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Feature Article
March 2004


Success With Hosted IP Telephony

BY TROY HERRERA

The migration to IP-based telephone systems and VoIP is beginning to heat up after many years of hype and lack of action among businesses and consumers alike. The attractions are many: �free� office-to-office, on-net calling over Virtual Private Networks (VPNs); very low flat-rate residential calling; the ability to automate instantaneous Moves, Adds, or Changes (MACs) to telephones; and the idea of having the latest and coolest looking IP phone that can plug into any Ethernet port and work just fine. If these incentives are not enough, the fear that major PBX vendors are no longer investing in their TDM-based Private Business Exchange (PBX) systems and pouring future investments into the emerging IP PBX technology and markets is helping to accelerate the migration as well.



Given this heightened pace of adoption and the growing potential for loss of revenue for the traditional wireline telephony service provider, many traditional providers have begun to announce their own flavor of VoIP services. These services, like traditional Centrex, are hosted by the service provider; yet they are quite different from the traditional Centrex service offerings we have seen in the past. The secret to success in hosted IP communication services is in the details: the what, how, where, and when of the service offerings are the crucial questions to enable a service provider�s success in the hosted communications market.

WHAT?
The �what� is the detail of the product offering. In the business market, the hosted communication service can be very much like an enterprise-owned IP PBX solution without the required capital expense of owning such a system. The service can support a low flat-rate office-to-office, on-net calling option over VPNs and can be built to support automated Moves, Adds, and Changes (MACs) through a Web graphical user interface. This level of service emulates what is possible with IP PBX systems. Furthermore, voice and data application integration can occur with voice integration into Microsoft Outlook and other desktop applications.
The service can easily mirror the capabilities and features of the IP PBX, but part of what sets it apart from IP PBX systems is the financial model. Very small upfront capital expenditures (or none at all) may be attractive to many businesses. This allows the business to invest its cash wisely where it can make the greatest return on that investment. But is this service just a �me too� to the IP PBX? Simple answer: No. The service, with service provider network economies of scale can go much farther and beyond the capabilities of an IP PBX-based system.
To start, service providers have the capability to add IP-based media services to provide voice recognition, enhanced Web collaboration, group multimedia conferencing, large data storage, and many other applications. For most businesses, these features are just too complex and costly to implement for their own benefits. However, when you combine the technical expertise of the service provider and their economies of scale, these services can be delivered to a large number of small to medium and large businesses. Even residential and SOHO (Small Office, Home Office) subscribers can benefit with a subset of these service offerings.
The new services sound great, but perhaps you have an existing phone system that works well and is not yet fully depreciated? No problem. The hosted IP communication service, unlike an IP PBX, does not have to replace the existing PBX system. Rather, a hosted communication service can provide trunks to the existing phone system while supporting the addition of enhanced services for the business. Furthermore, businesses can cap their expenditures of continued investment in legacy PBX phone systems and begin to migrate to VoIP applications and benefits as the office grows with additional personnel. This enables a cost-effective migration to VoIP and allows the business to determine when to cut the cord from traditional TDM-based phones systems and switch completely to hosted IP communications. Even when this switch is made, the enterprise is not required to upgrade to the more expensive IP phones, but may rather implement a combination of IP phones and low cost or existing analog phones while enjoying the benefits of the hosted service enhancements.

HOW?
The �how� determines whether a service provider can actually make an attractive profit with the service while meeting the market-based needs of businesses and residential customers. The service delivery platform that provides the hosted IP communication services must support traditional telephony and VoIP simultaneously. In addition, the platform must be able to host IP phones, analog phones, softphones, desktop applications, and trunks with VoIP conversion and WAN transport.
For those businesses and residential users that are ready to switch directly to IP phones, the service delivery platform must provide the proper Quality of Service (QoS) to support packetized voice. Furthermore, for cost justification, it is essential to converge both voice and data network access to a single WAN. In doing so, assurances must be made to provide low latency, jitter, and packet loss for voice applications while allowing data to use the available WAN bandwidth. In some cases, data may require levels of quality above best effort as well. To add to these requirements, standard IP data networking features and capabilities such as firewall, VPN, router redundancy, routing protocol options and many other data networking features must be present in the service delivery platform to make this solution complete.
If these robust data networking features were not enough, the platform must have a reliable provisioning and management platform that is intuitive and easy to use. This is essential for the service provider model in order to provide mass-market deployments to a large audience while keeping with a deployment model that is manageable. Multiple truck rolls to correct installations, add voice lines, or to respond to alarms that can be addressed remotely will ruin the service provider business model.
Lastly and most importantly, it just goes against good business management and economics to replace properly working traditional phones and modern PBX systems. The required capital to make this transition can usually be put to better use towards building the business. As such, the service provider must offer a solution to host the existing telephones and PBX systems used by businesses and residential consumers while delivering new applications and driving the traditional communication equipment with the VoIP softswitch network. To do this, the service delivery platform must have an integrated line gateway function that terminates VoIP traffic to and from the WAN, and deliver digital T1 voice or analog voice to the business and residential consumer.
Combine all of these requirements, and the service provider is now probably considering two or three platforms at the customer site. The cost of these multiple platforms disrupts the business model and cost-effectiveness the service provider is able to deliver. Hence, a new product category is required that combines the capabilities of a high-performance data router, voice QoS, remote provisioning and management, and an integrated line gateway functionality. With this platform, service providers have the �how� to deliver hosted communications problem solved with a solution that cost-effectively meets market and service provider requirements.

