Traditional Centrex Sips From 'Fountain of Youth' With IP Centrex

Transcription

1 Research Brief Traditional Centrex Sips From 'Fountain of Youth' With IP Centrex Abstract: Enterprises finally have another choice: IP Centrex. Development and deployment are in the early stages and will face stiff competition from IP-private branch exchanges. By Deborah Kish, Megan Fernandez and Alex Winogradoff Recommendations Vendors should make risk-based investments, enhancing their application servers to develop full-featured IP Centrex and hosted private branch exchange (PBX) solutions. As part of the go-to-market approach of IP Centrex offerings, service providers should stress enhanced feature offerings that are only possible with IP, such as customized features, online services administration and unified messaging. Carriers must seriously consider supporting premises-based Voice over IP (VoIP) solutions and find ways to effectively integrate these with the legacy environment. This will mitigate risk in an evolving market for voice services, help them maintain margins and improve their opportunity for greater account control. Carriers must pursue hosted IP-PBX solutions and offer flexible packages as a stopgap/interim measure to compete against IP-PBX deployment and to retain current Centrex customers. Publication Date:19 August 2003

2 2 Traditional Centrex Sips From 'Fountain of Youth' With IP Centrex Is VoIP a Dilemma or an Opportunity for Enterprises? With the mainstreaming of IP for data services applications, IP voice applications (private and public) are now finding their way into the decision processes of small and midsize businesses (SMBs) and large enterprises. PBXs and key systems dominate the North American voice solutions landscape and thus, are logically where IP telephony solutions have been most actively promoted with Cisco Systems and the traditional customer premises equipment (CPE) vendors (for example, Nortel Networks, Avaya and Siemens) leading the way. CPE/LAN-based solutions have been around for some time especially for greenfield and small branch applications but are only recently becoming robust enough, cost-effective enough and feature-rich enough to be considered possible competitive alternatives to traditional circuitswitched PBXs. To not lose out against vendors such as Cisco, traditional PBX vendors have developed adjuncts (in essence, IP gateways) to permit their embedded PBX systems to function within the IP environment to safeguard their embedded base, while also introducing competitive "softswitch" products for greenfield applications (for example, Avaya's Multivantage and Siemens' HiPath 8000). In the meantime, telecommunications operators and central-office (CO) vendors recognized the advantages and potential dangers to their market that VoIP solutions introduce and started pursuing network-centric solutions to combat this new and growing CPE threat. Traditional switch vendors started applying the same approach as PBX vendors by developing adjunct capabilities (gateways) to make the circuit-switched, Class 5 office functions with VoIP while softswitch developments to emulate and enhance current telephony features were developed for a carrier-class operation. Cisco and a handful of other softswitch vendors saw this as an opportunity to bridge the gap between the circuit-switched world and IP by introducing "hosted" solutions and various gateways to mimic Class 5 functions. Developments in this area have advanced enough to give enterprises real choices to evaluate when growth or replacement decisions must be made with respect to their PBX, key or Centrex systems. Do they continue with a traditional PBX that has IP ports, go directly to an IP-PBX, or pursue a hosted telephony or IP Centrex solution? This often boils down to a financial question: Do enterprises select a managed service or do they invest capital and a maintenance contract? The benefit analysis is as much dependent on price and total cost of ownership (TCO) factors as on the more qualitative issues of perceived quality, control and trust, criticality of operations, working relationships with existing vendors, CIO preference, hard and soft budget requirements, head count, and so on. The benefits must be evaluated on their individual merits for each application: greenfield or new branch location, minor or significant growth of an existing location, or downsizing and budget or capital constraints. All of these play significantly into the decision process to continue with legacy PBX solutions (IP-enhanced or not) vs. a nextgeneration VoIP solution (CPE or hosted). Thus, the best solution is not 2003 Gartner, Inc. and/or its Affiliates. All Rights Reserved. 19 August 2003

