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IP Centrex Services Getting Traction

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IP Centrex=20 Services Getting Traction

Published in=20 The IP Voice's New Telephony

Vol. 2, No. 6

February 13, 2003

No one wants to call it that, but IP = Centrex-or "hosted PBX" or "voice ASP" or "business IP voice'' or = whatever you=20 call it--appears to be gaining traction in enterprise markets. While it = remains=20 in many respects a boutique telephony service, at least this year, there = have=20 been developments that suggest it could be a much bigger deal in=20 2003.

The bombshell event of the week was = Telia's=20 decision to offer IP Centrex-they call it, in Swedish,"IP Switch." This = is a=20 big-time deployment by a major service provider whose networks stretch=20 throughout Scandinavia. The company trialed a number of Centrex = applications=20 before choosing Sylantro Systems Corp., then tested that software and = associated=20 hardware for a year before making a deployment.

Now it appears Telia is putting a = major sales=20 effort behind the deployment, pushing the product to its VPN customers,=20 medium-sized businesses generally and those that are geographically = dispersed or=20 opening new offices.

Small Service Providers Lead the=20 Charge

While the Telia announcement was a = commitment=20 by a major carrier, the company stands practically alone among incumbent = local-exchange carriers (ILECs) in its level of commitment to IP = Centrex. "Telia=20 tends to be the more adventurous among the carriers," points out = Christine=20 Hartman, senior analyst, Probe Research Inc. The champions of IP Centrex = at this=20 juncture are mostly smaller service providers targeting one or two=20 regions.

"All of the incumbent providers are = fairly=20 heavily into trials of Centrex, but it is companies like GoBeam and = TalkingNets=20 that gotten things off the ground," says Julia Mermelstein, senior = consulting=20 analyst, Allied Business Intelligence, which recently published a report = titled,=20 "IP-PBX, Hosted Solutions and IP Telephone Sets." "These companies have = been=20 able to get to critical mass."

"They are getting the decisions = made, getting=20 trials made, getting up and running. ILECs are much more conservative in = testing=20 and putting things in their network. Their decision process is long and = slow,=20 and that has been an advantage to companies that willing to go forward = like=20 GoBeam."

Two other recent entrants to the = field are=20 Communications Xchange, a new operator in Tampa, Fla., and Appia = Communications,=20 an established CLEC in Michigan offering primarily T-1 services and now=20 expanding into IP Centrex.

There are downsides, she warns, for = ILECs=20 sitting on the sidelines, and "Incumbents do need something like this to = retain=20 customers." For one thing, basic services have become commoditized, = especially=20 long distance, so incumbents may lose those customers, because there are = alternatives that are less expensive. They need to be in competition to = get more=20 than just the minutes that go to a PBX. "If Cisco (Systems Inc.) = continues to be=20 successful in selling IP PBXs, it will route more minutes over private = networks=20 and those minutes will be lost to the carriers," says Mermelstein. With = IP=20 Centrex or messaging, "even if they lose minutes, there will still be = on-net=20 traffic that they can get. They don't want to lose that to someone=20 else."

Priming the Channel

The smaller IP Centrex service = providers face=20 a number of challenges, most immediately the development of sales = channels,=20 wholesale and retail. Most are employing a mixed strategy there, working = with=20 resellers in certain areas, while selling directly, usually to larger=20 customers.

For example, GoBeam struck a resale = agreement=20 in July with Verizon for the Chicago area, where Verizon is trialing = strategies=20 for offering services out of region. In fact, those actually selling are = a=20 mixture of Verizon's own sales staff as well as Verizon resellers. = GoBeam also=20 works with integrator-resellers, such as Sentient Group Inc. and VCOM = Solutions.=20 These companies typically serve a local area, in this case the San = Francisco=20 metropolitan area. GoBeam also sells directly through seminars, usually = aimed at=20 larger customers.

Appia has an ongoing relationship = with Cisco,=20 and is using Cisco resellers for its service. Most IP Centrex = deployments=20 require and router and Ethernet switch at the premises. Communications = Xchange=20 will sell directly and through DSL Internet service providers in its=20 area.

"I think there are going to be lots = of ways to=20 get different customers,"says Hartman. "And there may be different = conventions=20 in different parts of the world. A provider may use different channel = for=20 metropolitan areas compared to rural areas, or a different one for = smaller=20 customers rather than large ones. There's lots of experimentation and = lots of=20 models, and I don't think they will converge on one."

As is evident, the channel = relationships of=20 these companies are at an early stage. Companies typically have two or = three=20 channel partners, plus their own direct sales. However, they will all = have to=20 expand those relationships significantly in order to increase = sales.

Opening Their Eyes

Companies are also working against = limited=20 understanding of the products. Many, understandably, are resistant to = use the=20 term Centrex because of that service's limitations, but other terms, = such as=20 "PBX replacement" "virtual PBX" or "business IP voice" are simply not as = descriptive.

And, though understanding of what = the product=20 means is spreading, the vast majority of large enterprise IT managers = may have=20 never heard the terms "IP Centrex" or "hosted voice services." For this = reason=20 some service providers offer seminars in the hopes of "turning on the = lights"=20 for corporate IT or telecom managers.

"The problem with a lot of features = is that=20 people can't imagine them," Hartman says. "I did research for years, and = often=20 it was hard to communicate the features. Until a customers uses a = service, they=20 don't understand it, and even then people find new ways to use it. With = Caller=20 ID many ways to use it. People will be imaginative once a service is put = into=20 their hands."

The most compelling argument for IP = Centrex=20 vendors in the current business climate is lower costs. Most can = undercut the=20 local telco by about 30 percent, while offering features that can't be = done with=20 circuit-switched systems, such as management from any = browser.

Larger businesses in general are = slower to=20 move, no matter what the benefits, "For hosted systems, I have seen = smaller=20 businesses more ready to adopt IP technology than larger businesses, = partially=20 because they have an investment in circuit-switched equipment, an = analogy to=20 large telcos not taking it in. Also, a large firm would require a lot = more=20 testing than someone who does not have a system at all or has a limited = system,"=20 says Mermelstein.

Sometimes a service provider will = get an=20 advocate within a large company who understands the value of the = service, "The=20 challenge is to get high enough in the company to over come = [conservative]=20 attitudes, and show the dollars and cents of the service," says=20 Mermelstein.

She adds, "I have a suspicion that = one reason=20 incumbents have had a hard time getting these systems deployed is that = they are=20 accustomed to going after large business customers, where emerging = carriers are=20 more willing and have sales channels to go after small = business."

Another barrier is that many = companies spent=20 significantly to upgrade PBXs for year 2000 issues, so there are many = relatively=20 new systems in deployment.