The Cost Implications of VoIP vs. Traditional Telephone Services

Voice over Internet Protocol (VoIP) is changing the way that businesses manage expenses for integrated communication services.

Traditional telephone services, also known as Plain Old Telephone Services (POTS), are built on aging copper wire infrastructure with limited data transfer speeds.

VoIP uses a cloud-based platform, connecting users through newer Internet infrastructure, which offers much faster data transfer speeds.

Though POTS infrastructure does have some advantages over faster data transmission lines like fibre-optic cables (such as their ability to remain in service during a power outage), more and more businesses are taking advantage of the enhanced call quality and the variety of services associated with VoIP subscriptions. Moreover, there are significant financial incentives involved in upgrading traditional telephone services to VoIP services.

The cost savings are potentially huge: In 2013, the average business POTS line cost $141 per month, while the average VoIP line, including the cost of hi-speed Internet access, cost only $66. Furthermore, total VoIP costs are forecast to remain at less than half of POTS cost levels through 2017. The cost savings really begin to add up as you add more lines: For example, a VoIP subscription for 100 business lines would cost about $6,600 per month, compared to $14,100 per month for 100 POTS lines – a monthly savings of $7,500. After three years of VoIP services, the total cost savings would reach $270,000.

Not only does VoIP present cost savings and enhanced services, it also reduces risk by changing telecommunications expenses from a CAPEX (capital expenditure) model to an OPEX (operating expenditure) model. POTS requires upfront investment in the acquisition of a PBX system – the standard business communication hardware for all routing and internal communications – as well as the associated maintenance costs. With VoIP, the PBX is cloud-based and managed by the service provider. Customers need only pay a monthly subscription fee and can use existing telephone and computer infrastructure to make voice calls. This shift from CAPEX to OPEX reduces overall costs and risks associated with capital depreciation.

Transitioning to VoIP also reduces the risk of exposure to the sunset of POTS services and the increasingly stranded POTS infrastructure assets. Because POTS subscriber levels are declining, the costs of maintaining existing infrastructure will fall on a smaller number of companies, which will likely lead to higher POTS service costs in the future. There are also signs that the FCC could eventually phase-out POTS services altogether due to unsustainable costs. Companies that delay in transitioning could shoulder a disproportionate amount of the costs of maintaining this aging infrastructure.

If you are interested in learning more about the financial implications associated with switching to VoIP, we invite you to download our free business report: The Evolution of Telecom and the Financial Impact on Business.