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SMB: Is the PBX Dead?

Industry proclamations about the demise of the PBX tend to originate within or be directed at large enterprises, while "low end" solutions last on within the small and medium-sized business segment.

Nortel's funeral is long over, after all, yet a huge installed base of Nortel gear just keeps on keeping on. And that's not to mention the scores of legacy and even newer IP-PBXes serving SMBs. I know of a Florida Gulf Coast firm tasked with overseeing the triage of TDM and IP-PBX gear from Avaya, Nortel and others within government agencies across the country, for example.

For SMBs, hosted telephone services billed at $30 monthly is common. For a couple of telephones, this often makes sense. But for 20 phones, the monthly tally reaches $600. The question to consider is whether a hosted solution is more cost effective and easier to manage than an on-premises solution.

The hosted option is easy, with no capital outlay unless you want to purchase gear. Some providers offer this option in order to reduce monthly payments for customers. Note, however, that the "own your own gear" option may require you to buy an extended warranty from the manufacturer. This isn't a bad idea, but you'll also typically have to buy a dealer package for onsite labor, shipping, and maintenance, including moves, adds, changes, and deletions (MACDs).

The SMB idea that using hosted telephony service to save money or have a predictable bill is subjective. If you want a predictable bill, you can easily accomplish that goal with a hosted solution. If you want cost-effective solutions, then you best weigh your options and, of course, consider your cash flow.

The 20-station model for $600 monthly cost is $7,200 yearly. Most gear can assume a seven-year life, and I didn't add UPS, power protection or managed switches in either configuration. A 20-station IP-PBX at street price is $9,400, the factory extended warranty is $300, and that dealer package is $1,200 per year.

The hosted model is $50,400 over seven years, and the premises-based IP-PBX is $18,100. In less than two years, the cost of owning your own gear outweighs the hosted model. Throwing in the cost of SIP trunks for $60 monthly doesn't change the results, and neither does adding in the cost of a single POTS line for failover.

The SMB market is unlike the large enterprise space, and a key difference is survivability; many SMBs fail, and they fail fast. So as long as they survive at least two years, then their investment is good when selecting ownership of a premises solution over a hosted solution.

Again, is the PBX really dead? For the SMB, does a hosted solution offer a key differentiator that a PBX doesn't? Does it offer something that just rocks your business and is worth the added opex versus the one-time capex for a premises solution? I'm not implying there isn't. Rather, I am wondering about the business drivers. I'd love to hear. Share in the comments section below!

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