VOIP: The morning after the hype before

In February last year there was much excitement in SA as voice over Internet Protocol (VOIP) at long last became legal, theoretically allowing for the establishment of a truly competitive telecoms environment.

The nature of the technology meant data service providers had the opportunity to set themselves up in direct competition to the incumbent telco operator, offering vastly reduced prices to private and corporate markets.

Although the announcements were met with great fanfare and comment about how this was going to "open up the industry" and "end monopolistic practices of incumbents", it was - as Shakespeare would have put it - "much ado about nothing".

Now the hype has died down and we are far removed from those heady days when providers were promising the world. It is time to look at where the industry is in terms of this supposedly wonderful technology, who is utilising it properly, and where it is going in the near future.

You get what you pay for, so if you are looking for an 80% saving, you have to be prepared to deal with the QOS issues that come along with it.

Jaco Voigt, divisional director, DataPro

The approach of the majority of the industry in the lead up to, and the period soon after, the legalisation of VOIP suggested all the sector`s Christmases had come at once and telecommunications would be transformed.

Players began announcing massive cost cuts for clients - some promising savings of 70% to 90% on calls - with little heed to issues of quality of service (QOS) and infrastructure, to name only two potential pitfalls.

"The real problems began because of what customers expected, compared to what was actually delivered; but I think a lot of it was down to naivety on both sides, as many expectations were unrealistic," says Greg Hatfield, manager of VOIS solutions at Internet Solutions (IS).

"We at IS were cautiously optimistic, as we realised VOIP is not as easy as simply flicking a switch."

Mike van den Bergh, COO at Gateway Communications, says the perception that VOIP hasn`t delivered as much as was initially hoped for is probably accurate - although unfair.

"The reality is there is nothing wrong with VOIP as a technology - it works just fine. The root of the problem lies in that the environment is not the right one in which to see VOIP successfully deployed," he explains.

One of the lessons being learned by both users and suppliers is quality is the factor that distinguishes voice.

Mike van den Bergh, COO, Gateway Communications

"Although VOIP was legalised, that was just one barrier removed; numerous others hindering progress remain, which is something our regulators need to realise. True liberalisation can only come about when the regulatory environment is looked at in a holistic manner."

Van den Bergh points out a principal hindrance to VOIP is there is no wholesale interconnect regime with either Telkom or the mobile operators, which imposes a flaw in pricing that is ultimately passed on to customers.

"Because of the lack of wholesale interconnect, the entire pricing model is messy and means it is difficult for value-added network service (VANS) providers to make a profit while still passing on savings to clients."

Jaco Voigt, divisional director at DataPro, agrees the industry not being truly deregulated is one reason VOIP has not really delivered. Another is the issue of QOS.

"You get what you pay for, so if you are looking for an 80% saving, you have to be prepared to deal with the QOS issues that come along with it," he says.

"It`s all about perception, particularly since South Africans are renowned for wanting as much as possible for as little as possible. So one answer to VOIP`s problems lies in customer education, which is critical to ensuring they understand issues surrounding quality."

There have been fears in the industry that potential customers will have had their fingers badly burned by fly-by-night operators which offered enormous cost savings in the early days.

Nonetheless, reputable VOIP providers still feel there is a strong case to be made for the technology.

"I have no doubt there are a lot of players who have over-promised and under-delivered on VOIP services," says Van den Bergh.

It`s unbelievable that, in the space of a single year, we seem to have gone from hailing VOIP to calling it an abject failure.

Andy Bull, director, Mitel

"Part of the problem is too many of the players came in from a data background, and the QOS issues that affect voice are very different to those that affect data. After all, you won`t notice if it takes your e-mail 10 seconds longer to come through, but if there is even a one-second lag on voice delivery, it`s a major problem."

Jacques du Toit, a director at Orion Telecom, says false hype comes mainly from the bottom end of the market, with the man-in-the-street being led to believe VOIP is the ultimate key to low prices. This misconception is taking time to change.

"From Orion`s perspective, we believe the industry should be putting its money where its mouth is, giving clients a free trial period, for example, so they can see for themselves that it actually works and the quality exists. In other words, providing some form of guarantee," he says.

"By the same token, customers need to be educated about the additional advantages VOIP offers in terms of new business processes and new applications - we need to move them away from only viewing it as a cost savings exercise," says Du Toit.

Andy Bull, a director at Mitel, points out that while clients` expectations were generally only focused on cost savings, Mitel`s view was solely on using the technology to improve the way people work, through improved business processes.

