidth costs; and reduced personnel.

Big MACs

Some companies have justified VoIP rollouts entirely on the basis of MAC savings. Others might have dismissed the idea because MACs are part of an existing PBX maintenance contract or because they have employees who do nothing but handle MACs.

But significant savings can be found in all these scenarios by running the numbers. First, calculate the cost of each MAC. If they’re outsourced to telephone companies or contractors, this is a fairly easy number to find. Typically, companies spend from $55 to $295 for each MAC, with the average of $119, based on Nemertes Research’s recent survey of 42 large companies.

If MACs are performed in-house, calculating the cost can be more challenging, but it’s still attainable. Determine the average salary of the people performing the MACs and how long it takes them. Nemertes found the cost ranges from $37 to $90.

A PBX MAC takes an average of one to two hours, depending on the complexity of the change, the amount of time it takes the staff member to get to the necessary locations, and the level of expertise. For a voice technician with PBX training, that amounts to $37 to $45 per one-hour MAC and $74 to $90 per two-hour MAC.

Second, determine how often employees move per year. On average we found that companies perform 0.87 MACs per employee, per year. That means each employee changes offices, leaves the company or is replaced roughly once a year.

Then do the math to get a rough idea of the total MAC costs per year. One firm that Nemertes worked with had costs as high as $20.9 million. Organizations that outsourced their MACs spent on average $4.35 million. Those that handled the task internally spent an average of $1.34 million to $3.26 million, according to the Nemertes study, which focused on large companies with an average of 41,472 employees.

Once IP telephony is implemented, many companies hand off MACs to help-desk support or other IT staff, which reduces the total time needed to about 15 minutes. In that case, per-MAC costs drop to between $9.25 and $11.25 per hour. Because those highly trained voice technicians are no longer needed for MACs, companies can opt to reduce headcount or reassign those staff members to other areas.

One financial-services company runs its voice traffic entirely on IP telephony, and the CTO recognizes that MACs are much easier than they were with traditional PBXs. “We no longer need to go into a closet; we can make the change from any network-based PC,” he says.

Two staff members – an infrastructure manager and a server technician – handle the MACs, which take about 15% of their time overall.

Some IP telephony solutions can reduce the move/change part of MACs to virtually zero. Presuming a company uses all IP phones (some use analog or digital phones with IP PBXs), end users who switch offices can take their phones with them, plug them in and logon, or they can log on to the existing IP phone in the new office. That eliminates the labor part of moving an employee, though the phones cost about $400 (lower-priced models are available for about $200).

That’s one element of success The Seattle Times discovered with its IP telephony implementation. Before rolling out its Avaya  IP telephony system, the company allowed one to three days before a move order was completed. “Now, users just pick up their phones and plug them into any red jack to make it work,” says Thomas Dunkerley, communications manager.

Global calling advantage

In the mid- to late 1990s, if you calculated bandwidth savings associated with a switch to IP telephony, the numbers would have reflected significant benefits.

Unfortunately, IP telephony quality wasn’t there. Round-trip delays of 500 millisec to 1 second were common, leaving quality far below business-class (traditional voice calls run about 50 millisec to 70 millisec round trip).

Today, the quality is much improved, but bandwidth prices have plummeted, making WAN cost savings less important.

The exception is international calling. In most cases, costs will drop for international calls. For example, Equant and Infonet offer robust global VPN services that carry voice calls over an IP backbone to far-flung locations.

Stratex Networks redesigned its 26-site, five-continent network (previously a combination of frame relay, leased lines and DSL) to Infonet’s  VPN service. “I tripled or quadrupled bandwidth for major installations and cut my budget in half, from $1.2 million [per year] to $600,000,” says B. Lee Jones, CIO of Stratex.

Some companies report savings on domestic long-distance charges, but this is typically limited to large companies that have huge volumes to start. For instance, a large insurance company, which wished to remain anonymous, reduced its long-distance costs (currently 3 cents per minute) by about $25,000 per month after implementing IP telephony for toll-bypass among 12 of its 200 offices.

The company can’t justify further deployment because the volumes aren’t large enough to generate the savings required for ROI. (The 3-cents-per-minute rate doesn’t represent best-of-breed pricing; most large firms have obtained less than 1 cent per minute for on-net to on-net calls.)

Almost every company in the Nemertes survey that reduced calling costs had undergone an overall network redesign, with IP telephony as a key driver of that project.

Nasdaq, which uses Cisco gear, estimates it is saving $40 million off of its $100 million in annual network costs by consolidating 15 networks into one Multi-protocol Label Switching  network.

More out of less

Aside from headcount reductions resulting from staff integration and MAC cost decreases, IP telephony provides another way for companies to consolidate – by leveraging an “auto attendant” feature. Rather than having a receptionist at every location, companies are dividing their offices into regions and assigning one or two receptionists to handle the entire area.

“We’ve seen a lot of savings,” says Dave Thompson, IT director for Muzak in Fort Mill, S.C. Before IP telephony, the company that makes background music paid six full-time receptionists to field calls at six regional offices. Now, the equivalent of 1.5 receptionists handle all six offices using the auto-attendant feature. “You could do it with analog, but there would still be a lot of toll charges, and it would be a more kludgey setup,” he says.

Muzak, which uses equipment from Shoreline, saves $10,000 to $15,000 per month on headcount and reduced long-distance charges because it is routing and transferring internal calls over its data network now.

When callers dial in to an unattended office, a voice-response system picks up the local call. If the caller needs help, he’s transferred to the regional receptionist over the IP network (so there are no toll charges). The receptionist can handle the call or transfer it to another office – perhaps even out-of-region – to serve the customer. The regional receptionist, who’s responsible for knowing appropriate back-up people to handle questions, can find a person for the caller.

IT management consolidation is another area of potential productivity gains. That is, by integrating the management of the telephony systems into the same organizational structure as the rest of IT, companies might see efficiencies. Most IT executives said they couldn’t quantify the savings in hard dollars but had a “gut feeling” that the savings existed. In some cases, however, companies might have to hire people with expertise in both voice and data – and that comes with a premium.