When voice-over-Internet protocol debuted more than a decade ago, the buzz over its potential to transform business–especially real estate–was deafening. The appeal of the technology, also known as VoIP, was obvious: If real estate companies and tenants sent their telephone calls over the Internet rather than an aging telephone network, they'd see dramatic cost reductions.

But praise for VoIP was premature. Thanks to a crowded information highway and immature and inefficient technology, VoIP calls were notoriously unreliable in the early 1990s. Calls ended without warning. Voices sounded muddled. Even cell phone calls, known for their poor quality, seemed downright dependable next to VoIP.

Fast forward to today. "I've seen VoIP make dramatic improvements over the past two or three years, where customers are starting to gain confidence in the performance," says Brian Roach, CEO and founder of Evolve Partners, an Anaheim, Calif.-based technology consulting firm. "Customers are starting to take advantage of the advanced features of VoIP, and with quality issues being very much improved, these added features are starting to become very, very important."

Residential VoIP has especially hit its stride, and a recent IDG study estimates that by the end of this year, 3 million people will be making VoIP calls from their apartments, condos, and homes. By 2009, that figure could reach 27 million.

More and more multifamily executives are considering these Internet-savvy customers, and today, practically any condo or apartment manager can bring tenants 4-cents-a-minute calls to Sydney, Australia, or unlimited domestic calls for a flat rate. VoIP has gotten so popular, according to industry experts, that a growing number of tenants simply expect their next condo or apartment to be wired for it.

With high-speed Internet access, residents can choose to use VoIP on their own in lieu of hooking up a traditional land line, but others are beginning to seek out the service as part of their rental or purchase package. And on the management side, linking multiple office locations through a VoIP system could generate a significant drop in overhead costs in the long run–a theory that Lincoln Property Co. is testing out with the management personnel among its 30,000 military properties.

"If we see substantial internal savings, we'll start evaluating the benefits for other properties," says Brian Galla, director of technology for the Dallas-based management company, which is implementing a VoIP system for resident services and communications on its military properties. The system will include centralized 800 numbers that can be dispatched across the country to the appropriate management office.

The technology is especially promising for military housing, where families with loved ones on active duty often face monstrous phone bills if they're able to call at all, Galla says. Though providing high-speed Internet connections free of charge to active military personnel is a pressing new goal, VoIP capabilities could further revolutionize the way military families keep in touch. "This is about quality of life for the service members," Galla says.

But the quality-of-life issue extends to other tenants and residents as well. "Condos today are being sold with high-speed Internet lines, so why not VoIP too?" says David Epstein, president of BroadVoice, a Massachusetts-based VoIP provider. "Sometimes customers call us asking if we know what buildings carry on our service, so clearly people expect advanced telecommunications options when they buy a condo."

Testing Connections

When Tommy Russo heard that one of his construction sites couldn't get regular telephone service, he knew he'd have to get around the problem. Russo, director of information technology for Akridge Real Estate Services, researched alternatives, and VoIP emerged as a genuine possibility. Whatever Russo's team chose, it had to be powerful enough to handle calls for the full-service, Washington, D.C.-based real estate company, which has 12.5 million feet of commercial and residential projects in the works in Maryland, Washington, and Virginia.

Russo had his doubts about the technology, however. "I thought the voice quality may not be as good as a regular POTS [plain old telephone service] line," he says. Still, he chose VoIP, using an Internet backbone to send calls from the construction site. Not only did VoIP get the job done, but it did so with unprecedented reliability and quality.

So Russo tried it on a larger scale. He purchased and installed an Internet protocol-based private branch exchange in the company's main Washington office, connecting to 28 of the company's managed buildings and construction trailers. He compared the VoIP installation with the time it took him to install 60 traditional phones. The regular phone system took him a few days; the VoIP installation only took a few hours.

"Because we have buildings all over Washington, many with on-site property managers, we are always looking for the best and most efficient way for our buildings to connect back to our main office," he says. "VoIP was the answer, and it worked beautifully." One example: At Washington's Gallery Place, one of Akridge's largest projects, Russo estimates that VoIP saves the company about $2,000 a month.

Voicing Concerns

With features like automatic redial and call waiting, VoIP is blurring the definition of making a "telephone" call. So naturally, VoIP's potential for real estate is uncharted. But one thing is certain: VoIP is gaining on the telephone.

"I think VoIP will overtake the telephone in the next three to five years, due to some existing security concerns," says Evolve Partners' Roach. "VoIP is a data technology, so it is subject to the same vulnerabilities of computer systems, including viruses and denial of service attacks, which could limit the service quality until those vulnerabilities are mitigated."

Not so fast, says Carl Bonner, senior vice president of information technology for Atlanta-based Post Properties. "We follow the technology, but to date our long-distance rates are so low, we haven't been able to justify the purchase of a VoIP system" for Post offices, he says. "There just aren't enough savings there."

At JPI Cos. in Irving, Texas, VoIP is viewed more as a residential amenity than an ancillary moneymaker, says Henry Pye, director of resident services and technology. From what he's seen, residents aren't wowed by the technology as much as they are by the savings potential. "They don't care about the technology, but they care about the pricing structure, because it can cut your phone bill by half to two-thirds," Pye notes. Still, the technology isn't perfect: Residents can't use a VoIP phone if the power goes out (because their computer won't turn on), and 911 systems don't always work properly with VoIP systems.

But big names are getting involved. Time Warner Cable is one company offering VoIP, according to corporate vice president David Christensen. The company, which calls its VoIP service "digital phone," has already captured more than 500,000 residential customers in the first year of the new service. By the end of 2005, it wants to have 1 million residential "digital phone" customers.

Roach suggests that multifamily executives who are serious about using VoIP for business should invest in a solid IP suite, as well as the infrastructure that supports it. Prices for a full-fledged system will vary, but a small-to-mid-size business should count on spending thousands for a good, infrastructure-based system.

"You may spend the same amount as you would on a good [IP-based] PBX, $20,000 to $50,000 for a great system, all in-house," Russo says.

For your residents, the matter is far less complicated. The best route to getting customers a good price on VoIP and good adoption rates for you? Bundle it with broadband so they pay one price for both.

"First, ask if tenants are willing to pay a monthly managing fee for the service that will ultimately save them money," Roach says. "Are there things that tenants want in features that they've expressed to management? If so, I would suggest investing in an appliance-based VoIP system, which can bring clients fixed-rate monthly services. Also, take into consideration the advanced communications structure of the building. If you are already investing in broadband or a T1 line, and you can charge residents a one-time fee for all services, that's where it comes into play. You can bundle all those services together, VoIP and high-speed Internet, for overall cost savings."

Of course, apartment firms could leave the decision up to the resident. But that leaves revenue on the table and raises issues of poor service. The main issue with third-party hosted VoIP services is quality: Many users say hosted VoIP, without a solid infrastructure and maintenance team to back it up on local servers, lacks quality and reliability.

"I do not like third-party hosted solutions–here today, gone tomorrow," Russo says. "It is much better to house the systems yourself. Just like your PBX is in your office, so should the brains of your VoIP solution."

–Jennifer Perez is a freelance writer in Los Angeles.