At the moment, small- and medium-sized businesses (SMBs) have perhaps the most to gain from the explosion of new VOIP services. In one move, businesses can outsource their communications, doing away with clunky, on-site PBX equipment and leveraging VOIP to reduce their monthly phone bills. Some of the new SMB VOIP services also offer new tools like "unified messaging" (converged voicemail and email) that can actually improve productivity. (See Study: Multi-Site SMBs Drive VOIP.)

New companies have been hurrying to deliver converged voice and data services to SMBs over the past year – and for good reason.

The SMB market as a whole continues to grow and play a greater role in the economy, according to the US Department of Labor. In the last 13 years alone, firms with fewer than 500 employees have created 65.5 percent of the new jobs. Firms with fewer than 100 employees accounted for 46.4 percent of employment growth.

Many of these business are just now converting to VOIP services. The number of residential and SOHO VOIP subscribers worldwide is expected to nearly double by the end of this year to over 47 million, says a recent Infonetics Research Inc. report. Right now, only about 17 percent of SMBs in North America have converted to VOIP. (See Yankee Points to VOIP QOS.)

By most definitions, small businesses employ between two and 50 people, while medium-sized ones employ between 51 and 500.

In this mini report, Light Reading takes a detailed look at some of the leading SMB VOIP solutions on the market today. We chose to profile the ones that seem to be selling well, as well as a few lesser-known services that are well regarded by people who know.

Table 1: SMB VOIP Services: The Details

In order to get the details (including prices), we put together a sample request for proposal (RFP) and asked selected service providers to respond to it. The RFP describes a small business of 10 employees split between two offices – one on the U.S. East Coast and one on the West Coast. We include in our report the details and pricing of the proposals they sent back, no more and no less.

The RFP described a sample business with the following attributes:

Features needed:

Because the VOIP needs of small business vary so widely, and because providers are proposing such a variety of solutions, our list is not meant as a ranking. Close observers of the SMB VOIP space say it's too early to declare any market leaders. (See Savatar Reports on SMB VOIP.) In addition to the table, here are the other sections of the report:

This is the first version of our SMB VOIP services report, and we will continue to update it as new and particularly good services emerge. Please let us know about services we may have missed, and tell us what you think of those we included.

— Mark Sullivan, Reporter, Light Reading

Survey research shows that SMB owners and managers are interested in VOIP to the extent that it can (first) lower their telecom costs, and (second) make their voice and data systems easier to manage.

Smaller SMB VOIP providers like Voilà IP Communications Inc. and Aptela Inc. understand the voice and data needs of SMBs, and are marketing services to them aggressively. "They're selling on the basis of economics first, system management benefits second, and then they're selling some of the IP PBX feature set," says John Macario, president of the research consultancy, Savatar .

By and large, these companies are offering SMBs a bundle of hosted IP PBX, data access, and flat-rate calling plans. SMBs are buying such solutions, and experts say the adoption curve is just beginning to rise.

Conversely, larger providers like the RBOCs aren't at present marketing VOIP services aggressively to the SMBs, Macario says: "We speculate that it's because they're not interested in cannibalizing their customer base just yet."

In general, SMBs are buying two types of VOIP service: hosted IP PBX bundles and IP trunking services (also called "converged voice and data" services).

Because our RFP stipulates that our hypothetical business owns no PBX, the majority of the responses we received are for hosted IP PBX services.

In hosted solutions, the PBX functions (messaging, hunt groups, forwarding, find me/follow me) happen at a BroadSoft Inc. or Cisco Systems Inc. (Nasdaq: CSCO) IP PBX server in the provider's office or data center, not on the customer's premises. The SMB usually buys new IP phones to take full advantage of the IP PBX functionality, our vendor sources say. Broadband service and local and long-distance voice services are also bundled in. Some examples of hosted solutions are Sprint Corp. (NYSE: S) IP Voice Connect and Aptela Business VOIP.

A second and less expensive option is an IP trunking service from the likes of XO Communications Inc. and Cbeyond Communications (Nasdaq: CBEY). These services consist of data service, local and long-distance service, and some modest IP PBX features. The customer continues using its existing phones, and the PBX functionality of the phones usually remains the same. However, if IP phones are in place, some trunking providers are able to deliver some IP PBX features through their networks.

SMBs have been far slower than residential consumers to begin embracing VOIP in large numbers. There are several reasons for this.

Both providers and small businesses are still working out which features and benefits should be included in an SMB VOIP package. In fact, there is no one-size-fits-all VOIP solution for SMBs. The services are as various as the needs of small business customers.

Savatar's Macario says no nationally recognized IP provider has stepped up and begun aggressively marketing VOIP to small businesses. The SMB market does not have its Vonage Holdings Corp. (NYSE: VG)

Yet SMBs have arguably more to gain from the technology than residential consumers.

