Hosted IP telephony maturing for mainstream enterprise adoption

IP telephony adoption has progressed slowly for more than a decade, but with hosted voice vendors now offering modular consumption models and shifting away from simply viewing hosted voice as a way to sell broader unified communications (UC) solutions, organizations can now pursue IP telephony services as a highly scalable stand-alone service.

While a comparison of the financial cases for customer-owned or vendor-hosted IP telephony service should be performed on a case-by-case basis, recent market developments, enhanced service offerings, and deployment methodologies have created a significant opportunity for mainstream corporate adoption of hosted voice services.

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ANALYSIS: Why should you consider VoIP and UC as a service?

Beyond the roadblocks imposed by a struggling economy, enterprise adoption of IP telephony has been hampered by multiple factors. For example, many legacy TDM systems provide acceptable performance and reliability ("if it ain't broke, don't fix it"), and since many PBXs are fully depreciated, it can be difficult to make a compelling case for their replacement.

Limited knowledge of underlying communications infrastructure (e.g., LAN switches and structured cabling) and uncertainty about potential requirements and costs to upgrade infrastructure to support VoIP, also present challenges, as do delays around gaining organization-wide consensus and vendors' lack of a compelling value proposition to make the switch.

In spite of these barriers, hosted voice services can make the transition to IP telephony more compelling as well as deliver meaningful operational benefits. Financial benefits may include eliminating the capital requirements for the migration in exchange for predictable operating expenses through the life cycle of the service, lower total cost of ownership via a multi-tenant model that enables IT infrastructure costs to be "shared," as well as a path to quickly eliminating ever-increasing legacy TDM system maintenance costs.

There are operational benefits as well, including business continuity and disaster recovery capabilities that are wrapped into the service, removing the need for complex technology architectures and operational processes to support system resiliency. Enterprises also avoid the risk of technology obsolescence as the multi-tenant model encourages the hosted voice provider to maintain telephony platforms at current release levels.

Further, administration and operation (e.g., through centralized system management, trunking, dial plans, call control, and consolidation with adjunct applications such as messaging) are standardized, operational support requirements are reduced, and enterprises gain the ability to rapidly extend service to new sites.

Vendor service offering improvements

In addition to the financial and operational benefits intrinsic to the hosted IP telephony model, vendors have improved their offerings and pricing structures over the last two to three years to address issues that previously hindered adoption.

For example, many have introduced enterprise-friendly pricing models that better relate to how the service will be used, enabling customers to understand program economics and simplifying the budgeting process. Also, new managed services capabilities now enable a two-phase migration approach whereby the vendor first takes over the legacy environment and then manages a structured transition to the hosted IP telephony service.

Additionally, robust technical solutions (e.g., media gateways) now enable an interim hybrid environment leveraging legacy infrastructure investments (e.g., PBX hardware, software licenses, handsets, LAN switches, structured cabling), while migrating other sites to an end-to-end IP solution.

Vendors finally provide more enterprise-friendly pricing models

Initially, vendor pricing models offered telephony as an integral component of a broader UC hosted service. However, many enterprises had a much more limited requirement: to refresh aging voice infrastructure with a functionally equivalent and lower cost alternative. The vendor's underlying desire for the customer to migrate to a full UC service simply did not meet the enterprise's needs.

Recognizing this deficiency, vendors have developed more flexible options that offer customized services and functionality at a per-user level. Pricing is now commonly based on active users (or active line ports) that can be easily attributed to individual employees or shared locations, e.g., conference rooms, "hotel" cubicles, open spaces. With a simpler and more transparent pricing model, vendors can directly invoice individual business units or departments without requiring IT to perform complex allocations as part of charging back for the voice service.

Additionally, vendors now support a gradual phase-out of desk phones in favor of soft phones, allowing the enterprise to work around individual user preferences (conventional wisdom is that younger employees prefer soft phones, whereas older employees typically want to retain a desk phone). Supporting a choice of device enables the handset strategy to be delegated from IT to the business units, which have a clearer understanding of actual user preferences and willingness to pay. Further, the hosted voice services can include an option to lease desktop phone equipment as part of a bundled service cost.

A two-step migration

Another common obstacle to hosted voice services adoption has previously been the sheer size and complexity of an enterprise-wide migration to a third-party managed environment. In response, vendors are increasingly offering a two-step approach, in which they first provide a managed service solution for the legacy TDM environment and then assume responsibility for the migration to the hosted voice service.

This phased approach allows the enterprise to "get out of the telephone business," provides immediate cost reductions, and enables a more manageable and deliberate migration to hosted IP telephony services. As an example, a multi-year agreement for hosted voice services could involve the vendor assuming full responsibility for managing the legacy environment while performing the migration to the hosted service on a site-by-site basis over months or years. The cost to temporarily manage the legacy environment would be factored into the vendor's hosted service charges, allowing the enterprise to start realizing cost savings in the initial years of migration.

This approach is an attractive option for an IT organization that needs immediate cost reductions but cannot internally support the planning and effort associated with a transition to IP telephony. However, vendors are not interested in supporting a legacy TDM voice environment indefinitely and will therefore typically require a deadline by which all sites must migrate to the new solution. Companies can negotiate a degree of flexibility on transition timing, although vendor pricing tends to increase as the proposed transition duration extends.

Leveraging media gateways

Any large-scale "rip-and-replace" of legacy infrastructure can result in the early retirement of equipment that has not reached the end of its useful life. To mitigate this issue, media gateways can be used to leverage existing enterprise infrastructure (e.g., non-PoE switches, PBX system, digital/analog phones) and allow for a phased migration to hosted voice services.

Maintaining a hybrid environment that includes sites using the new service and sites retaining components of the legacy infrastructure connected via gateways offers several benefits, including permitting service migration with minimal disruption to end users (station equipment is reused) and accelerating the migration to a hosted service, as site remediation (and related cost) is minimized. Additionally, it offers increased functionality to end users, such as IP-based audio conferencing, centralized voicemail, single number reach, etc., and improves the system administration associated with centralized management.

For many enterprises, migration of legacy TDM voice infrastructure to an IP-based solution has been held up by challenges in overcoming conflicting objectives of a large-scale technology refresh and cost reduction. Hosted voice solution providers have responded by customizing their solutions to help enterprises meet both these objectives in the form of multi-year agreements to transform the environment with immediate cost reductions during the initial phases of the contract and lower costs over the entire contract term. The timing, size and scale of a migration to IP telephony differs for each enterprise and, particularly if the enterprise is overly tentative on transition scope or timing, substantial cost reductions cannot be guaranteed. However, with the appropriate level of enterprise-wide planning and an effectively negotiated agreement, enterprises can effectively utilize these new vendor offerings to migrate to a hosted voice solution and achieve the desired cost reductions.

Doug Carolus and Nick Wray are senior associates at Pace Harmon, a leading outsourcing advisory services firm providing guidance on complex outsourcing and strategic sourcing transactions, process optimization, and supplier program management.

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