Several years ago, the emerging technology of making telephone calls via the Internet, often termed voice over Internet protocol (VoIP) or IP telephony, looked as if it had the potential to make traditional business telephone systems obsolete. Long-distance communications via the Internet had the promise of "toll bypass" that would result in drastically reduced communications costs relative to the charges imposed by traditional long-distance telephone carriers. VoIP also heralded the benefits of voice and data convergence, where separate voice and data systems could be integrated in one local or wide-area network, reducing infrastructure costs, overall communications charges, and administrative expenses.

Unfortunately, by 2001, the reality of VoIP fell short of expectations. VoIP implementations proved to be time consuming, costly, and disruptive to end users. Features that were easily deployed with traditional private branch exchanges (PBXs), such as voicemail or telephone conferencing were difficult - and, in some cases, impossible - to bundle with a VoIP system. With respect to voice quality or quality of service (QoS), telephone calls were often impeded with static and delay. And while the shortcomings of VoIP technology hindered the user experience, the increase in network administration expenses and the reduction in long-distance rates charged by traditional carriers in recent years virtually eliminated the economic justification for migrating to an IP telephone system.

Despite these setbacks, VoIP is becoming more ubiquitous as companies search to extract more productivity from their employees and IT infrastructure. Case in point: a single IT administrator with VPN access can configure multiple telephone systems at branch locations across the country. A single receptionist can manage incoming calls made to dozens of satellite offices. And a call center can utilize off-the-shelf, open standards-based computer telephony integration (CTI) applications instead of building an expensive, PBX-specific CTI application from scratch.

Perhaps the most significant trend driving the proliferation of VoIP is that the Fortune 500 telecommunication equipment vendors are phasing out old PBXs running exclusively on traditional telephone networks (public switched telephone networks, or PSTN). Nortel, Avaya (a spin-off from Lucent) and other telecommunication stalwarts are now offering IP-enabled PBXs that facilitate seamless voice communication over the WAN, Internet, and PSTN. Value added resellers and systems integrators, in turn, have become more adept in implementing IP-enabled PBXs and are therefore more inclined to recommend VoIP solutions to their clients.

Even in light of recent developments, however, VoIP technology and its vendors are still in a state of flux. Executives need to be cognizant of emerging communication protocols, evolving platforms, and - most importantly - the benefits and drawbacks associated with each VoIP solution. As such, this report addresses these issues and analyzes recent trends shaping VoIP growth, evolving technologies, dynamics shaping the industry, and the significant players in the VoIP market.