Challenging the IP-PBX Grip: Providers can create future-proof IP telephony solutions using IP centrex services - Focus on: Voice over Broadband

Telecommunications, Feb, 2002 by Laura Thompson

IP-PBXs have gained respectable market share in recent system shipments, according to Phillips Infotech, landing major enterprises such as Dow Corning and Household International. The precipitous rise of the IP-PBX is and should be of great concern to service providers.

This newcomer in CPE threatens to strengthen the iron grip CPE has had on business customers since the 1980s, when service provider-based Centrex offerings were edged out of the large enterprise market--and later the small-to-midsize business market--by feature-rich PBXs and key systems that far exceeded Centrex capabilities. In addition to providing desktop features, the IP-PBX allows geographically dispersed businesses to route interoffice traffic via a data network, consolidating trunks and lines and impacting carriers' toll and long-distance revenues. Now, the IP-PBX is poised to deliver the coup de grace and cut service providers from much of the enterprise market forever in terms of service offerings, access lines and their associated revenues.

Prior to PBX introduction, service providers' access line growth was in the 10 percent to 12 percent range. Once PBXs became entrenched, access line growth dropped to 3 percent to 4 percent. This decline has continued due to the rise of other technologies such as wireless communications and e-mail, which divert traffic from wireline networks. To offset these losses and return to a healthy bottom line, providers must reach beyond their traditional product offerings into new business-oriented services.

Many technologies and market forces that have helped establish the IP-PBX have also encouraged a new breed of products and services uniquely designed for service provider networks and business models. These products represent a strong alternative to on-site systems and can help providers compete effectively against the IP-PBX onslaught. These new products, called IP Centrex or Hosted PBX, reside in the service provider's network, work with existing TDM-based networks and OSS infrastructures, and can provide a smooth migration to next-gen softswitch-based networks.

As the name implies, Hosted PBX/IP Centrex is based on a different deployment model but shares many advantages with IP-PBXs, while providing additional benefits that premises-based systems can't offer. IP-PBXs provide switching, feature delivery and other functionality across a data network. These systems reside on-site and require internal resources for ongoing management and vendor support for major changes. Calls within the premises and interoffice off-premises calls are routed over a WAN or other data network, bypassing the PSTN entirely. Since up to 70 percent of an enterprise's traffic is interemployee, especially for large businesses, the savings for users--and lost revenues for service providers--add up quickly.

Much like traditional Centrex Hosted PBX/IP Centrex is built on a service provider network-based model but has completely updated features and management capabilities. All calls, switching, features and other functions are distributed to the customer premises through broadband facilities such as T1 or DSL lines. Calls are then delivered over an internal data network to the users' IP-enabled legacy phones or the newer IP phones. No other CPE is needed.

Hosted solutions offer businesses the same wide-area dialing advantages and savings as IP-PBXs, without requiring internal IT resources to manage the system. The services and broadband network used to deliver Hosted PBX/IP Centrex capabilities are managed by the provider, simplifying deployment and management for the business customer compared to an on-site IP-PBX. A provider-managed network typically offers a level of voice quality indistinguishable from traditional PSTN-based services. Hosted PBX/IP Centrex systems can also deliver services such as E911 and Caller ID, abilities identical to or capable of superceding those available with traditional TDM-based voice services. Hosted PBX/IP Centrex services are offered at a monthly service fee per user, much like traditional Centrex, allowing businesses to avoid large capital outlays of $25,000 to upgrade existing PBXs or $75,000 to purchase a new on-premises IP-PBX.

Hosted PBX/IP Centrex features easily match those offered by IP-PBXs and far exceed those provided by legacy CPE products. These advanced features are key because they are far more intuitive than traditional PBX features and drive adoption. In addition, the outsourced model employed by IP Centrex significantly reduces capex and opex.

A recent study by consulting firm Research First concluded that business users are frustrated with managing their current phone systems and exhibit strong interest in outsourcing their telephony services to reduce management and maintenance headaches and to avoid capital expenditures. Outsourcing allows companies to focus on their core businesses, rather than devote personnel and expense to telecom. In the study, 60 percent of users interviewed expressed willingness to outsource. "Get me out of the phone business--please!" said one respondent.