"Customers, however, are increasingly seeing the business benefits of this technology and are starting to realise there is more to this than just cost savings. Also, we are seeing a better symmetry between telephony and IT guys within companies, so there is more of an understanding about what an IP handset can offer," says Bull.

"As clients begin to understand IP telephony provides the ability to have your office wherever you are and, by giving staff this same functionality and allowing them to manage their time themselves, they are realising how much productivity can be improved."

Tim Wyatt-Gunning, joint-CEO at Storm Telecom, believes his company is capitalising on the technology, despite the bad press it has received.

"Storm anticipated having 100 installed VOIP sites - covering everything from single-site, medium-sized businesses to multi-site corporations - by the end of December 2005. We already have 180," he says.

"We have mostly been selling our services through references, and it is starting to snowball now. Although it is too early to answer definitively, I believe this year will be the crucial one for us."

He sees customers becoming more sophisticated, with fewer fly-by-nights around because they have been "found out".

"One of the lessons being learned by both users and suppliers is quality is the factor that distinguishes voice. A lot of clients have been alienated from the technology because they were burned in much the same way as the early adopters of wireless broadband were. They blame the technology rather than inexperienced providers and teething problems," says Van den Bergh.

"This is why I can`t hammer home enough the principle of quality, quality, quality. You can go too far in reducing costs, and if you push the boundaries too far, you run the risk of having short-term gains but long-term bad effects. The solution is to make quality and price a holistic package."

Dobek Pater, a telecoms analyst with Africa Analysis, says SA`s move towards VOIP has been slow. He quotes an ISP his organisation interviewed last year: "VOIP is not flying out the door. It is being pushed out screaming and fighting."

"ISPs counted on VOIP as a significant revenue generator early on, and mostly underestimated the level of technological and human resource involvement necessary to deliver quality VOIP services," says Pater.

"They have since revised their view on VOIP on both accounts and have begun to approach it on a more rational basis. This goes equally for the big VANS providers."

He says part of the reason for slow uptake is corporations and large companies adopted a cautious attitude from the start.

"VOIP has nonetheless introduced an additional element of competition. It has had an impact on the cost of telephony both nationally (rather than local calls) and internationally," says Pater.

Even globally, he point out, VOIP has not taken markets by storm, but has rather demonstrated gradual market penetration with growth rates having slowed down significantly over the past couple of years - although expansion is still much faster than traditional PSTNs.

"We will see greater adoption of VOIP over the next couple of years, but for VOIP, or whatever it mutates into in the future, to become ubiquitous we still have to wait a few years, even globally," states Pater.

He believes the next area of VOIP development will be over wireless and mobile technology, such as WiFi, WiMax, 3G, HSDPA and similar offerings.

"As for VANS providers, despite the fact that some of them have had to redesign their networks and service/value offerings, they are mostly in a stronger position now to approach the market again - without the hype. I believe we will soon see the VANS providers going back to the market, but with a lot more realism," he says.

According to Bull, once things move beyond cost saving, users will begin to realise additional benefits.

"There are a number of 'hot buttons` to look at. Presence awareness, and audio and video conferencing, and of course mobility, will play a big part in the overall business case.

"It`s unbelievable that, in the space of a single year, we seem to have gone from hailing VOIP to calling it an abject failure. Our industry is good at hyping then killing things before it gets a chance to show what they really can do. VOIP just needs more time to germinate fully."

Hatfield says VOIP offers many opportunities, it is simply the "when" that is the issue.

"We mustn`t put too much focus on the value-adds just yet because, at this point in the game, most players are still just trying to tick the box that says 'cheap VOIP call`. Not too many guys have even ticked that off yet, so we need to be cautious."

Van den Bergh believes the future will see all-IP multi-service networks being deployed, where voice becomes one of the payloads capable of being carried across this network - which may carry voice, data or video, to name a few possibilities. This again raises the issue of quality as a critical factor.

"It will be up to the service providers to ensure they manage the traffic flow so quality-sensitive traffic is always prioritised - so customers get what they expect, when they expect it."

He also says there is a tremendous opportunity for government to take a firm grip, from a policy point of view regarding implementation of the Electronic Communications and Transactions Act, and ask how this can be used to resolve the problems affecting the market.

"[Government] must use the Act to drive the market forward, by looking at it in the broadest context and understanding that policy and legislation needs to create a holistic environment for overall success. It`s about putting all the pieces of the jigsaw in place to ensure government can deliver on its promise," Van den Bergh concludes.