While it has been around for about a decade, it is only now that voice-over-Internet protocol, or VoIP, seems poised to help a number of Ottawa high-tech startups, as well as some established players, ring up big profits.

The latest buzzword in the technology world, VoIP enables people to transmit telephone calls using their high-speed Internet connection by sending voice data in packets, rather than relying on traditional circuit transmissions.

The technology stumbled out of the gate because of the Y2K scare, which saw many companies replace their telephone equipment as the year 2000 approached. But with many companies shedding their reluctance to invest in another system, VoIP products should be the winners when firms begin to upgrade out-of-date private branch exchanges (PBX) systems, experts say.

With research predicting that residential broadband penetration will almost double to 7.2 million users by 2008 from roughly 4.8 million this year, the market opportunity for VoIP products is huge. A 2003 Frost and Sullivan report found that companies selling IP telephony equipment generated more than US$1 billion in revenues in 2000 and predicted those revenues would exceed US$14 billion by 2006.

While VoIP is often referred to as Internet telephony or IP telephony, it is actually a subset of the larger telephony market, which includes a number of different applications and services.

"VoIP, in the strictest sense, is making a point-to-point call over the Internet and IP telephony is the superset that includes things like presence, mobility, video and audio conferencing," said Helene Joncas, vice-president of marketing and business development at SIPquest, which develops applications for telecom, datacom and wireless equipment vendors and Internet service providers looking to offer IP telephony and VoIP services.

"There are subtle time efficiencies here in productivity; it's very much about immediacy and being able to do what you want."

"Presence" refers to real-time interaction on a VoIP network, where participants are identified as available and contacted via their choice of device or application type.

But most companies haven't figured out the true potential of VoIP and it's no surprise the technology continues to be slow out of the gate, said Gartner Inc. researcher Bob Hafner.

"Most enterprises continue to implement IP telephony as a one-for-one replacement for a PBX or Centrex service and, consequently, they are missing opportunities to improve business productivity and communication processes," he said.

"Too many enterprises are not taking a holistic view of this technology and the overall business opportunity. They, and many of the vendors, are still learning about where IP telephony belongs in the enterprise and the problems it's going to fix."

Forrester Research estimates that only 18 per cent of Fortune 2000 companies have had trials or deployed managed VoIP services, while less than one-tenth of one per cent of American businesses have adopted the service.

The original selling point for VoIP was the simple fact that telephone calls over the Internet were free because the user made the connection using bandwidth available from a monthly high-speed Internet service.

Using this technology, telephone calls become akin to e-mail messages, where senders don't pay extra for dialling the phone, beyond what the they pay for Internet access.

Until recently, the service provided an unacceptable return on investment, even for many large business customers. But as service providers work to expand the range of services that can be put on to VoIP, it will increase the range of access options and include both local inbound and toll-free calls.

Things are changing, said Lisa Pierce, an analyst with Forrester Research.

"By the end of 2004, multiple tier 1 providers? enterprise-class VoIP services will offer sufficient applicability and functionality to be considered ready for prime time?" she said.

"Although providers are making the business case more compelling, by Q1 2005, VoIP services will still require careful and thorough individual customer assessment. Access to emergency, operator and information services will continue to vary by carrier, as will feature sets and IP telephony vendor-VoIP provider interoperability."

The advent of a new control technology called the session initiation protocol (SIP) is helping VoIP take off. SIP is a technology developed at Columbia University that allows dynamic and interactive sessions involving multimedia elements such as video, voice, chat, gaming and virtual reality.

SIP makes it possible for users to initiate and receive communications and services from any location and for networks to identify users wherever they are.

"Going forward, you will add the mobility piece and reduce the number of devices we will need to have - right now, organizations pay for cell phone and PDA devices – and, just on a cost basis, from that perspective is attractive," Ms Joncas said.

"But that's not the main reason that organizations are deploying VoIP, it's really for the productivity gains."

The technology also has the potential to make conference rooms a thing of the past, with real-time meetings using VoIP audio or video links that let individuals get together from the comfort of their workstations. With presence running on the network, there's no scheduling or lengthy arranging of times and locations. Users simply check to see that all the desired parties are available and link them together.

"People are a little wary of travel right now and what this allows you to do across an organization that has multiple sites is to really bridge the gap and decrease the geographical distance," Ms Joncas said.

"You can have a video conference from your desktop with your virtual team. And what do you save? There's the travel cost and you are being more productive because there's no travel time, so there are all these other cost savings, along with the increase in productivity."

As the technology matures, start-up companies scramble to develop technology for the burgeoning market.

Internet service providers have even begun investigating conferencing possibilities and other services for their subscribers.

"Several managed data and voice service providers want to broaden their reach to extend support for network-centric applications or to focus on serving select vertical industries," Ms Pierce said.

"For example, EDS is assessing the VoIP packaging and support requirements of several vertical markets. British Telecommunications and AT&T want to offer managed messaging, storage/SANs and multimedia contact centre applications. As VoIP is deployed on DSL, expect to see providers over packaged telecommuter and remote agent solutions."

The next step in VoIP is adding mobility using wi-fi technology to extend what people do on their desktops to other devices and allow them to move around the organization or around the world and still remain connected.

Ottawa's Nimcat Networks has taken a different tack, developing VoIP technology that uses intelligent, plug-and-play telephone sets to establish peer-to-peer connections. Its peer telephony exchange, or PTX, allows users to plug telephones into the local area network and start talking. The software discovers each handset and automatically establishes a telephone network, regardless of geographical location.

The software also sets up a central number and provides an automated attendant, along with other features found in traditional PBXs.

But the real value in Nimcat's solution lies in its ability to allow individual users to have access to applications, while bypassing the traditional provisioning processes.

"In the old system, before you could bring in a productivity capability, you had to involve the central communications group or whatever and you couldn't make a decision on an individual need but only on a company-wide need simply because the features were centralized," said Mahshad Koohgoli, Nimcat chief executive.

"Nimcat enables these decisions to be made on an individual basis without putting in a significant amount of investment or time into the decision and it's done without affecting anyone else in the company. So, we create simplicity; for the end user, it's in the way they manage their work and manage their workflow."

Last month, Nimcat was named one of the Top 100 private companies to watch in the IP communications industry by Pulver.com The Pulver 100 selects private companies in the communications sector with substantial real-world deployments and that are enjoying significant growth rates.

"We have a value chain which breaks with the old, centralized and monolithic telecom model of the past to a more open, distribute and, therefore, more dynamic model of the future. The award is another validation of what we are doing," said Mr. Koohgoli.

- by Jeff Pappone

Special to the Ottawa Business Journal