The real benefits of VoIP VPN

Henning Dransfeld, Senior Analyst and Service Manager for IP-Enterprise@Ovum

The market for IP VPN services to large corporates is becoming increasingly competitive. To avoid cut-throat competition and eroding margins, service providers increasingly look at the possibility of bundling voice services into the offering.

Packet switched voice provided over corporate IP VPN networks has been touted as a potential next winner in the battle for customers, mind share and revenues.

Voice has become an important differentiator for IP VPN services. Operators promise cheaper telephony through on-net and off-net services.

First, a few definitions. On-net calls are not charged for and off-net calls are cheap. Companies do not pay any metered charges for voice calls between offices connected to the network and a low charge for off-net traffic for calls to an external party.

Companies like Infonet and Equant offer destination based pricing for over 40 countries. Instead of receiving a phone bill from the local incumbent for the last mile, the caller encounters a fixed charge from the IP VPN operator priced at a few US cents a minute.

What is the real benefit of considering VoIP VPN?

Potentially, businesses with international calling patterns will save millions. And service providers will sell more managed IP VPN services, avoid price erosion and also make millions. Or so it looks on paper.

But here is a dampening factor. In metropolitan areas, traditional business voice services based on PSTN networks have become highly competitive and thus aggressively priced down.

A barrier for measuring cost savings is the fact that many companies do not monitor the telecom bill of their entire branch network. Principally, the ability to establish a better deal on VoIP over VPN versus traditional PSTN telephony depends on the following key factors.

Amount of international traffic between sites

Companies which have most of their traffic concentrated within a country, such as often the case in the retail industry, do not stand to gain that much. Most incumbents are prepared to go a long way in offering discounts to keep their gold customers. Companies that have major sites in several regions are more likely to benefit from flat fee international calling services.

Location of the sites with heavy voice traffic

Many services companies already benefit from competitive international calling services since their offices are based in locations where several providers try to win their business. Services industries such as investment banking focus their sites on major metropolitan areas with easy access to top clients. Companies with offices in London, Frankfurt and New York have the choice of several providers for each of their locations. By contrast, manufacturing companies with plants located in less crowded places, could well be in better position to gain from VoIP over VPN.

Amount of calls placed internationally to outside parties

International calls made from within an office to outside parties are still expensive. Companies with such traffic stand to gain much from Voice over IP VPN services. An example is a London-based shipping insurance company with clients in Greece or Panama.

Amount of voice traffic in regions with high call charges, such as Asia Pacific

PSTN call charges in AsiaPac are higher than those in Europe and the USA. This is due to the fact that many markets are not fully deregulated and few companies provide competition to the incumbents. Here, global service providers promote the opportunity of large savings since they can provide substantially cheaper international telephony over their IP VPN network.

Are multinational companies going to save millions?

Overall, Voice over IP VPN sounds compelling, but some companies are not actually set to gain from it. Unless you fall into a specific category of companies with specific calling patterns, you have to look carefully at the savings you are trying to achieve.

For more on how Ovum can help your organisation understand the issues around IP VPN, contact Henning Dransfeld directly on HED@ovum.com or see IP-Enterprise@Ovum.

Learn more about Henning here.