Aptela Inc.
Aptela has sold SMB VOIP services since its launch in 2001. It sells its branded hosted IP PBX services directly, while also selling a wholesale service through a reseller network. Privately held, Aptela took a $5 million dollar funding round (its first) in January 2006. Aptela says it provides its hosted VOIP service to more than 1,000 SMB customers. Those customers are businesses of fewer than 200 people, and the majority of them fall in the 5 to 20 employee range, a sales rep tells Light Reading. The hosted VOIP service is available in major metros in all 50 states, the company says.

Bandwidth.com
Bandwidth.com launched its SMB VOIP solutions, including hosted IP PBX, in 2004. The service is supported by a Sylantro Systems Corp. IP PBX server. CEO Henry Kaestner tells Light Reading the big telephone companies saw the SMB market as the “great unwashed masses" and largely ignored them throughout the 90s. Bandwidth.com came together in 1999 hoping to take advantage of the opportunity. The company began buying T1-through-OC12 capacity from carriers around the country, reselling the services to SMBs. Bandwidth.com says its SMB VOIP services are available in all 50 states, and that its customers range in size from 5 to 100 employees.

CallTower Inc.
San Francisco-based CallTower sells a bundle of IP PBX, local and long distance, and data service. The company also hosts a Microsoft Corp. (Nasdaq: MSFT) Live Communications Server and the Cisco Systems Inc. (Nasdaq: CSCO) CallManager softswitch, which are integrated with the hosted VOIP service. CallTower says this allows it to offer SMB customers advanced features like presence, and voicemail integrated with Microsoft Outlook. A company representative says the company’s typical SMB customer is between 15 and 45 employees in size. The privately held firm also has operations in Salt Lake City and Oklahoma City, and sells to small businesses nationwide.

Cbeyond Communications (Nasdaq: CBEY)
Cbeyond sells perhaps the best-known converged voice and data (also called “SIP trunking”) bundles available to small businesses. The service, called BeyondVoice, is an integrated package of local and long-distance voice, high-speed T1 Internet access, and basic voice features. The voice and data services are integrated using the SIPconnect protocol and are delivered over a common circuit. That allows bandwidth to be freed up for other uses when call volume is low. BeyondVoice is made to plug-and-play with a number of managed (on-premises) IP PBX systems including Asterisk, Avaya Inc. , and Cisco. While trunking solutions like BeyondVoice are often used by businesses that already have a PBX system on site, it can still deliver some basic voice features (voicemail, email, caller ID, etc.) for SMBs with no PBX.

CentricVoice
CentricVoice is a voice-enabled ISP focused on selling hosted PBX and VOIP service to the SMB market. The company signed an agreement with Level 3 Communications Inc. (NYSE: LVLT) in 2004 that gave it a national footprint overnight. The Level 3 network reaches about 93 percent of the U.S. population. A sales rep tells Light Reading the company’s typical customer is a small business of between 3 and 10 employees. CentricVoice says it has sold VOIP to businesses in healthcare, manufacturing, advertising, legal, non-profit, communications, and aviation. The company also resells Cisco hardware to support its hosted VOIP service at the customer premises. The company is privately held and based in Dallas.

Speakeasy Inc.
Speakeasy launched its ISP-hosted VOIP product in 2004, and revenues from the service reached $65 million in 2005. The ISP began life as an Internet café in Seattle. It soon began investing in its own fiber to expand its reach outside the city, and eventually outside the state. When Speakeasy began selling SMB VOIP service two years ago, it sold a wholesale IP PBX service from New Global Telecom Inc. As customer counts increased, Speakeasy bought its own IP PBX servers. Speakeasy says SMB VOIP customers now account for one-third of its broadband lines, and for 58 percent of its total revenue. Speakeasy sells broadband and related services in “most metropolitan areas” in the “lower 48” states. Its typical customer for SMB VOIP is a multi-office business of 5 to 25 employees.

Sprint Corp. (NYSE: S)
Sprint IP Voice Connect is Sprint’s flavor of a network-based hosted PBX. The service is enabled by Lucent Technologies Inc. (NYSE: LU)’s Hosted VOIP Solution for Enterprises through its Global Network Operations Centers. Available in 250 markets, the service is used by all sizes of small businesses from 5 employees up, the company says. IP Voice Connect allows mobile PCS phones to tap into the office PBX for calling and voicemail. Sprint Nextel says it intends to eventually extend all PBX functionality to PCS mobile phones. Customers can choose from a number of “calling bundles” for domestic calls, and may add metered international long distance.

Verizon Enterprise Solutions
The Verizon Business Hosted IP Centrix service is based on the old MCI Advantage hosted VOIP service. The service, which runs from a Broadsoft PBX platform, is available in more than 190 markets across the country, Verizon says. A Verizon sales rep says the carrier sells the service to businesses of five employees and up. Verizon also sells an IP trunking service for customers already using Cisco CallManager IP PBX and IP phones.

