Candy Lee needed to deal with her phone system. Lee is president of Financial Services International Corp., an investment advisory firm based in Seattle. Her firm’s phones were antiquated, and the technology underlying them was no better. Lee knew what she wanted. For starters, she needed functioning caller ID and the ability to send voicemail messages to e-mail. She also had in mind an automated directory that would connect callers with the five employees at her company’s headquarters as well as the 40 other staffers who work out of their homes in five states.

After evaluating bids from three vendors, she bought new phones, a new phone system and a new router. By early this year, six grueling months after starting her search for telecom solutions, Lee had achieved some of her goals—but she’s still waiting for a solution to the directory problem.

Unfortunately, Lee’s situation is all too common. Whether you’re considering buying a new phone system or looking for ways to keep your staffers in touch when they’re on the road, the world of business telecom offers a challenging arena. Matt McCormick, president and COO of Chicago consultancy Technology Decisions, Inc., puts it this way: “The good news is that you’ve got lots of alternatives. Of course, that’s also the bad news.”

Here’s what you need to know about everything tele-com— from phone systems to laptop security—in order to make the best choices for your business.

When is it time to upgrade the phones?

For many companies, the answer is clear: You buy a new phone system when you’ve physically maxed out your current system’s capacity. You’ll know that has happened when you start to run out of extensions or voicemail boxes— or when the continued cost of adding just one more piece of gear suggests that a total replacement is financially prudent.

Alternately, your business may have changed in such a way that you need your phone system to perform functions that your existing system can’t. Like Candy Lee, you might want to connect phone systems in multiple locations, for example, or push your voicemail messages to e-mail.

There’s also the possibility that your old phone system has simply reached the end of its natural life. Most phone systems are depreciated over 10 years; if yours is that age or older, it’s time to make room in the budget for a new one. “I have seen folks extend the life of their phones to 15 years, but then words like ‘business risk’ start to come into their vocabulary,” says McCormick. “You shouldn’t jeopardize your ability to communicate just because your phone system hasn’t failed yet.”

True, it’s unlikely that a 10-year-old system will fail completely, but individual components might go bad. And the older your system, the tougher time you’ll have replacing them. Meanwhile, you are working with a system that is 10 years out of date, which means you’re missing out on new features that enable you to be more productive and show a more sophisticated face to the world.

Old-school telecom: TDM

At the most basic level, there are two kinds of phone systems. For the last 30 years, the mainstay of business telecom has been the TDM, or time-division multiplexing system. (These systems also may be referred to as PBX or traditional key systems.) They’re robust and reliable—call quality is excellent, and service interruptions are rare—but TDM systems also have a few drawbacks.

First, they really only do one thing: send and receive phone calls. For example, TDM-based systems aren’t capable of turning voicemail messages into email.

Second, and perhaps more significantly, TDM systems are on their way to becoming obsolete. “All of the major manufacturers of voice equipment have stopped putting money into research and development on TDM-based products,” says McCormick.

McCormick predicts that TDM-based equipment will fall from use within the next decade as competing technology— more on that in a moment—gains market share. It’s likely that manufacturers will continue to support the systems for a number of years, even if they stop manufacturing them. As a result, it might make sense to upgrade your current TDM set-up if you aren’t ready to invest in an entirely new system. But if you’re thinking of investing in a brand-new system, you may want to look beyond TDM to the new generation of systems.

New school telecom: VoIP

You’ve probably heard the term VoIP (pronounced “voyp”) thrown around a lot in recent years. The acronym stands for voice over Internet protocol, and refers to a setup in which voice traffic (phone calls) is sent over data networks (the Internet). VoIP is largely invisible to the end user once it’s installed. You can choose to simply make and receive calls using a regular handset. Alternatively, you can use a “soft phone”—a computer application that allows you to make calls from your desktop or laptop computer, using a special headset.

The advantage of VoIP is that it offers lots of flexibility. Say that, like Lee, you have employees who work remotely, but you’d like clients to be able to reach them using the main phone line at headquarters. You can set up a VoIP system so that those employees’ extensions ring in their home offices, and callers will never be the wiser. For example, JetBlue uses VoIP to connect its call center agents—many of whom are in Nebraska—to its New York headquarters.

Likewise, if you’ve got a number of offices in different geographic locations, you can use a VoIP system to route calls. So if the staff at one office is swamped with calls, a business VoIP system can catch the extra calls and automatically look for an available staffer in any of the other offices.

In addition, you can have voicemail messages automatically converted to emails. Callers who reach your voicemail at work can be automatically connected to your cell phone. And, perhaps most significantly, you can save money on long distance since your calls largely bypass the traditional phone system. (Traditional phone lines are generally cheaper than VoIP for local and inbound calls.)

