Phoning for Nothing and Your Clicks for Free

January 1, 2005

Apologies to Mark Knopfler for the title, but you know something very big is happening when a national telephone provider announces plans to throw most of its present equipment into the bin by the year 2008. Such however is the bold statement already made by none other than our very own BT. In the USA, Verizon Communications announced on 22nd July that it intended introducing a new technology across America. The technology that has caused so much excitement, and to which individual Internet users are signing up in their millions, is Internet telephony, or to give it its technical name, Voice over Internet Protocol – VoIP.

The selling point of VoIP is, quite simply, that the cost of telephone calls made using the Internet as opposed to traditional phone lines is reduced either to the point of insignificance, or eliminated all together. That’s right – free phone calls are possible.

VoIP converts the spoken voice into digital data packets that are compressed and routed over the Internet just like an e-mail or any other kind of data. Calls are then charged at local call rates as for any Internet communication, regardless of destination.

As an example, even those Internet telephony services where a charge has to be paid for the call nevertheless offer staggering savings as against standard rate or even discounted rate offerings from the current telephony providers. To give but one example, a one minute peak rate call from the United Kingdom to New Zealand costs around 3p per minute using Internet telephony. That compares favourably to around 40p per minute at standard telephony rates. One would have to acknowledge that the current telephone providers invariably offer discounted rates in return for payment of a top-up fee, and that other cheap-ish schemes exist involving the purchase of a calling card and the use of a long number to be dialled before making a call. However Internet telephony is typically cheaper than traditional systems by a country mile, and at least one offering, if used by both caller and recipient, can result in the ability to make free telephone calls anywhere in the world. As with all services, different companies offer different rates so shopping around is in order. The potential savings are perhaps greatest for those businesses with offices in various locations within the UK, or those with offices around the world who will until now have had to pay premium rates to make telephone calls during the day.

Businesses can also choose to use VoIP for calls within their company network, leaving the option of using standard phone lines for calls outwith the company. Even this restricted application of VoIP can result in huge savings. In addition, VoIP calls can be made either using a headset or microphone, or a “proper” Internet phone. Internet phones can for example receive voicemail messages as e-mail attachments, dial numbers by clicking on the name in the address book, and have a main number ring on several different phones. Beyond this, Internet phones are not tied to area codes so that you can take your number with you when you move or enable your customers to reach you at a local number when in reality your office is located far away.


Three of the foremost providers of Internet telephony are BT, Net2Phone, and Phone. These three providers charge for calls, albeit at minimal rates, even when both parties are using the same software. However the current buzz word on the Internet is “Skype” pronounced, amusingly enough, as in “hype”. But this is no vacuous sales pitch. Skype is enjoying the sort of success that P2P music software such as Napster, Grokster, and Kazaa have enjoyed in the past. Perhaps this is not surprising since Skype is also a P2P application.

Skype announced on 21 October 2004 that it had reached the one million mark for simultaneous users of its P2P telephone software. Calls from one Skype user to another are free. In addition, Voiceglo, an Internet phone service available wherever there is an Internet connection, has stated that it is now approaching two million customers. Overall, VoIP is experiencing an average monthly growth rate of 122%.

VoIP originated ten years ago in the geek realms of Internet game playing, allowing sad combatants with no social lives to talk to each other for hours in the course of battle, as it were. But it was quickly realised that the technology could be applied to more standard telephony uses.

Big Business Takes Notice

There have been a number of significant corporate expressions of interest in VoIP. Newport Networks, the British VoIP equipment maker which floated on the stock market in 2004, has been selected by Marconi as the provider of the soft switch platform which lets existing telecommunications companies support VoIP across their networks. BT is currently trialling Marconi’s ‘SoftSwitch’ product as part of its plans to upgrade its whole network to VoIP by 2008. BT is expected to commit most of its £3 billion annual budget for capital expenditure to VoIP between 2004 and 2009.

Cisco Systems, the US security giant, has won several significant Internet telephony contracts. Recently Cisco announced a deal with Bank of America to deploy 180,000 Cisco IP telephones throughout 5,800 banking centres and enterprise locations in 29 states and the District of Columbia. Cisco previously announced similar contracts with Boeing. Ford Motor Company announced in Summer 2004 that it planned to install 50,000 Cisco VoIP phones in 110 offices throughout Michigan. Cisco claims to have sold more than 3.5million Internet phones, displacing 8,000 traditional circuit-based telephones every business day. Cisco claims to have nearly 17,000 IP communications customers worldwide.