3 3 always automatically evident and often involves trade-offs that include consideration of future growth and system characteristics that are not always readily comparable, such as scalability, flexibility, features, price, security options, performance, stability, level of new investment requirements and so on. On the other hand, service providers are facing similar decision dilemmas: How can they gain more effective account control, retain customers and minimize churn as IP-PBX solutions are being deployed? How can they most effectively meet the VoIP needs of their customers without negatively impacting their legacy revenue streams? How can they move customers away from lower-margin, CPE-based solutions to more flexible and higher-margin network-based solutions? Softswitch Design Advantages Compared With Circuit-Switched The public switched telephone network (PSTN) is in a transitional phase for migration to next-generation networks (NGNs). The carrier networks can be run more efficiently and cost-effectively with today's evolving Internet including further proliferation of the ubiquitous IP to generate new revenue streams and support the need for greater speed and operational efficiencies. IP Centrex can be provisioned by utilizing existing time division multiplexing (TDM) equipment, or via a next-generation softswitch architecture. Some of the fundamental differences between traditional telephony and VoIP (TDM vs. softswitch architecture) are listed in Table 1. Table 1 Traditional Telephony vs. VoIP: Fundamental Differences PSTN (TDM) Dedicated network (real time) Circuit Fixed rate Fixed path Minimal variation Guaranteed bandwidth Circuit Calls rarely dropped Voice quality "Gold" standard Source: Gartner Dataquest (August 2003) Softswitch Architecture (VoIP) Shared "best effort" network with QOS tools Packets Variable rate Fixed or variable path Potential large variation (depending on technology used) Variable bandwidth (call-to-call or during call) Packet loss Potential for dropped calls Voice quality Variable, requires careful management 2003 Gartner, Inc. and/or its Affiliates. All Rights Reserved. 19 August 2003

4 4 Traditional Centrex Sips From 'Fountain of Youth' With IP Centrex Figure 1 Class 5 Switch-Based Architecture Class 5 Architecture IP Centrex via Class 5 architecture allows service providers to use their existing voice network to support plain old telephone service (POTS) and Integrated Services Digital Network (ISDN) lines, while still offering their customers the advantages of VoIP and IP Centrex or hosted PBX. This is accomplished by adding an access media gateway (for conversion to IP) and a customer premises media gateway for POTS and ISDN signaling. This architecture provides dial tone, calling features, unified messaging and other features provided by IP Centrex and hosted PBX applications. The Class 5 switch provides the standard network functionality (for example, 911, number portability, billing and Signaling System 7, or SS7, interconnection). The customer can use IP telephones (as well as standard telephone sets) with this solution through IPs such as H.323 or Session Initiation Protocol (SIP). Figure 1 shows how IP Centrex can be provisioned through Class 5 switches. BRI = basic rate interface ATM = asynchronous transfer mode Source: Gartner Dataquest (August 2003) 2003 Gartner, Inc. and/or its Affiliates. All Rights Reserved. 19 August 2003

5 Figure 2 Softswitch-Based Architecture Softswitch Architecture Using a softswitch architecture to provide IP Centrex, the Class 5 switch is replaced by a softswitch and media gateways. Like the Class 5 switch, the softswitch provides call control and service intelligence. However, the softswitch is not involved in transport or switching of the packetized voice stream as is the Class 5. The softswitch, customer premises media gateways, trunk gateways and IP phones signal one another over a packet network using H.323 or SIP. The trunk gateway has traditional interoffice facilities to Class 4 or Class 5 switches in the PSTN. The trunk gateway packetizes voice so that it can be transmitted over the circuit-switched facilities. It works in conjunction with a signaling gateway, and the trunk and signaling gateways receive their instructions from the softswitch. Figure 2 illustrates the softswitch architecture for IP Centrex. 5 Source: Gartner Dataquest (August 2003) What Are the Alternatives? PBX converting to IP-PBX and Centrex converting to IP Centrex are technology substitutions and do not change the business. Basically, IP enablement allows the usage of the data network and IP trunking by using existing infrastructure as the telephone access network. Enterprise customers and service providers have the following four options for managed services Gartner, Inc. and/or its Affiliates. All Rights Reserved. 19 August 2003

