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Editors' Notebook
June 2004


Greg Galitzine

Hosted IP Telephony Q & A

BY GREG GALITZINE


Over the course of the last several months, I�ve had the chance to meet with and speak to a number of leading vendors in the Hosted IP telephony space. In order to share some of the insights gleaned over the course of these various meetings, I have assembled a Q&A with Frank Petkovich (Sylantro Systems), Prakash Nagpal (Covad Communications), and Scott Wharton (Broadsoft).

 

SYLANTRO SYSTEMS

GG: What are the benefits of a hosted IP telephony solution over a premises-based PBX?

FP: For the Service Provider:
� Increased and on-going margins over a reseller situation with an IP-PBX (known as managed services in most LECs).
� Firm relationship with the customer over trunking.
� A standards-based solution means that multiple endpoint types and manufacturers can be offered at varying price points, without proprietary implementations. This translates to lower overall support costs, and lower costs to implement additional features/applications beyond the initial offering.
� Much more competitive to the IP-PBX (a true replacement product) over traditional Centrex or Centrex-IP.

For the Enterprise:


� Better management interface.
� Lower cost in several areas.
� Low capital expenditure: If we liken this to a variable mortgage (low interest for five years, then variable thereafter), the enterprise reaps savings over a long period of time. The industry average is at about 30 percent total savings over a five-year period.
� Additional savings over �on-net� calls. Typically, service providers are bundling �on-net� calls for free (not counted against any minute plan or contract), with free local (TDM networks still carry a per-minute charge to businesses on local calls) and in many cases free, unlimited long-distance calling. IP-PBXs can only provide on-net calls within the business and its locations.
� Low cost solution to manage remote sites and mobile/teleworkers. Currently, IP-PBXs are running at $3,000�$5,000 for a teleworker extension, hosted solutions can achieve this at about a 50 percent savings.
� Easy management of remote/branch sites, lowering operational and support costs. (Most multi-site businesses have disparate PBXs at each location, with no way for on-net or common voice messaging platform.)
� Increased worker productivity. Some achieved also with an IP-PBX, but hosted directories, common messaging platform, mobile integration and portal access from anywhere are not features typically associated with IP-PBXs.
� Multiple endpoint options. Enterprises, through a service provider, can select endpoints at varying prices to fit specific job functions (e.g., executive, manufacturing, call center) to minimize cost. Many IP-PBXs have two�three endpoints, which continue to remain the highest cost of the overall IP-PBX solution.

GG: In your view, what is the current state of the hosted IP telephony market?

FP: Tier One Service provider deployments will be going into full swing in 2004, due to market/analyst pressures as well as traditional LECs entering out-of-region territories through hosted IP offerings. Traditional vendors (Nortel, Lucent, Cisco) continue to lag in true hosted IP-PBX replacement feature sets, and don�t appear to have product available until 2005. Significant market share will continue for the IP-PBX, which had already begun inroads in the late 90s. Hosted solutions will be available in virtually every market in North America by year end, with several service providers to choose from in each market. Business awareness of hosted IP-PBX solutions will be mainstream by end of year, as is witnessed by the deployments by ILECs such as SBC, and CLECs such as Level3.

GG: Who stands to benefit most from a hosted IP telephony solution?

FP: This continues to be the small/medium business segment, where IP-PBXs remain costly in all areas (initial capex, on-going support and maintenance, and management). Multi-site, high phone usage, high customer contact businesses will continue to be targets (financial services, consulting, travel, legal, real estate, etc.). Large enterprises whose Centrex and traditional PBX contracts are expiring in 2004 and 2005 will also be adopting IP-Centrex/hosted IP-PBXs. Service providers will also begin offering low-end versions of hosted IP-PBXs to very small businesses.

Frank Petkovich is director of marketing for Sylantro Systems (www.sylantro.com). Sylantro Systems is a leading provider of hosted PBX and IP Centrex applications, IP-VPNs, and consumer broadband applications via the company�s proven carrier-grade applications feature server. Sylantro�s solutions are deployed successfully around the globe, with the widest market distribution in its product class. The Sylantro platform provides proven telco-grade scalability, reliability, operability, and regulatory compliance required for massively scalable carrier deployments to millions of users.Sylantro�s IP Centrex feature set allows service providers to offer a full range of high-value IP-based communications services to enterprise, business and residential users, providing new revenues beyond simple access and transport. A rich suite of applications and development tools allows service providers to quickly and efficiently roll out new differentiated services. These solutions allow service providers to offer a high-value, high-margin set of hosted services that can fully replace on-site phone systems.

