While carriers have been slow to launch this hosted telephony option, IP Centrex is seen as delivering more benefits than traditional Centrex or PBXs for less.The installed base of hosted IP telephony service in North America is still barely visible, but that could change quickly as\u00a0Verizon\u00a0prepares 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,\u00a0BellSouth,\u00a0Qwest\u00a0and\u00a0SBC\u00a0are 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. What's in a name? Centrex users aren't rushing to IP Tech update: IP Centrex reduces telephony costsMeanwhile, 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\u00a0PingTone\u00a0that 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\u00a0Omnipod, 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."Is IP Centrex for you?Service providers and industry analysts agree that "sweet spot" patterns have yet to emerge for IP Centrex, both in terms of vertical industries and company size. However, they identify a number of characteristics that make an organization a likely candidate:\u2022\u00a0 A highly distributed company with lots of small offices.\u2022\u00a0 A multi-site company with branch offices that are run somewhat autonomously.\u2022\u00a0 Fast-growing start-ups that would outgrow premise-based equipment quickly.\u2022\u00a0 Organizations that need the flexibility to accommodate a lot of change.Keller Williams Realty was founded three-and-a-half years ago in the middle of the red-hot Sacramento, Calif., real-estate market, and now has 260 agents spread across three offices. The company quickly outgrew its premises-based\u00a0NEC\u00a0switch and looked around for a more flexible and scalable product."Every time we moved someone from one desk to another, there was a service call to the local interconnect that cost us $100," says Wayne Hall, president of the company. "When we discovered GoBeam two years ago, we weren't really looking for [voice over IP] - just a good deal on basic phone service."Hall had some initial concerns about relying on a start-up and IP for voice service, but decided to take the plunge. There have been three minor service hiccups over the past two years, but none were very disruptive. In a converged environment, whether a dedicated desktop phone has dial tone or not isn't as critical, because there are other options."If the service to the building goes out, most of our folks can just go onto the Dashboard [GoBeam's browser-based user interface] and forward their calls to their cell phones," he says. "They love the Dashboard and the way their phone number can follow them wherever they go and the ability to manage calls and messages."Hall even uses the GoBeam IP Centrex service as a recruiting incentive. "We survive by recruiting talent away from the competition, and our competitors don't have a phone system like this. It's also great to be able to add new offices so easily, and to have a single phone system across locations," he says.More bang for the buck?IP Centrex typically is being sold in a flat-rate bundle that includes local and long-distance voice, data access and such value-added services as voice mail, e-mail, unified messaging and Web hosting. Also, the IP Centrex service providers are rejecting the per-line pricing of traditional Centrex for a per-seat or per-user model.While the ILECs haven't announced pricing yet, the pure-play IP Centrex providers such as GoBeam,\u00a0M5 Networks\u00a0and PingTone have monthly rates ranging from $40 to $65 per user, depending on bundle packaging and the size and configuration of the customer. IDC expects enhanced IP Centrex bundles in the large-business segment to drop to an average of $26 per user by 2007. In contrast, IDC reports that traditional Centrex lines cost large enterprise customers $21 per month for basic service plus such add-on features as voice mail and caller ID.Early adopters have trouble quantifying the differences, but agree that IP Centrex gives them more for their money than traditional Centrex or PBX-based voice service. Wall Street Strategies, a stock research firm in New York, switched to M5's IP Centrex after its previous voice service provider, a competitive local exchange carrier, went bankrupt. Wall Street Strategies COO Daliah Amar says hosted IP telephony is saving her company money by eliminating the cost of buying and maintaining hardware and decreasing the number of necessary T-1 lines."The IP Centrex call handling is much more efficient," Amar says. "For example, I might have five calls coming in, with four of them on hold. These four are not tying up four channels on the T-1, because the service provider is holding them. We were able to go from three T-1s to one plus a DSL line for backup." With the move to IP Centrex, Wall Street Strategies reduced its local and long-distance costs by at least 60% and eliminated the $25,000 per year that was going to hardware and software maintenance.Interface envyOrganizations that start mixing traditional and IP Centrex might create some friction