The telephone system

Expanding small to medium size (SMS) business firms have long faced the dilemma of how to best grow their telephone and fax services at affordable prices. The transition of going from simple key telephone systems to ownership and operation of a Private Branch eXchange (PBX) phone system involves a large capital outlay, monthly operational and maintenance costs, and the acceptance of risks associated with technical obsolesence. Traditional telephone companies addressed this need by offering Centrex service. Centrex provides a hosted telecommunicatons solution where customers rely on their local central office switch to provide PBX-like services but without the capital investment necessary to purchase a switch. Today, hosted telecommunications is rapidly becoming a synonym for a variety of hosted VoIP (Voice over Internet Protocol) service offerings. In this article, we review call quality issues you should consider when deciding if a hosted telecommunications service is the right choice for your business.

The telephone system that people used in the 1990's didn't start out with Alexander Graham Bell using a Class 5 Electronic Switching System (5ESS). High-quality telephone calls were achieved over a long period of time. Just about the time when telephone calls were reaching a state of perfection, along came cell-phones and call quality rather moved back to square one. With cell phones long distance costs dropped but so did lots of telephone calls. The new consumer paradigm became lower costs and lower quality communications. This nicely set the stage for the development in Israel of voice over the Internet.

The Internet was designed from the ground up to meet the technical requirements of computer-to-computer communications. The protocol mechanisms support cool things like allowing data to arrive over the network out of chronological order because computers don't really mind rearranging data after transit. Humans, however, tend to become a bit flustered if the end of a sentence repeatedly arrives before the beginning. Nevertheless, because it is less expensive to build a network with TCP/IP routers than with 5ESS systems the lure of reducing phone costs resulted in numerous technical efforts to refine VoIP.

VoIP, and other real-time applications, require low-latency queuing, jitter control, and other mechanisms to control the Quality of Service (QoS) allocated by network resources. One drawback to deploying QoS, however, is that it increases operational complexity and costs. QoS on the Internet is also at the center of a hotly contested debate known as Internet Neutrality or "net neutrality". The capability to prioritize traffic flows on the Internet has broad revenue and equal access implications for data applications such as the world wide web. Without QoS support, however, the quality of any given VoIP connection over the Internet is little more than a coin toss. In many areas of the world ISP's have overprovisioned network capacity, obviating the need for QoS. In cases where a transit network is not adequately overprovisioned, however, call quality can suffer substantially. Thus, it has become common to hear stories about consumers who have fantastic VoIP hosted telecommunications service from a given provider while a different set of customers of the same service experience terrible call quality to the extent that they discontinue service. VoIP hosted telecommunications providers have no control over call quality on public Internet transit networks. Business consumers especially need to evaluate their call quality requirements verses cost when evaluating VoIP hosted telecommunications services.


VoIP (Voice over Internet Protocol), or IP telephony, has become a widespread means of communication today. While earlier this was the choice of only a select few, people are now increasingly adopting VoIP solutions. The number of players in this field has gone up substantially and will continue to increase. The heavy competition prevalent in the IP telephony market has driven service providers to slash their prices and offer a wide range of features.

IP telephony uses packet-switching protocol to transmit voice signals over broadband lines instead of the conventional circuit-switching network. Analysts have predicted that when unified messaging services that include voice mail, email, faxes, and pages are coupled with IP telephones, it will propel the market to incredible heights.

Analysts have further predicted that by 2009, there will be over 155 million business IP endpoints in operation, and over 37% of these will be wireless. By 2009, 73% of customers the world over will be using a wireless handset. The wireless IP end points hold the key to sway the customers to their side.

The global VoIP market is expected to reach $3.3 billion by 2010. It is increasingly becoming an indispensable tool for businessmen because it provides cost savings, excellent coverage of voice and data, and better communication. In a recent study, the VoIP market was divided into three groups, namely VoIP over VPN, VoIP real-time QoS bandwidth, and hosted VoIP.

Multi-national companies use VoIP over VPN (Virtual Private Network) to eliminate long distance toll charges for communication between different sites. Healthcare (telemedicine) and broadcasting enterprises use VoIP real-time QoS bandwidth to provide real time audio and video data transfer. Hosted VoIP enables enterprises to save on upgrades and capital expenditure.

