Saber Rattling
PBXs Are The Next Battlefield
Tara Seals
[Nov.1, 2002]
In the high-stakes war for the enterprise networking market, private branch exchanges (PBX) represent the next battlefield. Ominously rattling sabers with analysts in the rank-and-file, young, bold hosted IP PBX generals look to give no quarter to their legacy competitors. That is, if they can avoid a Waterloo over interoperability and distribution issues.
A PBX is the reason workers can transfer between extensions and start their mornings listening to voicemail. It's a circuit-switched, proprietary system that sits on the customer premise and connects the enterprise to the PSTN network and internal extensions to each other. It also provides basic business services, such as conferencing, hold and call forwarding. It's a "have to have," but requires enterprises to buy expensive customer premise equipment (CPE) and pay for programming upgrades. Adding new applications (such as call center technology), changing around extensions and maintenance also factor into the cost.
Enter the hosted IP PBX, one of those technologies that make life easier -- n theory. It accomplishes the same thing as a circuit-switched PBX, only it's delivered to the enterprise via IP-based wide area networks (WANs), and hosted remotely by a managed services provider. The customer has no responsibility for installation, upgrades or ongoing management.
Hosted IP PBX advantages also include no CPE requirements, minimal up-front investment and cost savings from the use of voice over IP (VoIP) for long-distance calling. Also, the technology paves the way for implementation of new, ROI-enhancing, IP-based applications down the line, such as call queuing management and intelligent voice response functions.
"M5 evolved from our experiences running prior businesses," explains Dan Hoffman, CEO for New York-based hosted IP PBX provider M5 Networks Inc. "At [a previous company], $15,000 was spent on a Toshiba PBX in 1994, and then $70,000 to upgrade it over the next four years as the company grew from 10 to 70 employees."
In contrast, M5's services start at $10 to $135 per seat, per month with none of the costs associated with owning and upgrading equipment.
"We customize our prices to the user's needs," says Josh Brooks, vice president of marketing at M5. "Price is a function of the number of employees, number of phones required, number of local minutes used and number of long-distance minutes used per month.
"For the service to make economic sense, a company needs to spend a minimum of $1,000 per month on all of their telecom needs, which include the PBX, maintenance, local calling, long distance and Internet connection," he adds.
The proposition could prove a compelling one. Probe Research Inc. projects hosted IP PBX seats revenue to grow to represent 80 percent of the potential enterprise market for service providers in 2007.
The Shifting Winds of War
So what's not to like? While IP PBX systems have been on the market since the mid-'90s, a hosted version of the technology has been very difficult to deliver due to problems in quality of service (QoS), security, interoperability and distribution.
QoS and security have long plagued the IP world, thanks to latency, jitter and other problems stemming from the use of the public Internet. Like IP virtual private network (VPN) providers, some companies are avoiding the issue by avoiding the open Internet altogether. For instance, customers connect to M5's high-end phone system via a private, high-speed VoIP network. It delivers conference calling, voice mail, multiple location and home office connections and business disaster recovery services. M5 uses VoIP only to transmit the service between clients and the M5 central system.
A lack of interoperability, however, is not so easy to overcome. "The product is difficult to install and deliver and support, difficult to integrate with existing infrastructure and with carrier billing and provisioning systems, and just making it all work together is challenging," says The Yankee Group enterprise computing and networking researcher Joe Gagan. "It's not voice, it's not data, it's voice over a data network and the mission-critical nature of phone service requires no room for error."
Distribution issues also have arisen. "One of the biggest negative factors affecting adoption is that the people that sell the product, traditionally resellers, don't have the understanding of the networks and Microsoft operating systems," says Gagan. "And getting the channel involved and trained is very expensive -- even though you have billions of dollars invested in this industry on the level of having all these startups selling these products, if the people that are selling it don't know how to put it in, that's going to hurt adoption."
Other adoption obstacles include instability in the startup sector. "A lot of companies went and sold CLECs and small service providers and a lot of them went out of business so they lost some sales time there," says Gagan. "Service providers in general are not throwing money out the window now."
VOISS Archetectural Overview
Source: VocalData
On the Frontlines
Despite the downsides and potential for never achieving critical mass in the market, the hosted IP PBX space is beginning to heat up and to solve some of its issues.
For instance, Cisco Systems Inc. looks to ensure installation expertise in its resale partners by requiring a specialization to sell their advanced IP telephony products. Partners such as value-added distributor Comstor Inc.'s professional services team, the Pro Shop, which just earned its specialization, must show advanced expertise in delivering complex, large-scale IP telephony solutions and value-added professional services. Specifically, they must show the ability to deliver services around Cisco IP telephony hardware and software, unified messaging, PBX integration and PBX migration.
"As IP telephony continues to rapidly evolve into a mainstream business solution, it is being deployed in much larger, complex environments that require more in-depth expertise as well as professional services capabilities," says Surinder Brar, senior director of Cisco's worldwide channels marketing.
IP PBX wholesaler Alcatel increased its overall IP telephone line shipment by 30 percent in the third quarter of 2002, up from the previous quarter and 73 percent from the same quarter in 2001. Its enterprise networking products are sold through resale channel partners, including national business partners like Verizon and NextiraOne, says a spokeswoman, and local resellers throughout the country.
It attributes its success to moving customers to IP with as little pain as possible.
For instance, the recently enhanced Alcatel OmniPCX 4400 IP PBX can act as a hosted solution. It has a set of features to let service providers and resellers partition off dial-plan, directories, trunks, accounting databases and other services for multiple businesses.
"This allows individual businesses to be independently served off a single PCX while allowing consolidated management by the service provider," explains Jeanne Bayerl, Alcatel's director of marketing programs for communications. "The OmniPCX 4400 could be located in a multitenant building or campus, or be located in a remote location with only IP phones or remote shelves over IP supporting digital phones at the customer premise."
For those companies that don't want to buy and host the hardware themselves, wholesalers are starting to pop up. VocalData Inc.'s customer Kancharla Corp., a Southeastern integrated communications provider (ICP), has launched a wholesale service based on the VocalData VOISS solution. VOISS can be configured for service providers to deliver virtual PBX, voice VPN, business trunking, IP Centrex and residential services. The partitioning capabilities in the solution allow customized service environments for each customer.
The solution targets service providers that want to offer virtual PBX services. Kancharla reports its first customer is GulfPines Communications, an ILEC subsidiary and integrated communications provider based in Hattiesburg, Miss.