 

COVAD COMMUNICATIONS

GG: What are the benefits of a hosted IP telephony solution over a premises-based PBX?

PN: The benefits fit into the following categories:


a.) You (the customer) do not need to invest in purchasing the PBX hardware. The hardware is typically expensive and could run into tens of thousands of dollars for a small business. With a hosted IP solution you do not need to worry about these costs. Since the infrastructure is owned by the service provider, consumers pay only for the service and the provider makes the investment in the infrastructure. You also do not need to staff or hire consultants to perform the installation of the complex hardware.


b.) Administration costs and time. Every time the small businesses employees move, employees are added, or their profiles need to be changes they need a technician to make the changes. With a hosted IP-based solution they can either make the changes themselves, or designate a person who knows how to use a computer (and not much more) to make the changes or call the service provider to make the changes. The changes will occur instantly.


c.) Maintenance costs. The infrastructure (like PBXs) requires periodic maintenance. By eliminating the need to purchase the hardware, you eliminate the recurring maintenance cost, which is usually a percentage of the original hardware. This also means that you eliminate the need to have staff or contract technicians to maintain the equipment.


d.) Scalability. When the small business grows they do not need to invest in purchasing a new PBX or buying expensive upgrade hardware (which runs into the thousands of dollars). The only investment is in the additional phone for the employees (note that the phones need to be purchased regardless of the type of service, premise based or hosted).

GG: In your view, what is the current state of the hosted IP telephony market?

PN: The adoption rate is low, but the market is growing significantly. All indicators point towards greater adoption of this service. This is another way that businesses are outsourcing tasks that are not their core competency.

 

GG: Who stands to benefit most from a hosted IP telephony solution?

PN: All segments stand to benefit from the IP telephony solution. Businesses small and large can realize all of the aforementioned benefits. The level of control available through hosted solutions matches the level of control available through traditional on premise hardware.


Large businesses however might be reluctant to give up control over part of their infrastructure. So the adoption will most likely come from the small business market, where traditionally there is no staff to install and maintain telecom infrastructure.

Prakash S. Nagpal is senior product manager at Covad Communications (www.covad.com). On March 3, 2004 Covad announced it had signed an agreement to acquire GoBeam, Inc. GoBeam currently offers a comprehensive suite of business VoIP solutions to accommodate varying customers� needs. At the center of the GoBeam solution is a full-feature hosted PBX solution offering advanced PBX capabilities without the need to install expensive PBX hardware at the customer location. In addition, each user gets a unique phone number and an associated GoBeam Dashboard to manage incoming and outgoing phone calls through a PC. The GoBeam Dashboard allows users to consolidate their multiple phone numbers with a single personal telephone number so callers reach them wherever they are. A personal virtual fax number handles all incoming faxes. The unified visual mailbox conveniently manages voicemail and faxes just like e-mail. Robust call logs and integration with Microsoft Outlook allow users to make and return calls with just a mouse click. Web collaboration and voice conferencing are easy to set up and use.

 

BROADSOFT

GG: What are the benefits of a hosted IP telephony solution over a premises-based PBX?

SW: A new model for delivering voice services to enterprise customers called Hosted PBX has rapidly moved into the mainstream. The Hosted PBX application combines provides the best of both worlds from IP PBXs and Centrex to the enterprises: it consists of an IP-based software model for voice offering rich PBX and multimedia services combined with Web-based moves, adds, and changes (MACs) and configuration for substantial operational cost savings. The Hosted PBX model also incorporates some of the best characteristics of legacy Centrex such as five-nines reliability and massive scale, the ability to add and subtract capacity in an incremental fashion, and the desire for centralized and simplified control and management.


The Hosted PBX application is supplemented by the use of open standards (e.g., SIP) to ensure the leveraging of the best the market has to offer and prevent the lock-in that hampered enterprises associated with the traditional, proprietary nature of the PBX business model.


