Voice Over IP

The question of the month:

“Is a hosted VoIP platform better for my company or is a traditional PBX-Hybrid solution a better fit?”

We hear this every day in our telecom concentric jobs here in Central Texas. Voice over internet protocol has now been around for many years. In fact, sending voice over hardwired circuits or frame relay connections has been around for twenty five years or more. Voice is no stranger to being moved across data centric circuits. However, the real beauty of converting analog voice to an IP packet is compression and the ubiquity of having Internet access to billions of devices and locations ready to spit bits between your business partners and your customers.

I don’t want to go into to detail about quality of service, compression and other technical issues in this article. Let’s just assume that the VoIP providers are all equal in this initial discussion. Let’s dive into a financial look at the question posed above and breakdown the piece parts.

First, let’s assume that on most major IP telephone system platforms (Our preferred choice is the NEC SV-9100; It was just awarded 2015 product of the year by Internet Telephony Magazine) that a standard phone system with nice IP phones, licenses, VM, auto-attendant, Cell phone integration, conferencing, presence, chat and IM is about $750.00 a phone installed with all licenses and training. Cisco as a premium player will always be higher but let’s go with $750.00 as that is an excellent generic number for most systems. Let’s also assume that a fully hosted phone solution is $25.00 to $30.00 per user per month PLUS the cost of the telephone handset. Let’s split the difference and make the hosted solution $27.50 per user per month and a decent IP phone expense of $100.00.

A small/ medium business with 50 phones/users could spend up to $37,500.00 on a new Business Phone System/PBX. A sixty month lease rate factor would yield a monthly payment of $832.50 plus software assurance and maintenance of $150.00 a month. Total monthly per person would thus be $19.65 for 60 months after that the system is virtually paid for. Now, a true fully hosted solution would be 50 users times $27.50 per month or $1,375.00 a month…..forever. Huge difference in pricing. Fully hosted is 28.5% more expensive on a monthly recurring basis. Don’t forget that the 50 handsets were probably bought out of pocket for hosted and were included in the total cost for the traditional system-so fifty phones becomes an extra $5,000.00 burden on the hosted side. (Let’s assume the feature sets are equal for now.)

Now let us not forget the PSTN or access to the Public Switched Telephone Network. A true fully hosted solution will provide SIP trunking or what we call “concurrent call” paths to the outside world bundled in the monthly recurring per user fee. A traditional system needs access to the outside world via a PRI, SIP trunks or whatever concurrent call path can be purchased (even plain old telephone service or POTS lines) A concurrent call path or SIP trunk would cost about $16.00 per month today and this 50 seat small business customer would need 8 trunks or an additional $128.00 per month of hard costs. This adds $2.56 per user per month to my scenario above and reduces the price points between the two products to about 19% per user per month—not including the $5,000.00 for the new hosted phones. Next on our financial agenda is the growth factor. What if my company adds 25 users/phones over the next 12 months? Assuming a $250.00 IP phone cost plus $300.00 in licenses for all the feature sets a traditional system would yield a cost of $550.00 per user/phone. Adding these costs to our sliding lease rate factor at 48 months would yield a cost of $17.05 per user. Again, the true hosted solution has fixed costs of $100.00 per phone and $27.50 per user per month. Be careful with the numbers. As the traditional lease rate nears the end of its term the cost to add additional users grows. At 24 months left the cost to add a user/phone rises to $31.68. In conclusion, the traditional system yields much better growth factor expense ratios. However, this does scale downward over time.

What about the need to cancel phones/users or completely shut down an entire branch/region of my company? This scenario or “business downturn” is not too nice to the traditional system and its financing options. If we cancel 25 users assuming no minimum usage charges on a hosted solution then we save 25 x $27.50 per user per month or $687.50 per month. On a traditional system cancelling existing licensing is not part of the financing scenario at this point and it would be difficult to achieve unless business downtown clauses are negotiated and approved, which would be extremely difficult to manage for the financing provider.

Call centers models in this hosted vs. non-hosted analysis can be truly damaging dollar wise. If you run the numbers on say $1,100.00 per phone per user for call center licensing on traditional or $1,218.25 monthly for fifty phones vs. $100.00 per user per month on hosted–$5,000.00 monthly– then the margins can get completely out of whack. Your SIP trunking or PSTN access charges need to be factored carefully as some call center hosting products require additional costs for PSTN access. Of course, as we reviewed above scaling upward and downward in a dynamic fashion may favor one solution or another depending upon which way you grow or what type of industry you serve.

Additional issues to consider are softphones vs. hard phones, technical support, and Unified Communication licenses. Softphones especially favor the traditional pricing as handset expenses disappear and per user price actually drops. This is usually not the case with a hosted platform. Technical support for the servers and software that run sophisticated call centers is a major selling point in a cloud solution.” If it’s in the cloud then I am out of the IT business for managing my call center” is a common thread between the two products. This is an excellent point but what happened to negotiating SLA’s with your vendors to fill in any maintenance gaps? Unified Communications begs the direct question of; are your employees going to use all the bells and whistles of the traditional UC platform? If not, you can scale your costs down a bit-with hosting it’s generally take it or leave it. There are no cherry picking UC features for user discounts. Call center hosting maybe a small exception to this rule. Compression and codecs usually don’t have much sway with either product as G711 achieves about 80 kbps for a standard voice packet including header and G729 about 30 kbps. All this means is that twenty simultaneous calls will use just over one half Mbps on G729 and about 1.6 Mbps on G711. This is usually easy to accommodate in our increasingly inexpensive bandwidth world.

That’s all for this month folks. Remember most traditional PBX sellers offer financing that can be a pure operating lease with the same fixed cost structure as a hosted solution. Nevertheless, a true hosted solution is really a “cloud offering” which cannot be matched when scaling quickly upwards or downwards in user accounts. Your job is to define the costs, PSTN access, Unified Communication features, and the up and down scale needed over the time frame in question. So in summary, it is our opinion here at Telco Data that a traditional premise based Business Telephone System/PBX will provide better quality, a more robust and scalable feature set, and a much better long term value.

By |2015-05-18T18:44:35+00:00May 18th, 2015|Phone Systems|