Heeding the call: lured by cost savings, Latin America's businesses are moving to Internet phone service.

Internet telephony is quickly revolutionizing Latin American companies. In a region where calling costs are still high despite wholesale privatization in the 1990s and a huge shift to wireless technology, the demand to talk more, and cheaply, is creating rapid change. A 2004 study by data researcher International Data Corporation (IDC) puts the market in Latin America at a US$232 million industry by 2008, up from $117 million in 2003, an annual growth rate of 19%.

Making domestic and international long-distance calls over the Internet has shrunk telephone bills, resulting in a rapid uptake of the technology, often shorthanded as Voice-over-Internet-Protocol (VoIP). Internet telephony systems combine data and telecommunications networks into one network allowing a company to replace its existing telecommunications networks at a fraction of the cost, both in terms of hardware and cost per call. More than a quarter of companies in Argentina, Brazil, Chile, Colombia, Mexico and Venezuela already use the technology.

Chilean winemaker Concha y Toro installed an IP system in 2003. Today, the technology covers 80% of the company. "IP telephony has lowered the telephony budget by 30% to 40%," says Daniel Duran, Concha y Toro's information technology (IT) manager. "We have 600 people that can communicate without cost, which means there is no longer any fear about making calls." The return on Concha y Toro's IP telephony investment hovers between 10% and 20% a year over the four years of the project, mainly on the reduction of monthly telephone costs, Duran says.

Tech chiefs love IP because it reduces their headaches by simplifying and standardizing networks--the computer network is the phone network, all in one. "Traditional telephony was difficult to configure and transfer because we had different networks at different locations," says Duran. "Now there is one network, and we have changed elements that were badly designed, so that it is easier to operate, maintain and administer."

With company employees communicating longer and for less money, overall corporate efficiency rises as internal communications improve. It did for Grupo Cementos de Chihuahua, a Mexican cement maker. "We installed a call-manager system that has 80 to 90 users and improves communication between Cuidad Juarez, Samalayuca and Chihuahua," says Oscar Cardenas, network and communications coordinator of a division of the company in Chihuahua state. "We have one network now rather than different ones and we intend to roll it out to all 700 users in the company."

Day-to-day system administration is simplified and no longer requires specialist teams. Toyota Venezuela installed an IP telephone system when it moved into new headquarters in Caracas in 2003. The system has 100 users now and will expand to 300 more at its three other locations. "When you change something with a traditional telephone system in Venezuela you need a dedicated team or a third-party contractor because the installations are very specialized," says Daniel Brito, IT manager at Toyota Venezuela. "IP gave us the possibility to manage it like other products on the network with our IT personnel."

Taking on new technology comes with some problems. "The implementation was hard. It took us two months to stabilize the system to the point where we could not distinguish between the quality of IP telephony and a traditional phone call. Once it was stable, it was comfortable and flexible," says Brito.

Telecommunications equipment suppliers and technology integrators are bullish. IP hardware, they say, has begun to outsell traditional telephone equipment. About 80% of corporations will have IP systems in the next 10 years, and 15% do at the moment, says Rodney Everard, executive president of technology integration at Belltech, the Chilean representative for U.S. telecommunications equipment and software provider Avaya. "There are very evident cost savings with IP telephone systems," says Everard. "A company with 10 locations geographically spread out can connect them all with IP and it will be at least 30% to 40% cheaper than using existing technology."

Belltech has installed more than 35,000 IP ports--techie talk for the IP telephone lines--in Chile, Peru and Argentina. Chile is forecast to expand to 1 million IP ports in five years from its 80,000 now. "The question is when you go to IP, not if," says Felipe Gormaz, Belltech's head of commercial sales.

Talking to customers is easier, too, since the system automatically routes calls to the appropriate account manager. This can make a company more profitable if client attention is a core part of the business, says Jose Manuel Alessandri, country manager for telecommunications network supplier 3Com in Chile. "One bank implemented a system that allowed its clients to call their Santiago-based help line through the regional branches" says Alessandri. "Calls are routed to the help line without clients paying long-distance charges, improving service and client contact."

Making life easier for IT managers notwithstanding, the infrastructure associated with IP telephony is cheaper than traditional telephone equipment, so even small companies can benefit. "Traditional telephony equipment providers built systems that tied you into their software and hardware," says Tim Delhaes, co-founder and product architect of Humano2, a Chilean software developer. "Now we can add a box onto a PC that costs under $5,000 with Asterisk [a telephone exchange software] that is free, and provide a small and medium-sized business with a 50- to 100-extension telephone system that before would cost you $100,000."

IP telephone numbers are portable, too, meaning users can make and receive free or low-cost calls through a laptop computer. IP telephony can also enhance customer service and marketing. It can integrate multi-channel customer information from telephone, e-mail and the Web. "A customer support manager can look at a client record and have all the e-mails, see what Web pages they viewed and have all telephone calls they made, to get a full, 360-degree customer view," Delhaes says.

Chile's biggest company, state-owned copper producer Codelco, is considering systems made by Nortel Networks, Cisco and Alcatel but tech managers there worry about platform security and service reliability. "Cisco uses a Windows platform that may be vulnerable to virus attacks while Nortel and Alcatel use Unix which is more robust and secure," says Cesar Ortega, head of communications for Codelco Sur, which manages the company's operations in central Chile.

Also, Ortega says, "the IP network is not the same as a voice network as it needs a power supply" Chile is suffering natural gas shortages, which makes brownouts a risk. Codelco's geographic reach--it operates in dozens of places the length of the country--means parts of the company could be cut off. Power outages can put Web-based telephone equipment out of service. "We have to be careful about introducing IP telephony," says Ortega.

Nevertheless, Codelco plans to roll IP telephony out to most of its 15,000 telephones by 2007, from 60 now. "We are looking to expand VoIP massively," says Ortega.

IP telephony grows in Latin America

installing new VoIP technology       78%

adding new IP phone lines            22%

Total=US$207.2 million

SOURCE: IDC

Note: Table made from pie chart.