Voilà IP Communications Inc.
Voilà IP offers converged voice and data and hosted IP PBX services based on the Broadsoft server platform. Its product bundles include unlimited local and long distance, dedicated high-speed Internet access, E911, Web-based call and account management, and collaboration and messaging applications. Voilà is based in Houston and only recently stretched its coverage area outside Texas to include 70 U.S. cities. The company says it sells services to businesses with anywhere from 5 to 200 employees. Aside from basic PBX functions, Voilà Office IP features some advanced collaboration tools such as file sharing, secure instant messaging, shared contacts and calendar, and audio and video conferencing.

XO Communications Inc.
XOptions Flex is a VOIP services bundle that combines local and long-distance voice with dedicated Internet access (DIA) and Web hosting for a flat monthly price. The service has been on the market for about 18 months. XO says it hit the 5,000 customer milestone in July. The service can support multiple offices with as many as 160 employees per location, but the service is most popular with small businesses of 5 to 15 employees, a sales rep saysid. XO points out that voice calls are carried over the XO nationwide private IP network and softswitch platform, not the public Internet. The service is available in 72 U.S. cities thus far.

One of the key goals of our RFP exercise is to compare costs from different service providers. This comparison is presented with the caveat that each service offers different features, terms, and equipment. So readers should pay careful attention to the other details from each proposal as they relate to price. Following are some short descriptions of the data contained in the spreadsheet we created from the responses to our RFP.

Table 1: SMB VOIP Services: The Details

Type
This column refers to the type of VOIP solution offered by the provider in response to our RFP. In general, the SMBs are buying two types of VOIP service: hosted IP PBX bundles and IP trunking services (also called "converged voice and data" services). Because our RFP stipulates that our hypothetical business owns no on-site PBX (private branch exchange), the majority of the responses we received (seven) are for hosted IP PBX services. The other three propose IP trunking solutions.

For the definitions and descriptions of hosted IP PBX and IP trunking services, please see Page 2.

Availability
The geographic availability of any service should be the first question asked when looking at its relative value versus its peers. When researching this report we found that not all VOIP service providers have a nationwide reach.

Many of the services target customers in only the largest metro areas. For example, Sprint Nextel says it reaches 250 U.S. cities, while Verizon says it reaches 190 cities. Of the providers that responded to our RFP, Cbeyond claims the smallest footprint, serving only Atlanta, Chicago, Dallas/Fort Worth, Denver, Houston, and Los Angeles.

Aptela, Speakeasy, CentricVoice, and CallTower each reach a nationwide footprint with their services.

Target Market
The common definition of a small business is one with between two and 50 employees. Medium-sized businesses have between 51 and 500 employees.

Many of the providers offering SMB VOIP services, whether they say so publicly or not, are actually targeting a well-defined slice of the SMB space. The services are designed in such a way (features, scale, price) as to make most economic sense for a certain type or size of business customer.

For an SMB considering a VOIP solution, the target audience of a potential provider – and whether the SMB fits in it – is a crucial consideration. We use this column to point out what size of customer the provider considers its "sweet spot."

CentricVoice is targeting the "microbusiness" market with an ideal customer at between 3 and 10 employees. XO targets a similar business of between 5 and 15 employees. CentricVoice, Aptela, Speakeasy, XO, and CallTower each target true small business customers of fewer than 50 employees. The rest of the providers – Verizon, Cbeyond, Bandwidth.com, Sprint, and Voilà IP – offer several customizable packages that scale to fit businesses in the small- and medium-sized ranges.

Term
VOIP service providers typically require a one-, two-, or three-year contract with new business customers. Speakeasy and Aptela responded to our RFP with one-year service contracts. Sprint and Bandwidth.com responded with two-year contracts, while the rest responded with three-year contracts.

Many offer all three terms, with item-by-item prices decreasing slightly as the length of the contract increases. Providers base their prices on the cost of setting up and delivering their service bundles for a pre-determined period of time. They are, in many cases, willing to "subsidize" some of the upfront costs if they're assured of receiving monthly payments for an extended period.

Extras
In this column we list the "extra services" offered by each provider. Each of the ten service providers we profiled include in their proposals features that go beyond the basics requested in our RFP.

These additional features can be included as a way to specialize the solution to the provider's target audience. In other cases, the extras reflect the provider's philosophical views on what SMBs really need (now and in the future) in the service. For example, several providers have built significant wireless connectivity into their solutions, based on a belief the SMB employees are increasingly mobile. In another example the provider includes free integration with Microsoft Exchange Server.

