August 1999

Has IP Killed The PBX?

BY JAMES STURGESS

Well, not really...The PBX will still be with us for a long time, but most industry analysts agree that its role will change as the Internet extends its impact in the business environment. In particular, the payback promise of Internet telephony and convergence gives rise to a need for sweeping change. Nowhere is this change more pronounced than in devices designed for the small/medium-sized business. Far from scaled-down versions of behemoths used today in large corporations, an emerging breed of devices bears a passing resemblance to the PBXs of the past.

Arguably, the largest area of change in the PBX world is with solutions for the small to medium enterprise (SME) with fewer than 500 employees. A growing percentage of these are IP-based enterprises capitalizing on the e-commerce phenomenon. Shaped by the Internet, the changing profile of the SME is a major catalyst for PBX evolution.

GLOBAL PRESENCE ON DAY ONE
Before the Internet, the normal evolution for a business was to start small, serving customers in one geographic area, then expand regionally, then nationally, and finally enter the international business market. With few employees and a local customer base, the communications system didn’t become a major issue until the company’s markets expanded, at which time owners typically invested in a PBX.

Today, a Web site gives a company with a few employees instant international exposure, and access to a global customer base. It also brings worldwide competition, making big-company professionalism in all aspects of customer relations essential from the get-go. E-mail helps, minimizing communications costs associated with order-taking, account management, and customer service. But the need to communicate verbally with distant customers remains, placing an unexpected burden on a small business looking to minimize overhead. Decisions about voice communications platforms must be made earlier, and must provide for less predictable expansion in terms of user numbers and future applications.

NOT YOUR FATHER’S ENTREPRENEUR
Small business owners of the past often started with just a telephone. Today’s entrepreneurs have longer lists of communications requirements and preferences. Many have left larger companies, where they relied on a broad range of communications tools. To these users, cell phones, e-mail, and a host of PBX features such as voice mail and conferencing are considered essential tools for constructing their own organizations, not luxuries.

While small business owners may once have resented the PBX investment, they now understand the potential for next-generation services to drive business, and the need for new convergence platforms that enable these services. Owners know that combining voice, data, and the Internet will reduce ongoing overhead associated not only with long-distance calls, but with administration and IT consultants. The new entrepreneur recognizes that combining virtually free voice communications, better Internet access, and familiar PBX features represents an edge, not overhead.

VoIP ACCEPTANCES
Though instant exposure to global markets forces small businesses to address communications at an early stage, they have found little relief to date. Most don’t qualify for the same volume discounts extended to large companies by traditional carriers. For this reason, the toll-reduction benefits offered by IP telephony appeal to the SME as a tool for leveling the playing field, whether they subscribe to Voice over IP (VoIP) as a managed Internet telephony service provider (ITSP) service, or connect directly through the Internet itself.

Debate about quality still surrounds use of the “unmanaged” Internet for voice, but users increasingly find the service acceptable, if not excellent. Claims that direct Internet voice connectivity is “okay for intra-company calls, but not recommended for customer conversations,” are now balanced by acknowledgments that these calls are of the “cellular quality” used in millions of customer-vendor conversations every day.

Acceptance continues to grow, along with awareness that things are changing so fast that the true key to return on any technology investment is flexibility. The ability to send customer calls to the PSTN, faxes via the Internet, personal calls to lower-cost services, and so forth, promises cost-control magnitudes above what the SME has today. So while today’s PBXs aren’t designed to capitalize on the Net, tomorrow’s will be.

CAPITAL CONCERNS
The Internet empowers an SME to appear like a large business — but not to spend like one. While traditional PBX vendors have tried to scale down existing products to attract this burgeoning market, startups have entered the game with seemingly simpler, PC-based, PBX alternatives. Still, a capital outlay of $10–20K, and an investment in data routers and VoIP gateways, makes constructing these new systems an expensive task. Not to mention the costs of outside expertise often needed to integrate these solutions. Here, next-generation PBXs must adopt a “data world” mentality geared toward ease of configuration and installation.

To address changing requirements for Internet and data functionality, particularly in the small/medium market slated for explosive growth, new and traditional PBX suppliers are approaching SOHO as other savvy marketers have. For example, by combining a printer with a fax machine, a photocopier, and scanner, office equipment vendors have tied together all the components needed for document processing in devices that sell for a fraction of the cost of buying each separately. Versatile new small business postage systems do the same. The PBX is next.

