Telecom Cost Reduction through SIP

IP telephony and Session Internet Protocol (SIP) are emerging as a key way to cut telecom cost as well as deliver the benefits of unified communications. Those benefits focus on collaboration, centralized management, and streamlined communications, such as 4-digit dialing and follow-me capabilities.

A Frost & Sullivan research report lays out the core rationale for IP telephony. The savings include reduced calling costs; faster and more efficient moves, adds, and changes; lower overall network monitoring, management, and configuration costs; and reduced access and long distance call calling costs through voice-over-IP (VoIP) and SIP.

IP telephony also brings enhanced services. These include such capabilities as soft phones; rich presence information; chat; audio, video and web conferencing; mobile access to enterprise applications; and advanced contact center applications, according to Frost & Sullivan.

Although the Frost researchers estimate 30% of organizations have some level of IP telephony many businesses today continue to organize their telecommunication by office or location through conventional local phone lines. They still rely on traditional TDM (time division multiplexing) telephone technology delivered by the local telecom provider. Such traditional networks are location-oriented and need physical provisioning, maintenance, and management at the site of the voice lines, all of which makes this phone setup inherently inefficient and costly.

The problem lies in TDM, the port-based technology that requires fixed-line provisioning at each location. With TDM, the trunks (individual phone lines) require proprietary line cards that terminate the phone company’s dial tone at an organization’s on-premise equipment, often a PBX. Costs include on-premise equipment, carrier dial tone service for each phone line, and ongoing maintenance and support.

And that’s not the worst. Most companies install more phone lines than they really need to handle the rare peak usage when everyone at the location is on the phone at the same time. Given the way the carriers package TDM lines as T1 or PRI trunks with 24/23 voice channels the inefficiency can be startling, as much as 48% underutilization of trunk packages even though such bulk buying still is cheaper. Even in the best cases more than one-fifth of the contracted line capacity may go unused.

In a published report, industry analyst Irwin Lazar at Nemertes Research estimates that on average companies adopting SIP save as much as 60% over what they pay for traditional TDM service. In one case a company used 1,500 SIP trunks to replace 2,250 TDM trunks, which reduced telecom expenses from $5.4 million per year to $945,000 per year.

As IP telephony, SIP takes advantage of the flexibility and inherent efficiency of the IP network, allowing organizations to centralize and consolidate phone lines, simplify management, and redeploy underutilized lines on the fly. In short, SIP eliminates the need to physically deploy extra—and often idle—TDM circuits in each location. Centralized management of such activities as moves, adds, and changes, which can be accomplished with the click of a button, further reduces costs while enabling a more responsive organization.

There are a number of paths to IP telephony. The usual way is through one of the carriers, such as Verizon, or one of the networking vendors, such as Cisco. More recently, IP telephony vendors, such as Smoothstone, have been cropping up in the cloud to provide fully hosted IP trunking to each location using SIP or some form of TDM emulation or a media gateway.

The immediate benefits are substantial costs savings, flexibility, and efficiency. In the long term, IP telephony lays the foundation for unified communications and collaboration, the benefits of which I summarized here last fall.



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  1. #1 by Sandy on July 6, 2012 - 4:40 pm

    Nice post which There are a number of paths to IP telephony. The usual way is through one of the carriers, such as Verizon, or one of the networking vendors, such as Cisco. Thanks a lot for posting this article.

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