For the most part, these "extras" fall into two main categories: "unified communications (UC)," and "find-me/follow-me" features. Following are brief descriptions of these services. Unified Communications (UC)
This set of features allows users to view and act on their voice mail, email, faxes, and schedule information from one central location. Phone calls can be returned with a mouse click, and conference calls can be set up by dragging and dropping participant numbers. Also, users can call in from a remote phone and "listen" to their email. Some systems even allow users to receive written transcripts of their phone messages. Providers touting UC extras include Speakeasy, Sprint, and CallTower.

Find-me/follow-me
Find-me/follow-me features, in general, route incoming phone calls to a sequence of other phones until the user picks up, or the call goes to voice mail. For instance, the system can be instructed to first ring at the office phone, then ring on a cell phone, then ring at a home phone, and only then go to voice mail. Users usually have access to a PC interface where they can easily set these rules. The providers that emphasised find-me/follow-me functionality the most in their proposals were Voilà IP, Sprint, CallTower, and CentricVoice. We took note that the IP trunking solutions – Bandwidth.com, Cbeyond, and XO – offer some simple call forwarding, but do not accomodate the complex find-me/follow-me schemes of some of the hosted PBX services.

Others
Other extras include free Web hosting services, full E911 support (Voilà IP), and, in CallTower's case, free integration with the company's hosted Microsoft Live Communications server (the hosted service itself costs extra per month).

Price Upfront
The "upfront" or non-recurring costs associated with SMB VOIP services usually include setup charges for services or hardware charges for routers. Upfront costs vary widely among providers because some build the setup and hardware costs into the monthly charges for the service while others don't. For instance, Speakeasy says upfront costs are only $50, yet it supplies an Edgemark router that is built into the monthly cost of the service.

Upfront costs vary from none at all in the case of XO to nearly $6,500 in the case of Voilà IP. Voilà IP's upfront cost is nearly three times that of Sprint Nextel's, which has upfront costs of almost $2,200. While Voilà IP didn't itemize its upfront costs, it explained the upfront costs pay for "services and equipment staging and install." Sprint's upfront costs pay for per-seat setup and two Edgewater 4300T routers at $889.50 each. Verizon Business also asks relatively high upfront payments; the $1,600 its customers pay upfront buys two routers (with install) and "direct inward dialing (DID)" bundles. The rest of the companies on our list ask for upfront charges of between $200 and $500.

Price Monthly
This amount is calculated by dividing the total monthly costs by the number of employees, to arrive at a "per employee per month" (PEPM) amount. This typically represents the cost of the bundled services – data service, calling plans, and hosted IP PBX services – as well as any equipment costs that have been factored in by the service provider.

Looking at the responding companies, Verizon and Sprint are the most expensive at just less than $1,600 per month, and CentricVoice is the lowest at $948. Notably, CentricVoice specializes in small businesses like the one described in our RFP; its typical customer has three to 10 employees. Meanwhile Verizon's and Sprint's solutions are typically sold to a broad swath of business sizes – covering the whole SMB category from five to 500 employees, and beyond, according to the companies.

Nearly all the operators offer unlimited local and long-distance calling (see the Extras column), the exception being XO, which limits free long-distance calls to 100,000 minutes a month. Mind you, that's a heck of a lot. As the RFP was based on only 10 staff, each member of staff would have to be glued to the phone for more than 8 hours a day before they bust the limit.

Among the IP trunking solutions, two – Cbeyond's Beyond Voice and XO's Options Flex – are similar in price on a monthly basis. Cbeyond costs $1,076 or roughly $107 PEPM, while XO costs $1,024 or roughly $102 PEPM. Bandwidth.com's Business VOIP service on the other hand was considerably more expensive at $1,450 or about $145 PEPM. However, the Bandwidth.com monthly price is based on a two-year contract, while the Cbeyond and XO prices are based on three-year terms.

The remainder of the proposed service bundles fall in the $1,100 to $1,400 per month range.

Total Cost of Ownership (TCO)
Because providers offer different contract lengths and pricing schemes, it can be difficult to compare the real cost of competing systems. But there is a way. When a business is considering several VOIP services proposals, experts say they should compare costs by calculating a "total cost of ownership."

TCO is derived by first combining all the upfront and monthly costs for the entire term of the contract. This includes every charge, from monthly service charges to equipment costs to yearly support costs, if applicable. The grand total is then divided by the number of months in the contract term. That "per-month" total is then divided by the number of employees in the company. This provides a TCO measurement in the form of a PEPM charge.

We recommend the TCO comparison to SMBs evaluating actual proposals that are based on thorough needs analyses conducted by the service provider. Experts advised us against doing a TCO comparison of the services profiled in our report, because the actual products and services contained in the proposals differ too widely for a proper apples-to-apples look. One analyst gave this example to illustrate: A Dodge van and a Mercedes coupe are both automobiles, but a line-by-line comparison of their sticker prices probably wouldn't be very meaningful.