Over the past several years, there have been a number of offerings to consumers which provide voice services using IP (Internet Protocol) as part of the method for delivery. While these services have been in existence since at least 1997, with several companies offering consumer grade services, VOIP service offering generally are in one of the following categories:

• Consumer grade, PC to PC connectivity like Skype, Apple's iChat (includes video) and other applications that integrate voice. These applications are advanced PC chat services, and do not connect to the traditional phone network.
• Consumer/SOHO grade, phone-IP gateway-regular phone network service, bundled with broadband connectivity, like Softbank's BBPhone service. With the BBPhone service encompassing over one million subscribers in Japan, it is the pre-eminent consumer IP voice offering.
• Internal Enterprise VOIP. Many enterprises have used dedicated circuits between their offices to reduce the cost of internal communications. Some organizations are now implementing those same circuits over IP, while others are choosing to route their internal calls via the Internet.
• Enterprise VOIP. As more service providers offer VOIP to conventional telephony connectivity solutions, service providers such as Fusion Communications, Vonage and Jens are providing IP telephony solutions to businesses.

The press coverage VOIP technology has long outstripped the actual number of implementations in the business market, however. Skywave, a major VOIP software vendor's CEO Robert Kelley, a long-time Japan communications industry veteran, states "...the VOIP market to date has been more noise than anything else until the third [calendar] quarter of this year. The market right now has been with larger corporations who are focused on utilizing an existing data network for their internal conversations." So while it is obvious that businesses and consumers are both utilizing VOIP, what are the unique needs of a global organization?

Enterprise Requirements:
First and foremost, businesses are willing to pay more for quality services than are individuals, particularly when there are hundreds or thousands of dollars at stake on a given phone call--having a busy signal is just not acceptable business practice. Secondly, while a small percentage of households use services like three-way calling, most businesses of any size have implemented it on every desktop. Finally, most businesses use a PBX/PABX (a "Private (automatic) Branch eXchange"), a phone switch that allows multiple internal lines to share external line resources.
When compared in price to computers and servers, the PBX is costly, starting in price around 4,000,000 yen, and increasing from there, depending upon the number of handsets and features installed on the device. Additionally, unlike computer equipment, PBXes have not appreciably decreased in price over the previous ten years. In part because of this, and in part because of the IP explosion started by the Internet, enterprises are exploring new avenues in telephony. Companies connect PBXes to IP gateways, letting regular telephones make calls using IP. Others implement IP phones internally, giving them flexibility they didn't know they had--particularly in the case of "soft-phones", computers which have an IP telephony application installed in them, with the user interacting via a headset. One company that has already begun working with the technology, is Merrill Lynch, who has implemented a hybrid system for internal communications. According to Bryan MacKinnon, "One of the best things for us about going to IP phones is the ease of management, particularly for staff working out of office. While out of office, you can log into your office extension via another IP phone or even a PC based softphone; and it becomes your extension as if you were in the office." Previously, when a user was overseas, calling in to voice mail often required a series of phone system specific passwords and guidance (as well as a special phone number) such that it was rarely (if ever) done. Now, however, an executive's desk moves with him/her just like his/her laptop.

In addition to providing additional accessibility and potential cost savings, because of the inherent interconnection between voice running over a data network, computer applications are soon able to add voice to applications. According to Skywave's American director, Kevin Nethercott, "Too many people only focus on cost reduction related to VOIP, and while that is an important benefit of the technology, the integration of computer applications with phone networks stagger the imagination. It will start with simple things--address books in Outlook or Notes, and while we don't know where it will end up, we are amazed by the possibilities." John Linehan, Director of Alliance Strategy for Oracle concurs, believing that "...VOIP certainly has the potential to radically alter the videoconferencing and e-learning markets. Using an integrated application suite, voice over IP allows for multi-locale classrooms without expensive set-up times and overhead". With all of these fantastic features, it is easy to see why corporations are interested in implementing VOIP...yet, service providers have been offering VOIP services for the better part of 6 years, and have yet to become anything besides marginal players in the global telecommunications business.

Speaking with vendors off of the record, equipment maturity has been raised as one issue, with hybrid solutions best meeting customer needs at the current time. To quote MacKinnon, "We took advantage of our relocation to our new office in Nihonbashi to consider the best voice solution: 100% conventional, 100% VOIP, or a hybrid solution. While we examined some of the 100% IP based products, Merrill Lynch in Japan finally decided to implement a hybrid IP/conventional telephony solution. This allows us to move to 100% IP in the future if we so desire." While no system is 100% safe (and there are in fact articles written about hacking PBXes from the 1980s), the bulk of the world is now using the Internet, and that includes the vast majority of the online criminals. Even though the technology is still in the early stages, we see programs like "VOMIT", which can be used to record a Cisco VOIP conversation on a compromised network and convert it into a sound file. Tim Burress, for Variosecure, a Japan based network security company had the following to say about the security risks of VOIP "The larger problem is probably going to be flaws and/or misconfiguration of the underlying systems. Appliances are probably the bigger risk there [than servers], since most people probably just plug them in and start talking." We have already seen that the value of E-Commerce is such that people are willing to take risks to use it, and based on it's adoption to date, VOIP will be similar. Recognizing that VOIP will likely change phone service offerings, systems and even wireless communications, it is worth examining each of these in at least a cursory fashion.