WHERE?
The �where� is the go-to market strategy to sell and profit from hosted IP communications. A blind approach to the market can lead the service provider astray, chasing businesses that have already made the decision to go with an IP PBX system-based solution. Or, the approach can lead service providers to compete on price in the residential market and miss the opportunity to up-sell enhancements that can be hosted by the service provider and generate new revenue. Finally, a fixed product offering strategy that does not customize to meet business needs misses the mark as well and will generate little success.
Large, distributed, and cost-conscious business customers are the most attractive account opportunities. These include healthcare institutions with remote office clinics and university campuses or public school systems. This market segment is ideal from a multi-site data networking capability and enhancement opportunity as well as from a cost savings perspective. As such, healthcare and education have been two of the early adopter markets for IP PBX systems, and are prime candidates to benefit even more from a hosted communications service offering.
Although the large account opportunities are the most attractive from a single account revenue standpoint, a much larger market is the small to medium-sized business (SMB) with millions of these businesses across the country. Not only do the SMBs have much to benefit from in terms of cost-saving enhancements of an IP voice solution that offers very low or flat rate on-net calling, but there are added values in features and capabilities that are now made readily available to the SMB that were previously beyond imagination. It will take a well trained sales force and a decent product demonstration to enable SMB owners and managers to step beyond their preconceived concepts and previous experiences with Centrex services to fully comprehend and realize the benefits of hosted IP communications. Many customers still may not fully understand until they begin using the service and implement its many benefits to improve internal business operations, customer contact, and improve business efficiency.

WHEN?
With all the recent announcements from emerging voice application service providers and traditional RBOCs regarding hosted IP voice and data service offerings, the time to gain early market share in the burgeoning market is now. For several years, the market has been pushed by innovative IP PBX vendors who have tried to promote VoIP and their IP PBX solutions as an emerging technology and platform for the business. Finally, the market is shifting towards early adoption and we are witnessing the beginnings of mass-market acceptance. The technology works, and service providers now have an opportunity to realize benefits not only from the technology but also from the early marketing efforts provided by IP PBX vendors to accelerate market adoption.
The technology saves money. Not only is it more cost-effective for the service provider to transport voice over converged IP data networks, but service providers have been doing this for years within the core of their networks. The difference with the hosted IP communications model is that service providers are moving the economic benefits to the edge of their networks, all the way to their customers.
Hosted services deliver real value to the enterprise. From point-and-click MACs with complex back office transactions that are made to look simple, to a consolidated single bill for the business or consumer�s total communication services; these are just the beginning of what will truly emerge as a class of new hosted IP communications, business services, and customer relationship management integration. Ultimately, this will converge into an assortment of pick and choose hosted applications to deliver mass customization for every SMB.

Conclusion
The what, how, where, and when of hosted IP communication services have been answered. The services must support emerging IP phones as well as the traditional communication interfaces. A unique and new brand of service delivery platform is required. The market has a chance to reap many benefits that bring both economic and good business practices together. And lastly, the technology is ready and proven to support both residential consumer and industry-strength, business-class services. Service providers that implement this service strategy with a diverse and capable platform can achieve wide scale and profitable success in the market. c

Troy Herrera is market manager at Carrier Access. Carrier Access is an equipment manufacturer that helps more than 1,800 telecommunications companies accelerate service revenue, lower operating costs and extend capital budgets by applying high-performance access and service creation technologies. For more information, please visit www.carrieraccess.com.

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