Start-Up Bets On IP Telephony

San Francisco-based-CallTower, a recent spin-off from Networld Communications, is a solution provider that's selling IP telephony as a service. The start-up hopes to hit the sweet spot of SMBs and enterprises that don't want to spend the up-front cash to buy an expensive suite of products and upgrade their networks to handle IP telephony.

The company's solution, called CallVault, includes Cisco Systems' IP phones, appropriate Cisco equipment such as a router and a switch, some 400 long-distance minutes (monthly) and 150 local minutes (also monthly), high-speed Internet access, fax capabilities and e-mail. Telephony features such as unified messaging and a conference bridge are also included in the bundle. The customer taps into CallTower's data center via a data line. The data center then processes calls through its private WAN or over the publicly switched telephone network. The charges are a monthly $76 per-user license fee, plus a site fee that depends on how much infrastructure equipment the customer needs.

According to Bryan Barber, vice president of business development at CallTower, the timing was right for the spin-off.

"In this marketplace, customers want to eliminate capital expenditures,' Barber says. "Companies aren't spending money on infrastructure like they used to,moving this to an operating expense becomes scalable and predictable.'

Selling hosted IP telephony offers a quicker sales cycle, requiring fewer visits to the customer, he explains. For now, CallTower has some 100 customers, mostly in the Bay Area, but it's shooting for 400 customers during the next year. CallTower has set its sights on revenue of $18 million this year and is also starting a reseller channel to help the company expand its sales nationally, Barber says.

The spin-off joins a handful of other companies providing versions of a hosted IP telephony service, says Elka Popova, a program leader in next-generation

packet services for consultancy Frost and Sullivan. Competitors include PingTone, TalkingNets and GoBeam, she says.

Service providers haven't had much success hosting traditional telephony, Popova notes. But the new breed of companies hosting IP telephony has an advantage in the cost savings achieved by providing voice-and-data services, such as e-mail and Internet access. That means end users have a better chance to achieve savings because they can cut down on their IT staffs, she explains.

Many incumbent telephone companies are testing hosted IP telephony services. CallTower and other companies hosting IP telephony have a leg up on them because, by the time the incumbents launch commercial services, they are likely to have established themselves in niche markets, Popova adds.

The challenge for the start-ups, she says, is the same as the one confronting other solution providers: convincing customers that the quality of voice-over-IP is as good as traditional telephony.