The growth of VoIP shows immense potential to influence the telecommunications market and bring about a radical change.


Choosing a hosted PBX service provides advantages in several areas where traditional PBX phone systems are weakest. Hosted PBX delivers PBX functionality as a service, available over telephone and/or the internet. The first hosted PBX was introduced in late 1997. Users contract for PBX services from a hosted PBX provider. Today, it is possible to get hosted PBX service with more features than were available from the first systems of this class, or to contract with companies that provide less functionality for more simple needs.

Now using a Hosted PBX Phone System you can have all of the features of the best telephone and voicemail systems, with no equipment to buy, maintain or outgrow. The hardest mainstream features to get in a hosted system are real Automatic Call Distribution (ACD) instead of simple hunt groups, flexible company directories, call transfers between extensions (or to an operator or an ACD queue), and real-time system monitoring. There are many other advanced functions that only a few providers have been able to make available. Web-based administration tools are the norm for hosted PBX services. Adding new users, changing extensions, and changing hunt groups or call queues is as easy as a point and click.

A Hosted PBX phone system can be configured to utilize your current voicemail, for example, transferring calls to your cell phone and letting the call roll into your cell phone voicemail if not answered. A hosted PBX usually can handle a higher number of calls. If the caller enters an extension they will be prompted to stay on the line while their call is transferred. If you answer you will have the opportunity to accept/reject the call. After accepting a call you can transfer the caller back to voice mail or to another extension. If the lines are busy or not answered the caller will hear the voice mail greeting for that extension and be able to leave a message. In addition, hardware PBX buyers are on usually a tight budget and buy small systems that can't grow. But there is no capital outlay for hosted PBX services, and extensions can be changed as needs change. Hosted PBX customers pay only for what they need.

There are other advantages that a hosted system has. The most important is the ability to route calls to any phone, rather than just phones wired to the PBX inside the office. Other major advantages of hosted PBX include lower entry cost, support costs, greater ease of management, flexibility, and improved scalability. No longer will your traveling employees feel out of touch. The right hosted PBX service can make their cell phone into a seamless part of the company telecommunications infrastructure: calls to their extension will ring through to their cell, and they'll be able to transfer and forward calls as usual.


Internet companies and online retailers are steadily adopting small business phone systems (Virtual PBXs in geek-speak) like RingCentral's small business phone system.

These retailers' fast adherence is no surprise, as Virtual PBXs' price/benefit ratio (from $9.95/month for virtually everything you need in a phone system) mirrors that of other services those Internet companies likely also purchase. Think:

>> Web hosting: No Equipment, low monthly fee

>> Internet access: Minimal equipment, low monthly fee

>> Online support interface for customers: No Equipment, no software, low monthly fee

>> HR Management ASP (Application Service Provider) solutions: No software, low monthly fee

>> Internet Faxing: Low monthly fee, no hardware.

Do you see a pattern here? Like other critical business functions, telephone systems are moving away from the "in-house, high initial capital spend" to outsourced, "software/systems as a service" model.

The real beauty is the explosive advantages that these solutions -- all of them -- provide to ambitious organizations like the retailers that are using RingCentral Now, ambitious startups and small business owners can really start out in a garage, and receive all the assets much bigger firms can employ for a fraction of the cost. The moniker "virtual", combined with the fantastic Internet, telecommunications, and software solutions available to the layman, are inspirational motivators for budding entrepreneurs.

Look for Virtual PBXs (or "Hosted" Small Business Phone Systems) to supplant the traditional, more expensive "box with wires" PBX solution very quickly in the coming months.

You can read online retailers' impressions of RingCentral and other virtual voice services here.
Why am I an expert? Well, I’ve worked at some of the best (and, regrettably, some of the worst) of telecommunications companies, including RCN, RNK Telecom, and GotVMail. At every stage in my career, I look at the plethora of voice technology solutions from en entrepreneur's perspective and ask, “What voice solution will help my business grow, for the least amount of money and at the lowest amount of risk?”

To share my findings with you is just the icing on the cake.


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