The first thing that most people associate with VoIP is cost savings, and generally that should be what comes to mind. While VoIP is much more than just lower cost telephony, this is usually the key driver that gets businesses to move on from legacy service. VoIP providers will typically say that you’ll reduce telephony costs by 20%-30%, and they’re right.
In absolute terms, this could be reason enough to go with VoIP, but that number alone doesn’t tell the whole story. This level of savings is actually composed of many things, and you might be surprised to learn about the breadth of areas where VoIP has better economics than TDM.
There are really two benefits to consider here. First, by breaking down these areas of savings, you’ll come away with a better understanding of what goes into that monthly phone bill. Secondly, this will help you realize how much you may be overpaying for telephony given today’s options.
Over the next few posts, I’m going to break down the different types of cost savings, after which you should gain a greater appreciation for what becomes possible when telephony is packetized and routed over a data network. In this post, I’m going to start by looking at two of the cost savings associated with the service you receive from your VoIP provider. These are ongoing monthly costs where the savings will accrue right away and continue over time.
There are actually five service-related cost savings to consider, and I’ll review three more in the next post. Separate from this type of savings are the cost savings associated with the phone system itself as you transition from legacy to VoIP. Finally, there are your IT-related operational costs, representing a third distinct area where VoIP saves you money. Each of these types will be addressed as this series continues.
2 ways VoIP Service Will Reduce Telephony Costs
1. Lower monthly line charges
This is the starting point, since every line has a monthly service charge. Micro SMBs that don’t have a switched phone system (namely an IP PBX) will pay this directly since there is one dedicated line for each employee. Businesses with switched systems are billed differently, but each employee is still charged a monthly line cost.
Generally speaking these line charges will be less with VoIP than for legacy service. Telecom operators will have different pricing plans based on volume, but the monthly line charge will be your biggest line item when looking at the overall expenditure on telephony service. This has long been the major draw for consumers when switching to VoIP, and it holds true for businesses as well.
While these savings are real, you need to understand that the price gap is diminishing, and over time will become less of a factor in switching over to VoIP. The reason is fairly simple – legacy service is on the way out. Before VoIP, carriers could charge as much as the regulators would allow, but once VoIP entered the market, true price competition was possible. VoIP providers could charge less because they had cost advantages over legacy carriers, and as they gained traction, that put downward pressure on everybody’s pricing.
As such, legacy rates have also come down, not just to stay competitive, but since they too have been adopting VoIP elements, their own operational costs have come down. In this regard, VoIP has been a win-win by lowering costs for carriers and prices for subscribers. Longer-term, however, VoIP will supplant legacy altogether, as carriers have recognized that this is the future of telephony.
2. Domestic long distance
In the early days of VoIP, this was actually an even bigger driver for adoption among consumers since this is a variable cost. When telcos were still a monopoly, they were free to create artificial pricing constructs based on the physical distance between callers, and the network resources required to enable those calls. Most of us can probably recall how this totally dictated our behaviors around when to make these calls, especially waiting until late at night for rates to drop or during weekends.
As you know, one of the Internet’s greatest virtues is breaking down barriers of geography, and with VoIP, distance is not really a factor in the cost of transport. If you think of VoIP as being like email – which it is in terms of traversing a data network – then you can understand why domestic calls are typically free with VoIP.
The high costs of domestic long distance calls with legacy service are very real, so this savings is a major benefit for all VoIP users. These savings will add up quickly for businesses with branch offices across multiple regions, and the more decentralized your operations, the more attractive VoIP becomes. To be fair, businesses with switched phone systems bypass some of these since inter-office calls are made within the dial plan rather than being new toll-based calls. However, this only applies if you have switched telephony across all your locations.
Conclusion
These two savings on the service costs are reason enough to switch to VoIP, but there’s more to consider, and I’ll examine three more in my next post. Following that will be posts about the other ways that VoIP reduces telephony costs, and with that you’ll have a much richer picture of VoIP’s economic value to your business.
About VorTech Services, INC
VorTech Services, INC, is a leading provider of Hosted Phone Systems (“Hosted PBX”) and Voice over Internet Protocol (“VoIP”) services for emerging growth and mid-sized businesses based in the United States. VorTech makes buying or upgrading a business phone system extremely cost effective, easy to manage, and even reduces monthly telecommunications expenses. Our platform offers better scalability and business continuity options compared to customer premise based phone systems. We provide the lowest total cost of ownership by eliminating the need for customers to buy expensive hardware and software that usually resides in a phone closet. Expensive service contracts are also a thing of the past. VorTech seamlessly interconnects multiple offices and mobile workers with our national footprint, and we have the perfect calling plan to meet virtually any business requirement.
Original article by Jon Arnold