IP Centrex rides managed-services wave

The installed base of hosted IP telephony service in North America is still barely visible, but that could change quickly as Verizon prepares to launch service in 10 major markets in the East by year-end. It is the first major deployment by a member of the old, regional Bell operating company guard, and - unlike the efforts of the pioneering start-ups - is aimed directly at the enterprise market.

Bell Canada, BellSouth, Qwest and SBC are expected to follow suit and launch enterprise-oriented service in at least some major metropolitan areas by mid-2004. While SBC declined to talk about its plans, BellSouth is engaged in trials with two major customers, Qwest is beginning trials with two next month, and Bell Canada will start some trials early next year.

Meanwhile, In-Stat/MDR estimates there were 46,600 IP Centrex seat licenses at the end of last year, and expects this number to reach 123,500 by the end of this year. Most of the installed base is provisioned by pure-play start-ups such as GoBeam and PingTone that are targeting small businesses with multiple locations.

Verizon is the nation's largest provider of traditional Centrex, and the East Coast has the largest concentration of Centrex users. Verizon says it hopes the new service will help to staunch the steady erosion of traditional Centrex business lines, which IDC estimates peaked at 56 million in 1999. However, the incumbent local exchange carriers (ILEC) also expect IP Centrex to gain ground with large companies looking to consolidate disparate premises-based switches spread across multiple sites and to reap the cost savings of a managed service.

The massive blackout that paralyzed much of the U.S. Northeast and parts of Canada this summer underscored the advantages of a hosted service. Many traditional Centrex users - who contest the notion that they are second-class telephony citizens - smugly continued to enjoy voice service. Their desktop phones are powered by the central-office switch, which kicked over to generator power when the utility grid failed.

"Organizations with premise-based PBXs had no phone service," says Joan Moyer, telecommunications manager for the city of Toronto, which uses Centrex to deliver voice service to more than 900 offices ranging in size from two to 1,700 lines. "A hosted service provides fault tolerance," says Moyer, who is also a board member and service provider liaison for the National Centrex Users Group (NCUG).

IP phones require local A/C power, so IP Centrex users were more affected by the blackout. However, service providers with redundant, distributed softswitches were able to keep things going.

"We could continue to access features like voice mail, so we didn't miss any calls," says Ryan Alexander, president of Omnipod, a PingTone IP Centrex customer in New York that develops secure instant-messaging and file-sharing software. "People could call up on their battery-powered mobile phones and access the system, which was hosted elsewhere. That turned out to be very beneficial."

Verizon is starting to see demand for IP Centrex as a disaster-recovery platform. After living through the blackout, some businesses that depend on voice service and use PBXs want a back-up service. Because IP is inherently distributed, "the switch can be in a different city completely redundant from the dial tone that goes into your PBX," says Tom Dalrymple, director of voice switching for Verizon. "That's an opportunity we didn't originally forecast."