So what’s the drawback? For many businesses, it’s a big one: reliability. VoIP users complain of dropped calls and lousy connections that sometimes sound even worse than a crackly cellphone call. “VoIP is good, but it’s not perfect,” says Kevin Selkowitz. “If you get it right, a VoIP system can be 99% reliable, compared to the 99.9999% you’ll get from a traditional phone line.”

The upshot: If your current system is working just fine, there’s no need to run out and get VoIP. But if you’re buying a new system for a startup or your old phone system is nearing the end of its life, then look into VoIP. “I would recommend VoIP if you run a medium-sized business that’s growing,” says Vickie Rastetter of Schooley Mitchell Telecom Consultants, a national franchise with consultants across the country. “Buying a new phone system is a longterm commitment, and VoIP is clearly where the business is headed.”

Configuring your system

Telephone systems are complex, and there are many ways to configure them. Before you buy a system, decide what you need it to do. “Keep it simple,” says Matt McCormick of Technology Decisions. “Don’t get carried away thinking about all the black magic and bells and whistles you could have. If you just want it to do voice and nothing else, focus on the most efficient way to do that.”

Talk to two or three vendors, but also get some outside advice. “It’s really easy to get sucked in by a vendor who’s selling one solution,” says Rastetter. “Recruit a consultant or find someone else who can advise you and who isn’t going to benefit if you choose a particular vendor.”

You’ll want to sign a service agreement unless you have the good fortune to employ IT staffers with experience managing phone systems. With that in mind, check out the vendor’s service department before you buy. Find out how they respond to emergencies as well as what they will do to help you maintain your system. “While you’re at it, call the service number and see how they respond to your phone call,” says Rastetter. “Is their response something you can live with?”

Once you settle on a system and it’s installed to your satisfaction, don’t just assume it’s going to work forever. Make sure that your system stays up to date with software patches and upgrades whether you work with your vendor’s service department or your own staff. Schedule some time every year or so to meet with staff and review the system’s performance. Have your goals changed since you bought it? If so, how? What changes should you make as a result?

Replacing or upgrading a phone system takes time and effort. But if you do the job right, you’ll eliminate the frustrations and missed opportunities that an out-of-date system can inflict on you and your employees. That could make a major difference in your firm’s bottom line.

On theRoad

The decision to issue cell phones and laptop computers to employees can boost your firm’s efficiency—but it can also pose a threat to your firm. Here’s how to avoid problems in several key areas:

Data security

The worst part about having a laptop stolen isn’t the loss of the machine. Instead, it’s the loss of sensitive data. One way to prevent thieves from getting your proprietary information is to use a terminal server, which essentially allows laptop users to log in to a secure computer back in the office. “The laptop then becomes just a dumb terminal with little to no information stored on it,” says Kevin Selkowitz, lead consultant at Selkowitz Technology.

Physical security

Wireless PDAs are going the way of the dodo bird, replaced by smartphones like the iPhone and BlackBerry. These devices incorporate e-mail, Web browsers, calendars, address books and mp3 players—and they even make phone calls. Leave one at an airport and you’ve set a host of key information loose in the world. If you use an iPhone, be sure to password-protect your data. But corporate users might continue to be more comfortable with the BlackBerry: Matt McCormick notes that if a BlackBerry user reports a lost device to the manufacturer, the next time it’s powered up it will automatically lock up so that pilferers can’t get to your data.

Financial security

The IRS until recently turned a blind eye to the personal use of business cell phones. But, says McCormick, “we’re seeing a lot more aggressive approach to deductions for cellular costs.” In general, you can’t deduct more than 50% of your business cell phone bill; the IRS assumes the rest of the bill is for personal calls. If you plan to take a bigger deduction, be sure you and your employees have itemized call logs to back up the claim.

Telecom 101

It’s easy to find information about telecommunications gear and systems—but most of it is written for experts. Where can a layman turn for information? One consultant suggests a visit to Wikipedia.com, where a search for terms like “VoIP” and “time-division multiplexing” offers some background.

Beyond Wikipedia, try the web sites of the major financial and tech-oriented magazines. Or consider checking out the resources provided by some of the major telecom companies. Verizon, for example, offers a useful glossary of terms at www22.verizon.com/ wholesale/glossary.

If you are looking for a consultant, check out the “find a consultant” feature offered by The Society of Telecommunications Consultants (www.stcconsultants.org).

Finally, read the literature provided by the vendors who are trying to sell you their products. Make a list of questions, and keep adding to it as you talk with vendors. And don’t make a decision until you’re convinced it’s the right one: A phone system can last ten years—an eternity in the life of a business.