The Hosted PBX offering will provide several distinct advantages compared with a premises-based IP PBXs:


� Scale: Can scale up to support millions of subscribers as well as down to individual lines per location.
� Networking: The hosted PBX network-based solution offers inherently superior networking capabilities including abbreviated extension dialing for all employees in the company and the ability to have employees participate in group services regardless of the location (e.g., hunt groups, ACD functions across locations/departments).
� Reduced complexity: A Hosted PBX platform provides multiple applications in a single, fully integrated offering. In contrast, IP PBXs typically have an �add an application, add a box� mentality requiring a new hardware server for each distinct application (e.g., voice messaging, conferencing, networking, announcements, ACD, etc.) creating a web of complexity and cost to their solution.
� Reduced total cost of ownership: A Hosted PBX offering provides a lower cost solution when factoring in total costs to the enterprise. Significant savings come from converged access and network connectivity, reduced equipment costs through open standards, and reduced staffing needs from centralized Web-based management and control.
� Open, standards-based: A Hosted PBX offering is open and standards-based today. A strong part of the hosted PBX value equation to their enterprise customers is to leverage this openness to expose them to the widest and best choice of equipment, both for today and tomorrow. In contrast, the major PBX vendors have been notoriously closed in their architectures (especially between the handset and the PBX call control). While all the PBX vendors promise open standards in their products, there are strong incentives for each vendor to continue their proprietary course to protect their handset and add on business.
� Reliability: A Hosted PBX offering is built from the ground up to be carrier-class with five-nines reliability plus fall network redundancy and backup. In contrast, many IP PBXs run on non-carrier class platforms (e.g., Windows) and provide less then required reliability expected by voice platforms.
� Technology risk: A Hosted PBX offering has been put together with the world�s best technology vendors. By providing Westpac with an outsourced voice solution, Telstra assumes the significant burden and risk of keeping up with the technology and ensuring the Westpac and our other customers are protected from the vagarious of the market as well as able to leverage the vast innovation occurring in the IP voice market space.
� Centralized management: A hosted PBX database and management structure is centralized (while fully redundant) reducing the management complexity and cost by an order of magnitude (e.g., only need to make changes in one place versus hundreds of locations).

GG: In your view, what is the current state of the hosted IP telephony market?

SW: It is relatively early, with nearly 100 service providers at various stages of offering service, the majority of whom are just getting started or ramping up beyond initial launch stage. The hosted solutions are behind IP PBXs in terms of raw number of deployed end users largely due to the complexity of scaling a carrier solution versus an enterprise solution. I expect that this will shift more to the hosted solutions as more enterprises discover that they have a real choice between hosted and IP PBX compared with the poor substitute of Centrex.

GG: Who stands to benefit most from a hosted IP telephony solution?

SW: The main beneficiaries of hosted IP telephony solutions are end users. The benefit will be different for different segments:
� For large enterprise users, they will get the ability to have a single enterprise-wide solution fully networked and regardless of geographic boundaries. In contrasts, today�s PBX solutions are limited to individual sites/geographies and Centrex is limited to service based on proximity to the local central office. Enterprise users will be able to get the latest and greatest features without compromising on reliability or scale
� For medium-sized businesses, hosted PBX applications offer the possibility of outsourcing voice and saving the internal costs of managing a PBX system (as well as picking the right vendor � always a challenge).
� For small businesses, they do not have the expertise typically to figure out how to run a PBX let alone an IP PBX so it is valuable for them to be able to outsource for expertise reasons (versus purely economic).


The secondary beneficiaries are the service providers at the expense of the enterprise PBX equipment vendors.


Incumbent phone companies stand to benefit by growing a new market with hosted PBX sales. This will come in the form of keeping their existing Centrex installed base being able to migrate their customers as well as opening up a new market that previously was dominated by the PBX vendor. It also allows them to have a strategic foothold into the customer for services, being able to upsell new things (versus when a PBX is installed, the main thing a service provider can sell is a commodity pipe).


Competitive carriers stand to benefit from the order of magnitude improvement in the cost to build a network (hundreds of thousands to start and a few million to build versus billions for a network and millions per city). This will bring in a whole new class of competitive players and provide lower costs (and more choice) to end users.

Scott Wharton is vice president of marketing at BroadSoft(www.broadsoft.com). The BroadWorks leading network communications platform provides a comprehensive range of applications including Hosted PBX, IP Centrex, residential broadband and collaborative conferencing. BroadWorks is uniquely capable of providing these applications with the reliability, redundancy, scalability, and regulatory capabilities required to deliver carrier-class service. BroadWorks enables service providers to increase top-line revenues by offering enhanced services to enterprise customers. BroadWorks also reduces operational expenditures by empowering enterprises to manage their own moves, adds, and changes via the patented CommPilot web portal. The open, standards-based environment of BroadWorks provides maximum flexibility for service providers to customize their offering.


 

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