in the user community."From the end-user standpoint, the graphical interface is the main thing," says Christine Hartman, research director of packet telephony for Probe Research. "Users get a visual interface with point-and-click call control, and there are no star codes to remember and punch in. That won't help to sell IP Centrex, but once people have it, it will prevent them from going back."Some of GoBeam's customers maintain a PBX at their headquarters and deploy the IP Centrex service to the branch offices. Soon the people at the branch offices start snickering: They now have the more advanced voice system, and the people at the headquarters have become the have-nots."Then the people at the headquarters start asking for the new phone system too," says Kevin Gavin, chief marketing officer for GoBeam. The Dashboard interface is GoBeam's unique contribution to IP Centrex; the service provider's underlying infrastructure is based on Cisco routers and softswitch technology from Sylantro and BroadSoft.Impediments to implementationThere still are technical and regulatory issues that have to be resolved before IP Centrex service becomes as ubiquitous as its traditional counterpart. One is the availability of economical broadband connections for small offices."IP Centrex is taking off faster in Europe because an office with 15 people can get a DSL with 3M to 4M bit\/sec downstream and 1M bit\/sec upstream for $30 a month," says Olivier Hersent, founder and CTO of\u00a0softswitch\u00a0vendor\u00a0NetCentrex. European service providers are bundling IP Centrex with local and long-distance voice service, data service, Web-site hosting, voice mail, e-mail and other applications. "It's MIS in a box, not just telephony in a box," he says.Hartman says the U.S. service providers are trying to become one-stop shops too, and win with the bundle. However, they aren't starting from such a monopoly position, and some regulatory issues remain. According to Sue Tarr, executive director of service provisioning product management for Telcordia, softswitch-based "IP Centrex" offerings might be considered enhanced data services while "Centrex IP" based on an IP-enabled Class 5 switch might be tariffed (see related story).IP phones are another factor holding back IP telephony implementations - whether hosted or premises-based. They are still relatively expensive, and they still cause all kinds of compatibility problems in multi-vendor environments. "You still have to test each piece of equipment with every other piece,"says Eric Schwartz, vice president of IP communications for BellSouth. "IP telephony won't take off until the devices are truly standardized, so that every vendor's handsets work with every other vendor's switches and vice versa."The IP phones are unstable, Hersent says. "Regardless of brand, the typical IP phone is still rebooting once a day. Imagine if you had 100,000 users, and they all started calling technical support when this happened. Some IP phones also have no security, and a person with the right skills can go in and change the ID and pretend to be someone else," he says.Security\u00a0is another area with a lot of unresolved issues, and organizations considering IP Centrex need to find out what prospective service providers are doing about it. Sending voice packets over enterprise firewalls can introduce too much latency, and the "solution" simply might be to go around them.Expert insightDespite these problems, a growing number of organizations enthusiastically are embracing IP Centrex as a convergence alternative. According to IDC, the number of stations is increasing more than fivefold annually, with cost-cutting being the primary reason. The IP Centrex phenomenon is part of a larger IT trend toward reducing technology costs and risks by turning certain functions over to outside experts.IP telephony is seen as a particularly good candidate for outsourcing because the technology is still changing extremely rapidly. Worries about platform obsole-scence, scalability, bandwidth management, upgrades, quality of service, back-up capabilities and other such issues can be left to the service provider. That's the theory, anyway.In practice, not all service providers are created equal, and some can be pretty bad. There are lots of layoffs, and the support people are often the first to go, because they are on the cost side of the equation. Omnipod had to cycle through one unsatisfactory service provider before finding PingTone, and this experience probably isn't atypical.The entry of the big ILECs into the market might raise the bar, but industry watchers aren't holding their collective breath. "If you sit in on a meeting of Centrex users, you will see that the carriers don't do a great job serving that market," Probe Group's Hartman says.Omnipod has no regrets, though. "We saved ourselves the capital expenditure and a lot of ongoing operational expenses, and yet our employees are enjoying all the advantages and flexibility of an IP-based voice network," Alexander says.