When Jim Violette, chief financial officer of Hamon Corp., needs to phone a coworker down the hall, he dials four digits. To call somebody in company offices across the street, he dials four digits. To reach employees in the Kansas City unit, he dials -- you guessed it -- four digits. He pays the same price for each call: nothing. At Hamon, most intracompany calls -- and even some long-distance calls outside the company -- are free.

Hamon isn't ripping off the phone company, just bypassing it. The manufacturer of air-pollution-control devices in Somerville, N.J., has switched to a system that uses voice-over Internet protocol, or VoIP. It digitizes voice signals, shoots them over the Net, and switches them back to voice signals on the other end. The process takes milliseconds. When it works correctly, there's no distinguishable time lag in conversations.

Online callers pay only for equipment and connections, with no toll charges for dialing anybody who's using a similar VoIP system. The reductions can be significant. "I'm saving $12,000 a month easily, if not more," says Violette.

Audio quality -- which only a few years ago sounded as if you were talking into a tin can -- now often rivals that of traditional telephone systems. So do options like speed dialing, computer access to voice mail, and call forwarding.

VoIP caught Violette's attention in the late 1990s, as Hamon mushroomed from about 130 to nearly 500 employees. That caused all kinds of telecom headaches -- particularly its cost. Hamon's standard telecom system required expensive new hardware for each expansion but accommodated only a limited number of new users. At one point Hamon spent $50,000 just to equip 12 employees in a temporary facility. Violette asked himself, "Why are we dumping money into this when it can't grow with us?"

At a hockey rink where his son played, he found a solution. Another player's father, a sales rep for AltiGen Communications, a maker of Internet phone systems in Fremont, Calif., told him that AltiGen could outfit those 12 workers for less than $20,000, including installation, training, and service.

How can VoIP providers sell service so cheaply compared with what telecom giants charge? The system requires virtually no equipment, except for a few servers and the phones themselves. Hamon adds extensions by updating the software. When employees move, they simply use cable plugs to hook up their IP phones at their new locations.

Such flexibility was key when Hamon moved a large contingent of workers to a new building. With standard phone service, they would have all needed new phone numbers. But since the VoIP system forwards calls, employees kept their existing numbers, and Hamon saved not just on hardware but also on reprinting stationery, business cards, and other documents.

CHEAP TALKER: Jim Violette slashed toll charges and equipment expenses by switching to VoIP.

So far Hamon's system has cost about $150,000, an amount Violette expects to recover in savings in about a year. However, since analysts warn that it may take up to five years to recoup the outlay for VoIP, businesses may want to wait until they're doing major telecom work to switch.

Putting all voice and data services on one network, which could be damaged by hackers or viruses, also presents a risk. But firewalls and other standard security options offer some protection, as do detailed reports on every number dialed.

To protect against power outages or system crashes, companies need VoIP products with backup systems and dual power supplies. If the Internet connection ever fails, they'll have to route calls through another system. But if local phone service is out, VoIP can be a plus. "During the 9/11 disaster, our customers in New York City were able to make calls over the Internet all over the world," says Richard De Soto, AltiGen senior vice president.

Competition is heating up; major telecom players have begun to roll out offerings to compete with AltiGen and such VoIP vendors as ITXC, IDT, Shoreline Communications, and Mitel Networks. Worldwide revenue from Internet voice technologies will hit nearly $197 billion by 2007, projects the Insight Research Corp. in Boonton, N.J. "I think everyone will be going to VoIP in the future," Violette says. "It's user-friendly. It's compatible. It's expandable. It's so much cheaper. And that's the bottom line."

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