Note: The article originally slated for May on deciphering a telecom budget has been held for later publication.
Voice over IP has garnered much press, surrounding the impending explosion predicted by many of today’s telecom providers. Every major telecom company either has announced plans to roll out service offerings, or already has. In many cases, these companies have announced such offerings well in advance of being able to deliver them, but these offerings will be here soon.
VoIP has finally established its validity. It has been around for years, but recently has seen its functionality refined to be a full-fledged replacement for old-line telephone service. Even AT&T Corp. has made the leap and announced an offer for its residential customers. AT&T Chairman and CEO David Dorman told analysts in March that VoIP may be the killer app that the industry has been looking for.
So will it be the next killer app? Most certainly, it is part of it. For all intensive purposes, VoIP is really just a transport protocol, but where it pays off is in the applications it can support. Enter the Hosted PBX, an offering that’s a by-product of convergence.
Convergence – the combination of voice and data services into a single solution or single network – provides much-desired economies to users and carriers. Convergence in the hosted PBX’s case is the conversion from hardware-based, POTS voice solutions to software-based solutions for packet voice that runs on the data network. The sometimes staggering hard costs of traditional PBX moves, adds and changes, and maintenance expenses, just go away with a hosted PBX offer.
The impact on telecom will be initially compelling, ultimately irresistible, and certainly irreversible.
VoIP first appeared commercially for international use because of the high cost of international calls. It lagged in domestic deployment due to early quality concerns, but by the late 1990s had begun to migrate to the United States for long-haul routes and carrier bypass.
As a financial success, very few service providers have profited from it. Two of the largest international VoIP providers have never made a profit to date and face an uncertain future. VoIP as a transport technology for voice minutes only is nothing more than a cheaper way to haul a single commodity product, with the key word being “commodity.”
But when deployed by a service provider to the end customer as a means to deliver a host of solutions, VoIP will be able capture the highest return and profits. As in any business, higher margins live closest to the actual end customer, and only get better if you can provide two or more services.
Who stands to lose in this latest revolution? The RBOCs of course; they always lose something when a new service comes out. It’s the old “market disruption” theory in effect once again. When a new product enters the market (allowing smaller companies to deliver more services, at cheaper prices), the old paradigm shifts.
The RBOCS all have hosted PBX platforms in their labs, but except for some limited rollouts to make their shareholders happy, don’t expect to see a national rollout of a hosted PBX solution as a core product. Why the delay? Because it would cannibalize there core network and billions of dollars of investment. Only when forced to comply by the smaller service providers who understand market disruption will the Bells answer with a comparable service. By this time, the small service provider will be offering the next great service, and the story goes on.
The other likely candidates to feel the impact of hosted PBX are the interconnects, the companies that long have relied on hardware sales of PBXs and the resultant maintenance contracts. Obviously, if the customer is swayed from buying a PBX in lieu of a hosted PBX option, which is delivered much more cheaply and with many more features, that customer will evaporate entirely from the interconnects’ client lists.
Hardware providers are combating this with massive plans to roll out enhanced new IP PBXs which have many of the new features being sold in a traditional model. Companies like Lucent Technologies and Nortel Networks aren’t going to give up on a market they’ve enjoyed for so long. They all have some very good IP-based PBX solutions and will take their share of the market.
Which companies will succeed with hosted PBX service offerings? Bet on those that understand the power of bundled services over a metro VoIP network, sold as an application and/or service, taking advantage of market disruption.
Today, CentricVoice, an IP communications company, has a larger local footprint than Verizon Communications Inc., SBC Communications Inc. and BellSouth Corp., and a hosted PBX solution over which CentricVoice can deliver all of a business’s communications services, including data. In order for the RBOCs to do this, they have to build and maintain an outside plant and network of tandem and central offices that number well into the thousands.
Yes, this infrastructure has other values, but not to the end customer. Today, your average business customer wants local, long distance, high-speed Internet access, voice mail and all the other features found in your traditional PBX. The customer in almost every case places no value on the RBOC’s investment in outside plant, but rather the value of the services being offered him.
The hosted PBX offering has been underway for just over a year in limited commercial rollouts, and usually by small regional service providers; large companies such as Level 3 Communications Inc. are now in full swing. Its growth should account for a significant portion of the projected VoIP growth over the next three years. The financial impact should be quite dramatic. Companies can post margins only dreamed of in traditional deployments, while enhancing customer retention and lifting profits to a level not seen in decades.
Customers now have another option to high capital expenditures for PBXs and PBX upgrades, expensive maintenance contracts and the frustrating limitations of a hardware-based solution. The winner in the end will be the customer – if the regulators stay out of it.
The hosted PBX, combined with an array of applications and services, all fit on one simple bill. The most common billing plan is a per-seat model, in which the customer actually pays for only the active phones or seats on a flat-rate, monthly basis. This fee includes local, long distance (usually a minute bundle), Internet access, voice mail and a host of services. The hosted PBX also can be set up to integrate with Microsoft outlook, to launch a phone call from your contacts, view your call logs, set up conference calls or to receive voice mails and faxes.
These are features and applications that are far advanced, beyond 90 percent of today’s traditional PBX deployments. Look for the hosted PBX to impact the PBX market, much as the Internet impacted the computing world. It’s a sound business model; it is extremely compelling.
Jeff Rothell is CEO/President of CentricVoice Inc. He can be reached at jrothell@centricvoice.com .