Equipment and Hardware Manufacturers
Skywave's Kelley says "PBX makers are going through a migration from 100% conventional telephony (and conventional telephony fat margins) to hybrid systems which incorporate both VOIP and conventional switching. Worst case, I believe that we won't see any significant numbers of conventional PBXes being sold five years from now." It is clear that each of the major PBX makers has been moving to deal with the threat/opportunity posed by IP telephony, and particularly by Cisco, a giant in the networking market, which had no pre-existing conventional telephony base but has been moving strongly into VOIP since the late 1990s. Each of the major manufacturers (Avaya, Nortel, and in Japan, Fujitsu and NEC) incorporated VOIP functionality into their products or extended the functionality of existing PBXes with VOIP gateways. These products are not inexpensive--in fact, in some cases, the actual rate of return is longer than the depreciation cycle on a PBX, but cost is not always the issue for firms implementing VOIP. MacKinnon notes "Cost savings were a minor issue for Merrill Lynch when choosing to roll out VOIP-obviously, reducing our costs for internal calls was a benefit, flexibility was more important to us. It was easy to replace the conventional phones in our back office, substituting an IP phone for a regular PBX style phone, but our front office situation was much more complex. Financial services companies are required by law to meet a number of special requirements which the VOIP systems that we examined were not ready for." Since IP telephones and conventional telephones look and feel about the same, the shift to VOIP within an enterprise is fairly transparent for the end-user, and straightforward for the IT department (though many IT departments do not maintain PBXes traditionally). IP Voice service providers, however, are an entirely different level of complexity, as they have to run both conventional telephony services and provide for IP solutions.
How VOIP affects service providers
Service providers, similar to PBX makers, face the daunting task of maintaining profitability while still implementing a new technology. In the consumer market, there are already a number of choices here in Japan, ranging from Jen's IP Phone, one of the first international IP callings services to Yahoo's BBPhone. There remain some skeptics about the value of VOIP, however. To quote ATT's CEO, Dan Dorman, "[VOIP is] not going to, like, change my life. This is going to be a couple-of-billion-dollars-a-year product. But you have to put that into the context of a $25 billion-a-year company."
Cable and Wireless IDC's Marketing Manager of IP Convergence, Takuhiro Nakamura differs, in that this is a key component of customer management. "Enterprise-grade VoIP presents an excellent opportunity for carriers to strengthen long-term relationships with customers. Customers want to reduce their overall communications costs and carriers want to avoid loss of revenue. To remain profitable in the long term, carriers will need to do more than just facilitate convergence of data and voice communications. As we march forward toward the convergence of communications and computing, they will need to be proficient in the creation of enterprise infrastructures which increase customer agility, enable innovation and cut costs and complexity, while making the most of current systems."
Mobile Carriers
With Japan the world-leader in mobile IP traffic, and with margins that dwarf those of conventional wire-line carriers, mobile telephony providers such as NTT DoCoMo, AU and Vodafone have even more to fear from VOIP. While we might ignore the 3G based packet systems for the moment, the popularity of wireless LANs using 802.11 poses a threat that the handset makers are starting to respond to. NTT DoCoMo, in conjunction with NEC, introduced its first prototype in July of 2004. The handset will detect whether or not it is within the office, and switch between the local PBX and the 3G wireless networks accordingly. It will not be able to use any of the many wireless LAN "hotspots" around Tokyo decreasing the potential cost savings to a business. (Enterprises will also have to purchase additional equipment to IP-enable the PBX).
It is widely believed that Softbank's mobile phone strategy revolves around mobile telephony using broadband enabled hotspots, as the cost of implementing a wireless LAN compatible telephony network would be much lower than the conventional 3G style rollouts . According to Ben Miller, independent broadband consultant and former Yankee Group analyst, "... unlike the U.S. where hot spots are for laptop toting corporate road warriors, in Japan hot spots are going to be an on-ramp for mobile handsets. Hotspots are just a step toward Softbank's goal of entering the mobile market." And, as has been demonstrated in every other existing market that Softbank has entered, a price war is bound to follow.

Conclusion
VOIP takes the oldest, most profitable service in the telephony business (voice) offers the opportunity for dramatic transformation of service offering, quality and application integration. By providing businesses with higher flexibility and the ability to route internal voice traffic over existing data networks, VOIP provides material benefits to a business, though these benefits may or may not produce a superior return on investment for the business implementing VOIP. Service providers are also adapting to this new paradigm of communication in both traditional telephony and wireless space to provide combined offerings that better address their customer needs. Finally, wireless LAN enabled hotspots may be the next great thing in mobile communication, but given the competitive positions of the Japanese mobile phone giants, it looks like the competition has hardly started.

Source: http://www.fcc.gov/voip/