By integrating the familiar features provided by the traditional PBX — voice messaging, interactive voice response (IVR), call forwarding, conferencing, unified messaging, music-on-hold, etc. — with VoIP gateways, Internet access routers, and more, a new breed of communications hub offers greater functionality and ease of use at lower acquisition costs. These expanded platforms use the Internet to support a Fortune-500 image that doesn’t cost a fortune, giving businesses greater control over phone bills, Internet access quality, and bandwidth requirements.

Successors to today’s PBX will engage the Internet, providing modem interfaces for high-speed access via new technologies such as DSL and cable. These integrated access devices (IADs) will also support Internet telephony, with options for users to control which calls are routed to which carriers, and when to pay for premium quality. The “PBX” of the future will, in essence, become a single converged communications platform, placing features, service access, and quality of service in managers’ control.

A NEW HEADACHE FOR SERVICE PROVIDERS?
While it is fine to talk about the needs of the SME business owner, an equally, if not more important factor in the changing role of the PBX in this market is the service provider. The opportunity to gain a share of the estimated $8.6 billion of IP telephony services by the year 2003 has attracted a broad group of competitors to a voice market traditionally served by the circuit-switched public carriers. An alphabet soup of organizations, including ISPs, CLECs, ITSPs, and competitive access providers (CAPs), are joining the incumbent Regional Bell Operating Companies (RBOCs) and Inter Exchange Carriers (IXCs) in contemplating, planning, introducing, or offering IP-based voice/fax services to their customer base.

One of the biggest issues in this competition is the correlation between local loop ownership and the capture of long-distance revenue. As with the first alternative voice services introduced after the AT&T divestiture, VoIP services will initially represent a more complex alternative to circuit-switched services, delivering cost savings in exchange for a little extra work on the customer’s part, such as two-step dialing. Customers may have to dial in to access a local VoIP gateway, and then enter the destination phone number before the call can be routed to a remote gateway and completed via the PSTN on the other side. The requirement for this extra effort makes IP telephony “feel” different to users, and could constrain growth of carrier services despite the promised savings. For providers to succeed, lane changes between the PSTN and IP must become transparent.

This seamlessness requires new intelligence in the Customer Premise Equipment (CPE), such as the type provided by emerging IADs. Two call routing models are possible. At first, devices may simply circuit switch through xDSL local loops to a gateway in the carrier’s central office (CO). More likely, the next-gen PBX or IAD will have the intelligence to serve as an endpoint for both the PSTN and VoIP. Already, vendors are producing small, sophisticated gateway devices that can selectively decide whether to connect calls via new VoIP mechanisms or existing local PSTN circuits, as devices called redialers did with initial alternative voice offerings.

The “VoIP redialer” resembles a traditional PBX in identifying call destinations and routing calls over different carrier “trunk types” based on the phone user’s chosen destination. Going forward, intelligence will increase as further PBX functionality is added to match Centrex-like enhanced voice services that carriers will offer on VoIP, such as call forward, call transfer, voice mail, IVR, etc.

By combining VoIP gateways, PBX functionality, and a traditional data router, IADs help ITSPs and other carriers offer VoIP solutions without providing the local loop to the customer. IADs simply enable connectivity to providers’ VoIP gateways in a transparent fashion. Besides new revenue streams, carriers solidify the relationship with the customer by virtue of this “shared” device. In exchange for this increased “share of customer,” carriers are expected to subsidize the cost of all-purpose premise devices.

The growing stature of CPE will spawn partnerships between local loop providers and ISPs, streamlining services for customers even further. ISPs, cable modem, and xDSL-based local loop providers can work with ITSPs to deliver integrated voice/data services, outsourcing the voice infrastructure costs and implementation work to the ITSP in exchange for a percentage of newly captured VoIP revenues.
Both semantically and technologically, the lines among PBXs, gateways, IADs, and routers keep blurring, just like the line of demarcation between the carrier “edge” and the customer premise. The functionality of the PBX will be with us for some time, but it will get harder and harder to find it in the traditional package.

The one constant in all this change? Demand for new services and equipment that leverage every available technology to improve the bottom line. The PBX will not be alone in having to reinvent itself in order to elude extinction. But the strides already being made in converged access technology bode well for its future, and for those in smaller offices who will finally be equipped with communications platforms architected for their needs.

James Sturgess is director of marketing for TEK DigiTel, a company focused on integrating router, VoIP gateway, and PBX tech-nologies into a voice/data com-munications hub for SOHO and small businesses. For more information, visit their Web site at www.tekdigitel.com.