When Robert Fort took charge of information technology at Virgin Entertainment Group in North America, he was dazzled by the company's array of music, movies, and games -- and the hip in-store kiosks customers could use to sample the wares.
What he found decidedly less dazzling: the communications system that connected those stores.

It was expensive, cumbersome, and couldn't deliver sample content to would-be buyers. So last year Fort made a radical move. He scrapped the old phone network altogether and moved the voice traffic from the fifteen U.S. Virgin Megastores onto the company's data network.

Calling All Data
He relied on a technology called Voice over Internet Protocol (VoIP) that can reduce costs and increase calling flexibility by delivering voice communications in much the same way e-mail travels over the Internet or a corporate data network.

The result? Virgin expects to save $700,000 a year, mostly in long-distance phone bills, on a network that cost $330,000 in the first year and will ultimately carry a price tag of $1 million. Best of all, the new network also lets Virgin stream content -- 250,000 CDs, 11,000 DVDs and 7,000 games -- to any kiosk in the store.

Like Fort, a lot of I.T. executives are taking the VoIP plunge, ditching dated, feature-poor phone systems called private branch exchanges (PBXs) that send voice calls over copper wire networks. By the end of the year, there will be 14.7 million enterprise IP telephony  lines, about 21 percent of the North American installed enterprise base, according to Gartner.

That's up from 11 percent in 2004. Global sales of enterprise IP telephony gear are projected to reach $4.9 billion this year and more than double to $10.6 billion in 2009, according to Synergy Research Group.

Win Some, Lose Some
Why the increasing interest in IP? Many are drawn to VoIP systems by their potential to slash long-distance phone bills. Indeed, the move can reduce operational costs by 21 percent, not including troubleshooting, according to Nemertes Research in New York. And big savings come when employees move desks. With conventional PBXs, moves are a hassle, often requiring a costly visit from a service technician. But workers can plug in their IP phones anywhere

Still, costs for equipment, network upgrades, and professional services can eclipse near-term savings. For some, it can take anywhere from six months to several years to see a return on the investment.

On average, companies with fewer than 1,000 users can expect to spend $887 per user on capital equipment such as IP phones and switches as well as planning, installation, and troubleshooting, says Nemertes. That figure drops to $563 in cases of more than 1,000 users.

Added Convenience
Many users find that the biggest benefits are some new capabilities that come with routing calls over the same network that runs business applications and data.

For instance, employees can set up spur-of-the-moment audio and video conferences without reserving a conference bridge in advance. Another feature: they can use so-called presence awareness -- similar to the feature in instant messaging that lets a user know if someone is online and available -- to know whether a colleague is traveling or in a meeting before picking up a handset or dialing a number.

For executives, VoIP means greater control over calls. The average knowledge worker is interrupted every three minutes and it takes them eight minutes to get back to work, says Howard Thaw, chief operating officer and co-founder of iotum, an Ottawa startup that has created a service to help executives prioritize phone calls based on where the workers are, what they're doing and who is calling.

Another appeal of VoIP: letting companies take advantage of the many on-ramps to the Internet. An executive traveling in Shanghai, for example, can log onto the Internet from a hotel and make phone calls around the world through the company network at little or no cost.

Mobility
The technology can also allow for more flexible work arrangements. Alpine Access, for instance, uses 7,500 home-based agents to handle calls for clients such as J.Crew, 1-800-Flowers, and Office Depot. Because quality and reliability are increasing with VoIP, Alpine Access is planning to use the technology to route calls to home agents in the near future. By using home-based agents, Alpine Access saves on the overhead costs of operating a physical call center.

Inevitable Switch
Whatever vendor they choose, most companies will eventually move to VoIP, many analysts contend. IP telephony is absolutely inevitable, but the timing is up to each enterprise, says Gartner's Snyder.

Fort says he upgraded Virgin's network to stay ahead of the competition. I was doing this not only to save money, but to position us for where the future was headed, he says. As more companies take a similar tack, the business case is looking more legitimate all the time