PBXs ARE THE NEXT BATTLEFIELD
By Tara Seals
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 — in 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
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
"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
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
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
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
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
"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
"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.
Hosted IP-PBX Equipment Shipments World Market: 2001- 2007
Source: Allied Business Intelligence Inc.
Cisco Systems Inc. www.cisco.com
Comstor Inc. www.comstor.com
GulfPines Communications www.gulfpines.com
Kancharla Corp. www.kancharla.com
M5 Networks Inc. www.m5net.com
Probe Research Inc. www.proberesearch.com
VocalData Inc. www.vocaldata.com
The Yankee Group www.yankeegroup.com