6 6 Traditional Centrex Sips From 'Fountain of Youth' With IP Centrex Hosted IP-PBX Hosted IP-PBX is essentially the same concept as IP Centrex. Hosted IP- PBXs offer a broader range of functionality such as advanced call routing features, whereas IP Centrex has still not progressed beyond the basic 10 to 15 features such as speed dial and call waiting. IP Centrex is typically geared toward SMBs, while hosted PBX is geared toward midsize and large enterprises. Hosted PBX can be hosted either by the carrier or by the enterprise itself. If by the carrier, the functions are leased from the carrier as needed by the customer and terminated when not required any longer. Ownership, management, upgrades and so on are the responsibility of the carrier just like legacy Centrex. The equipment resides in the CO and is managed by the carrier but typically not shared (except possibly with one other customer). The hosted IP-PBX solution is typically carrier grade and offers scalability, Web-based self-service management, supports telecommuters and road warriors (for example, "find me" and "follow me"), and in general has a lower TCO than an IP-PBX solution. If hosted by the enterprise, hosted IP-PBX equipment will reside in the company headquarters and will host PBX functions to remote locations. Hosted IP-PBX solutions are offered by BroadSoft, VocalData, NetCentrex, Sylantro Systems, LongBoard and PingTone Communications. IP Centrex (via Softswitch Architecture) For IP Centrex, the business concept principles for enterprises are the same as legacy Centrex, except that its features are much more flexible and customizable, and its operational advantages such as moves, adds and changes (MACs) are vastly superior and real time. IP phones and softphones use IP addresses or ID numbers associated with them. The ID or IP address moves with the phone, therefore providing a true plug-andplay environment. While they are provided via software such as legacy Centrex solutions, telephony features include customer-programmable and modular code, unlike its circuit-switched cousin, where the code is proprietary and cannot be updated or modified except by the vendor. Some competitive local exchange carriers (CLECs) and startup service providers are running a fully functioning, softswitch-based IP Centrex application, but these installations have limited features. Even most of these are called IP Centrex but are often no more than glorified gateways. It will take some time (two to three years) before vendors will have a carrier-class IP Centrex solution that is systemized and managed across multiple network elements, including the ability to share customers across multiple application servers. It must at least have all the features of a legacy Centrex or PBX and must be fully integrated with all PSTN gateways before it can be considered IP Centrex. Of course, the anticipated differentiation and value of IP Centrex compared with its predecessor is its flexibility, enhanced and customized feature sets, and so on. The issue is not the technology or the ability of vendors to deliver a carrier-class, feature-rich solution, but rather a business resource decision the "chicken and egg" issue. Ideally, a carrier network could today already be 2003 Gartner, Inc. and/or its Affiliates. All Rights Reserved. 19 August 2003

7 running on a VoIP softswitch network. But until service providers make volume commitments to vendors, vendors won't invest in its development. And service providers won't make commitments until they have fully tested the softswitch and are able to build a business case based on operational savings and new revenue opportunities. This is clearly a "Catch 22." Thus, service providers have opted to build signaling and media gateways onto their Class 5 legacy switches to emulate VoIP operations while using the inflexible Centrex feature package in their Class 5 switches to provide customers their existing feature sets. This implementation only permits access convergence and does not provide any new feature capabilities. Thus, Centrex will continue to suffer competitive disadvantages against PBX and IP-PBX until the feature server is more robust and softswitchbased. Gartner Dataquest expects service providers to adopt this method only where market conditions demand converged solutions. Verizon, for example, has indicated it will deploy in all of its regional locations during the next three years where demand for VoIP solutions exists. Just recently, Verizon announced that it will deploy Sonus' Insignus softswitch as part of its long-distance network; however, the investment with Sonus does not come close to the $6 million in upgrading traditional Class 5 switches serving the Boston area. Several vendors offer solutions that will allow carriers to offer IP Centrex. Common factors among vendor solutions are that they are reliable, scalable, flexible and part of a distributed architecture. The solutions mimic one another in that they include the three basic components: an application server, a media server and a network server. The functionality is dispersed through these components. The basic functions of each component are as follows: The application server manages call processing and all related billing, fault management and subscriber management functions. The media server manages specialized media functions, including digit detection, voice messaging, announcement playback and recording, and media-mixing functions such as conferencing. The route server or management server is responsible for proxy routing and translations in the network. It supports management of routes and resources, scalability, redundancy, and load balancing. IP Centrex (via Class 5 Architecture) IP Centrex is an IP-enabling technology with traditional Centrex. IP Centrex uses IP telephony and IP Centrex feature gateways to enable business customers to receive Centrex service from a Class 5 switch over a customer-provided LAN or WAN. The IP Centrex feature gateway provides the interoperability for call-control signaling and for voice transport by converting the 10-digit telephone number to an IP address, allowing the voice signals to be transported in packets through digital transport facilities to the CO Gartner, Inc. and/or its Affiliates. All Rights Reserved. 19 August 2003