Not every VoIP deployment has gone smoothly. Last year Merrill Lynch and the State of Alaska both cancelled large contracts for Internet telephones. In addition, voice quality using VoIP is improving rapidly but depends upon the availability of high speed broadband Internet connections, since Internet telephony involves compressing the voice packets so they can be sent quickly. Once VoIP is in place, it can come as a sobering realisation that your phone system will always now be controlled by computers. If your computer crashes (not an entirely unknown occurrence) then you cannot use your telephone. This author feels however that the “crashed phone network” concern is overplayed since so many users have mobile phones, even before one gets into the realms of disaster recovery planning. An always-on broadband connection is also essential to run VoIP, though this is an obstacle that is retreating daily.

VoIP calls can be made from PC to PC, or PC to telephone, or between special Internet telephones, which are inexpensive. For all except the latter calls, it is simply a matter of downloading software like Skype or Net2Phone, paying in a small amount by credit card, plugging in a headset or microphone, and dialling numbers using the onscreen keypad. To make Internet calls from a telephone, you will need to sign up with a service provider who will supply all the hardware and software. Naturally for any business this is a project to be tackled by the IT Department.

Party Pooping

The question mark over VoIP is not availability of a ready market, nor price. Instead, the biggest threat is political. Who, in short, is to regulate an Internet based telephony service? How, if at all, is the use of that system to be taxed? It is in part the absence of a taxation regime that makes Internet telephone calls so cheap. This issue is currently receiving detailed consideration in the USA but for the moment the FCC has exempted Internet telephony services from the regulatory and taxation regimes of standard telecommunication systems

Diesel fuel used to be cheap but it isn’t any more. Cheap air tickets now carry hidden taxes. History shows that where demand exists, the taxman follows. Debate is raging in the USA as to whether VoIP is a telephony service at all, and how it ought to be regulated. In addition the VoIP companies there feel that they ought not to have to offer 911 emergency services, including the ability to trace callers who call 911 which the traditional phone companies have to offer, or that VoIP providers should have to pay into the Universal Service Fund. In the UK, Ted Woodhouse, IT Director at Leeds Teaching Hospitals NHS Trust, has stated that a converged network is too risky to rely on for telephony, especially in life critical areas like hospitals. Hospitals can just about work without IT for a day or so, provided the phones are okay, or without the phones if all the IT is up and running. Loss of both could compromise patient care.


View from IT Managers

In a recent survey undertaken by the IT news Web site, some of the leading IT chiefs gave their blessing to VoIP, stating that (by a majority of 11 to 1) the benefits of the system greatly outweighed the risks. The single point of failure issue could be addressed by “careful resilience planning and architectural design”, to use the jargon. Henry McNeill, CIO at Telstra Europe, stated that the main issue was not the often advanced risk of putting everyone’s eggs in one basket. The key was finding an appropriate solution to fit each business to make the best use of technology and available savings. This would not necessarily involve ripping out existing PBX networks. Another manager felt that the fact there was one system and, therefore, a risk of total breakdown, actually constituted an advantage. It would compel better disaster and recovery planning all round. The sole voice of dissent was raised from Peter Smith, Director of IT at Inmarsat, who felt the benefits did not outweigh the risks for most large corporations with an existing wired phone infrastructure.

The general consensus was that the risks of VoIP can be minimised by having a robust infrastructure. Graham Benson, Information Services Director at Screwfix Direct, stated that problems could be avoided by designing the system so that there was no single point of failure. Diverse routing and multiple carriers could achieve this. He stated that Screwfix Direct does this already as a business continuity measure.

As one might expect for an industry in its relative infancy, the predicted growth figures vary widely. Juniper Research predicts the business VoIP market will reach US $20 billion in 2009. But the business consultancy analysis predicts European VoIP market will ‘only’ be worth €1 billion in Europe by 2007.

Internet telephony, VoIP, is here to stay. Solicitors, with a few notable exceptions, have a dismal record in relation to adopting new business methods generally, but all firms regardless of their size would do well to find out more about VoIP – or at least have their IT Departments prepare a briefing if they are big enough to have IT Departments. At least one major UK Estate Agent has already converted to VoIP. And we all know where that sort of thing can lead. If the lure of free phone calls doesn’t convert the IT Luddites in our profession, nothing will.

Paul Motion is the Convener of the Law Society of Scotland’s E Commerce Committee and Chairman of the Scottish Society for Computers and Law. This article was first written as a professional briefing for the Journal of the Law Society of Scotland and is published here with the author’s permission.