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Hosted IP: CENTREX in IP Clothing?

Hosted VOIP! Hosted IP! Hosted IP CENTREX! Hosted IP PBX! IP Centrex! Software as a Service (SaaS)! The trade press is teeming with articles about hosted offerings in general. Some tout all the benefits and why this is the “next big thing.” Other articles warn about the potential pitfalls and drawbacks. Do your eyes roll into the back of your head as you try to make sense of it all?

First, let’s define our terms. There are plenty of definitions floating about, but the Office VOIP Solutions’ VOIP dictionary has a pretty straightforward one:

Hosted IP = Sometimes referred to as IP Centrex. Business class phone service delivered by a service provider that hosts the necessary PBX hardware and software at their (collocation premises), so you don't have to own and maintain it yourself.

That sounds a lot like a definition of "traditional" Centrex, doesn’t it? How similar are the two offerings? How are they different? Which is the right way to go for your business?

There is no doubt that this type of service offering--we will settle on “Hosted IP” for this article--is gaining in popularity. Most of the new Hosted IP service providers target the small to medium business (SMB) market, which ranges from 10-500 stations. Some SMBs are single location, while others have multiple locations or even many small locations, e.g., retail. However, some larger Centrex organizations (1,500+ stations, multiple locations) are considering it.

Hosted IP receives strong consideration for many of the same reasons that Centrex experienced a resurgence in the early 1980’s and has always been a viable alternative in the SMB sector. The organization:

1. Does not want to be in the voice telecommunications "business" for its employees.

2. Can focus more on its core business objectives.

3. Does not have or cannot retain the staff, skill sets, or the resources to manage, support, and/or operate customer premises equipment (CPE) and applications.

4. Wants to offload all that responsibility to the service provider.

5. Needs high reliability and business continuity for its voice communications.

6. Is drawn to a lower capital investment than a premises-based solution offers.

7. Likes the relative predictability of operating expenses and the "advertised" lower total cost of ownership (TCO).

8. Wants a technological foundation for advanced applications, such as unified messaging (UM) and unified communications (UC), when business needs dictate deployment.

9. Can theoretically deploy one or more new stations as a "utility" when and where needed.

10. Need not worry about technology refreshes.

11. Has access to a more robust feature/ function complement then current Centrex.

Conversely, Hosted IP has the same perceived drawbacks as Centrex and a couple of new ones, which any buyer must evaluate:

1. Less control of management, administration, and upgrades than a CPE solution. These are not under the customer's control, although web portals provide visibility to usage and access to users to change individual settings and parameters

2. Requirement to carefully formulate specific service level agreements (SLAs) and establish objective tools and processes to measure and verify compliance along with appropriate incentives or penalties based on service provider performance.

3. Aggressive contract management will be required to assure service provider performance is in the customer’s best interest, not the provider’s profitability.

4. Less flexibility of advanced applications deployment, i.e., progress and implementation at the service provider’s schedule with associated professional services fees.

5. Potential increased complexity for integration with installed customer systems and applications.

6. Requirement for a robust network with full quality of service (QOS) capability. Hosted IP assumes that the customer will converge its voice, data, and video communications on a single physical network, which is usually the incumbent local area network (LAN).

7. Requirement for potential significant capital investment for some premises-based equipment, network upgrades, and power redundancy.

8. Higher TCO over a longer term.

The Hosted IP definition has several components that we will examine more closely to clarify what "hosted IP" really is and how hosting can change the traditional support model within an enterprise. First, "business class phone service" comprises several components: features, functions, applications, high availability, and quality. Second, "service provider" is the responsible organization that will implement and support the hosted service. Third, "necessary PBX hardware and software" indicates the technical configuration of the hosted service, which might or might not include an actual PBX; rather; the term "PBX" in this instance connotes a robust and comprehensive complement of user features and functions. Finally, "so you don't have to own and maintain it yourself" indicates that an organization need not worry about traditional ownership responsibilities for its voice communications, since the service provider will presumably do that.

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