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Feature Article
March 2004


Hosted IP For Service Providers: A Win-Win Scenario

BY DENZIL SAMUELS

The commoditization of telecommunication services has forced service providers to seek out new sources of revenue. IP telephony is one of the most promising ways to generate this revenue, as it enables service providers to offer their enterprise customers hundreds of value-added services, including unified messaging, instant messaging, Web conferencing, and click-to-dial.



While rapidly gaining popularity, IP telephony first appeared on the market more than six years ago. However, at its inception, it wasn�t mature enough to be a viable option for carriers to provide to businesses, as the challenges outweighed the benefits. Now, IP telephony solutions match the voice quality and interoperability of TDM and carriers are ready to make the leap.
The timing couldn�t be better. Enterprises, particularly those with multiple branch offices or a large percentage of mobile workers, are demanding this capability. Today�s enterprises are eager to capitalize on the financial and productivity benefits of consolidating voice and data traffic on one network. IP telephony is quickly becoming a business imperative and even hesitant enterprises will eventually be tempted by its benefits. As such, now is the time for service providers to arrive on the scene with an affordable, easily implemented, IP solution that will improve information flow for enterprises � both internally and in interactions with partners, customers and vendors.

Why Now?
Why has IP telephony now become so attractive? The answer is multi-faceted. First, as mentioned, the technology now matches the promise. Second, enterprises are attracted by the productivity benefits of IP�s value-added features. With IP, branch offices and mobile workers can act as if they are all a part of corporate headquarters, accessing the same information, and being available at a moment�s notice to answer a customer question.
What�s more, IP telephony, particularly if hosted by the service provider, offers clear financial benefits. No longer do enterprises need to buy equipment and hire people to service it. Now, this burden can reside with the service provider. What�s more, pay-as-you-go pricing enables enterprises to truly only pay for what they use. Add to that a comfort in knowing that they will also have access to the latest equipment (versus buying something that quickly becomes outdated), and IP telephony becomes the clear answer.

To Host or Not To Host?
Traditionally, IP telephony solutions have been sold directly to businesses, requiring operations to manage the applications on customer premises equipment (CPE). While this may still be a viable option for large enterprises, the cost and commitment of CPE can be prohibitive for the typical mid-size company. Not only does CPE require capital investment or equipment leasing (different equipment for every location), it also requires recruitment and training of IT staff, the need for software upgrades, having to deal with technology obsolescence, and the pressure of meeting application deployment deadlines.
This can be just too much of a commitment for most mid-sized enterprises, as they simply don�t have the technical resources, capital, or desire to host and manage these solutions and associated networks. It�s critical to focus on their core competencies. What they want is new application functionality, provided under an operating expense model, with predictable, low monthly costs and proven ROI. They also want these applications fast. And they are looking for service providers to give it to them.
Unfortunately, service providers� use of circuit-switched technology, whose proprietary nature hinders innovation, makes it hard for them to develop the latest or most sought-after services and offer them to enterprise customers. What�s more, even if they acquire an IP network, they still need to maintain their legacy systems to support existing customers. This is where the hosted model comes in.
Third-party providers can install and manage IP applications on service provider�s equipment, then jointly market these applications to end customers. This gives mid-sized enterprises access to best-in-class, affordable applications previously available only to large enterprises. These �outsourced� applications are delivered over the Internet and other service provider networks through the service provider �cloud,� the unpredictable part of a network through which data travels on its way to its final destination. As a result, customers would know they�re using other�s technology, but would not be running their applications directly.

Choose Carefully
With hosted IP telephony, the carrier has the responsibility for providing, maintaining, and servicing network equipment, as well as providing upgrades as necessary. With this in mind, enterprises can free up resources, as workers who used to be responsible for maintaining PBX equipment can focus on other activities.
In short, hosted IP solutions are a win-win proposition for all involved. However, there are several key issues for service providers to consider before selecting a partner in offering IP solutions to enterprises. Service providers need to make sure their partner can provide them, and their customers, with reliable, secure, and easily implemented solutions. These are some of the �hot button� issues for service providers to consider:
Migration Strategy: Service providers need a partner who can offer their customers a phased migration model, implementing IP communications by the seat, department, or site. This enables customers to add IP telephony at their own pace, instead of forcing a disruption in service. This also allows enterprises to �test drive� the technology, getting a handle on the ins and outs of the new technology as well as usage statistics.
Another important thing for service providers to consider when selecting a partner is their ability to offer converged systems, giving companies the ability to operate their existing systems in tandem with the new IP network. This enables enterprises to only upgrade the units or remote locations that will benefit from the value-added services provided by IP technology.
Speed: Once a service provider makes the decision to offer hosted IP solutions, it will need to have the service up and running quickly (90 days or less) in order to capitalize on the market demand and beat out their competitors.
QoS: Network quality is the difference between customer satisfaction and a complete loss of productivity. Service providers need to ensure their hosted IP solution gives the highest priority for VoIP traffic, network-wide; incorporating dynamic jitter buffers at all critical points, and limiting packet loss.
Reliability: Disaster recovery is the buzzword of the day. Service providers should look for a hosted IP telephony solution that offers fault tolerant server options and distributed architecture, taking things a step further and making disaster avoidance a reality.
Recently, many people have linked the reliability of hosted IP with the New York City blackout. Those with premise-based equipment lost voice service, while those with the hosted service were able to switch over to another location and/or generator and maintain business as usual. Hosted services offer superior reliability because the network operator is off site and not subject to the problems of one location.
Security: Voice conversations must be protected as effectively as billing records. Advanced, end-to-end encryption technology and rigorous administrative security measures are essential when selecting an IP telephony solution.
True hosting: Some companies claim they provide a �hosted� solution, to be managed and sold by the service provider. However, many of these products actually require servers and other networking equipment to be installed on the customer�s premises, defeating the major incentive for customers to want the service in the first place. Service providers need to find a solution where all server-side applications reside in their premises on their computers.
Flexibility: Service providers must seek out partners that offer modular and interoperable products, so they can pick and choose the parts that enhance their customer�s business models � and minimize the need for new capital investment.
Marketing Assistance: Because hosted IP telephony is something new for service providers, they often need help marketing it to their customers. As such they should look for a partner that will provide joint marketing, including demand creation, sales training, go-to-market strategy development, collateral development, and event co-sponsorship.

CONCLUSION
As competition within the telecommunication industry continues, IP-based voice products have become a necessity to gain ground in the crowded market space. IP-based voice products enable service providers to offer a host of exciting new applications and capabilities, with minimal effort. A win-win scenario, not only do IP solutions generate much-needed new revenue for the service providers but they also positively impact customer satisfaction and retention, giving today�s demanding customers access to the latest technology. These hosted solutions are particularly attractive in the current economic climate, as they provide businesses with an opportunity to access advanced features without an up-front capital investment in equipment.
The only daunting task for today�s service provider is to weed through the numerous IP solutions providers to select the right partner, making sure their partner can give them, and their customers, reliable, secure and easily implemented solutions. Once service providers make this decision, they are on their way to gaining new customers and significantly increasing revenue. c

Denzil Samuels is Vice President and General Manager of Avaya�s Service Provider Division. Avaya designs, builds, and manages communications networks for more than 1 million businesses worldwide, including 90 percent of the FORTUNE 500. Focused on businesses large to small, Avaya provides secure and reliable Internet Protocol (IP) telephony systems and communications software applications and services. For more information, please visit www.avaya.com.

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