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Feature Article
September 2004

The Battle Rages: IP Centrex Versus IP PBXs

BY Christopher Labrador

Like the dilemma over leasing versus buying a car, the decision between IP Centrex versus IP PBX can be vexing. Is the issue just about pay now or pay later? Are there arguments in favor of one over another? How do you know what is right for your company? The fact of the matter is that it’s not just about the money, but rather how features, functionality, and system control play a significant role in making the right choice.

IP Telephony has ushered in a brand new age, where voice and data reside on a single network, changing voice and data communications forever. By converging the two, it has become a completely new animal, with a variety of choices that go well beyond yesterday’s PBX versus Centrex argument. Today, there are many entrants into the IP telephony marketplace with both networking players and traditional TDM PBX manufacturers jumping on the bandwagon.

One thing is clear: IP Telephony is growing in both iterations — IP Centrex and IP-PBX. Gartner, a leading industry analyst firm based in Stamford, Conn., predicts that business lines supplied as part of local VoIP carrier services in the United States (which includes IP Centrex) will grow at an 83 percent compound annual growth rate (CAGR) out to 2008. Gartner also predicts strong growth in the enterprise IP telephony space with a 34 percent CAGR of Pure IP-PBX line shipments out to 2008.

Although IP telephony is clearly here to stay, many new IP telephony equipment manufacturers have abandoned decades of experience in traditional TDM/PBX technologies to deliver the “new technology.” The legacy equipment manufacturers are also offering new IP telephony systems where users now have ubiquitous connections but retain the robustness of a traditional TDM system. Today, the choice isn’t IP or TDM. It’s now a choice of IP Centrex versus IP PBX with the advent of IP telephony.

As with buying or leasing a car, with either system, you still get phone services and equipment with voice quality and reliability about equally matched. With IP Centrex, it is like leasing. Users do not own the equipment, and in fact, most of the equipment, with the exception of the telephones, resides at the remote IP Centrex site, not at the user site. With IP PBX, the user buys the equipment and maintains it at their site. With either choice, the features reach across the network, regardless of geography or type of telephone, whether IP telephone, softphone or wired phone, giving users access to the office telephone system remotely or at the company. Individual users probably will not even know or care if their company has IP Centrex or an IP PBX. They just want to know that their phones work.

IP Centrex is now. It’s offered by some of the oldest and biggest players in the telecom services marketplace, including Verizon, BellSouth, and SBC, as well as some new start-ups, Vonage and Covad, all of which have attracted customers at a tremendous rate. IP PBXs are offered by respected players in the telecom space. So which is the best way to go?

Like leasing a car, it depends greatly on the user and the user’s individual needs and preferences.

With IP Centrex, the user pays on a periodic basis; there is not a steep upfront cost; but the cost is ongoing. With an IP PBX, the upfront cost can be significant or it can be financed to make it more affordable. Today, IP Centrex providers charge much like a wireless provider, billing a contracted monthly rate plus a variable rate for additional services.

Choice of vendor plays a key role. Geography does not matter, because the provider of IP Centrex services can be based anywhere and still provide services. The IP Centrex provider can ship the equipment to the user or install it for them. In the past, technology was a major issue in choosing a telecom company, but more and more, it is no longer a limiter in choosing a vendor. What does matter is the vendor’s reputation and track record for quality, reliability, and the overall feature set. In fact, security features have become a major consideration in today’s telecom decision.

Users aren’t relegated to just one vendor when they choose IP PBX or IP Centrex. They can buy the telephone equipment from one vendor, networking equipment from another, dial tone from another, and Internet services from yet another. Either the IP Centrex or the IP PBX provider can deliver one-stop shopping.

As with leasing cars, if a company plans to keep their system for a while, say more than five years, buying an IP PBX may make more sense, especially if it comes with the ability to migrate to future systems and/or grow to accommodate the company’s growth. For example, you cannot paint flames on a leased car or modify the engine; the same is true for IP Centrex. To truly customize it, you need to own it.

San Jose, Calif.-based Infonetics Research’s next-generation voice market analyst, Matthias Machowinski, said, “Hosted IP service providers face a tough test ahead. If it is to grow significantly, businesses will require a lot of education from service providers in order to relinquish control.”

There is no doubt that ownership equates control, but it also means that there is a learning curve. Owning an IP PBX means there is a significant up-front commitment to install, maintain, and learn how to use the system. All these considerations should be factored into the total cost of ownership. The upside is that once the system is running smoothly, it should stay that way for a very long time. For companies that do not have the staff or bandwidth to implement an IP PBX, IP Centrex may be the best way for them to get the benefits of IP telephony.

With either IP Centrex or IP PBXs, users can move the phones wherever there is Internet access without the traditional service charges for moves, adds, or changes. For IP PBX systems, it is typically less expensive to add new users than with IP Centrex because all the data and infrastructure is already built into the telephone system. As well, both IP Centrex and IP PBX are very reliable systems.

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