8 8 Traditional Centrex Sips From 'Fountain of Youth' With IP Centrex As an alternative, products through Lucent Technologies' imerge and Nortel's Centrex IP solutions offer IP Centrex. The imerge and Succession Centrex IP solutions are essentially adjunct equipment added to the Class 5 switch. Therefore, a traditional Centrex customer will still be able to utilize the traditional Centrex features, functions and services but only gain the ability to use IP phones or they can migrate slowly and continue using their analog phones. For Nortel and Lucent, a large installed base of legacy equipment, the imerge and Succession Centrex IP solutions will help their existing customers to offer Centrex with the benefit of IP leveraging their existing equipment. The problem is that this solution is essentially an interim solution to gain only marginal IP benefits and does not offer new services, features or functions as IP Centrex does. IP-PBX IP-PBXs comprise approximately 10 percent of the total U.S. premises switching equipment line market (PSE). The remaining market is split between traditional PBX/key telephone service (KTS) shipments (64 percent) and IP-enabled PBX shipments (26 percent). On IP-enabled systems, most lines remain as traditional TDM-based (83 percent). Currently, the traditional PBX/KTS market leaders are well under way in broadening IP-enabled and pure IP-PBX product portfolios. In particular, former traditional PBX/KTS-only leaders Nortel and Avaya (current combined market share is approximately 49 percent of total U.S. PSE lines) offer a range of pure IP-PBX, IP-enabled PBX and IP phone products with networking capabilities. Although vendors have not yet announced endof-life dates for many traditional product lines, clearly application developments, research dollars, marketing efforts and channel support is being directed toward IP solutions. During the next several years, Gartner Dataquest expects IP-enabled PBXs tobridgethegapbeforeip-pbxsbecomemorewidelydeployed. Currently, PSE market share leaders have the capabilities to offer a range of traditional to pure-ip solutions depending on customers' desires. Several factors are prohibiting IP-PBXs' wide-scale rapid market adoption during These factors are expected to continue to adversely affect the market through Current IP-PBX Adoption Barriers Following are some IP-PBX adoption barriers: In many cases, users may be required to extensively redesign LAN/WAN infrastructure. The general economic slowdown is anticipated to last for an additional 18 to 24 months. The dot-com technology boom and bust continue to cause businesses to adopt more conservative technology investment plans Gartner, Inc. and/or its Affiliates. All Rights Reserved. 19 August 2003

9 Recent Changes Little justification exists for changing out a perfectly good PBX before the end of the write-down period. The introduction of IP presents new and different security and quality of service (QOS) concerns. Cost savings may be realized, but they typically don't justify the investment. Many users don't have solid, well-thought-through IP-PBX deployment plans. In other words, they may not be prepared for taking advantage of IP-related architectures. IP Drivers However, several drivers in the enterprise support a mixed TDM/IP, as opposed to a pure-ip environment. These drivers are also expected to encourage the more rapid adoption of pure IP-PBX solutions two to three years down the road. Some existing applications on IP systems have the potential to improve business processes and daily operations such as call center applications. End users want to future-proof their networks. Essentially, they want to take steps toward convergence so users will be in a position to take advantage of applications down the road once they are more developed. Manufacturer support and investment in IP-enabled and pure-ip equipment All major manufacturers now have IP-enabled or pure-ip- PBX product offerings. Most R&D, product management directives, marketing, and sales and support dollars are being allocated toward these product lines with the expectation of reduced support for traditional-only product lines. End users want to deploy a communications system that isn't on the way to being discontinued with limited support and feature upgrades. Someusersabletoachievecostsavings Typically,thisisaresultof centralized management, ability to administer MACs and use of shared applications. In the United States, approximately 7 percent of the total business line market is served by Centrex (less in EMEA) clearly future IP Centrex opportunities for service providers. However, the real potential is gaining a significant share of PBXs as they come up for replacement or expansion. Enterprises must support mobile and remote employees across one or more physical locations, and depending on the size of the business, they must manage large numbers of end users either by floor, group or department. Few, if any, vendors have a complete IP Centrex solution: They have been concentrating on gateway solutions and have only dabbled in development of full-featured telephone applications such as PBX or Centrex Gartner, Inc. and/or its Affiliates. All Rights Reserved. 19 August 2003

10 10 Traditional Centrex Sips From 'Fountain of Youth' With IP Centrex Sylantro recently announced enhancements to its application server and applications. The enhancements provide sophisticated routing options between offices and have expanded support for legacy PBXs and voice mail systems. Also, the administrator's portal now offers access privileges for additional or remote administrators. Sylantro also added some PBXtype features such as intercom and distinctive ringing, which somewhat close the competition gap between IP Centrex and IP-PBX systems. Partnerships have developed between IP Centrex system vendors and next-generation switching vendors. BroadSoft and sentito Networks have embarked on a partnership that allows business subscribers to unify their messaging (For example, manage their voice, and fax communications through a Web interface). The SIP-based combination of sentito's New End Office (NEO) converged switching solution and BroadSoft's hosted communications platform will allow service providers to offer converged IP-based voice and data services to include IP-virtual private networks (VPNs), IP Centrex and unified messaging. Observations Once it approaches feature equivalency with IP-PBX, carrier-grade IP Centrex could exceed the benefits of IP-PBX adoption by enterprises. Success will depend heavily on effective marketing. IP Centrex solutions, once they achieve carrier-grade and feature compatibility with PBXs/key systems, will be ideal solutions for greenfield applications, dynamic and fluid business situations, and widely deployed enterprises with many branch locations. Unfortunately, deployment of this capability is not likely to be available until the end of 2004 and still suffers from a chicken-and-egg syndrome in terms of commitment by vendors and service providers. IP-PBX vendors will have a window of opportunity to deploy and sell IP- PBX solutions that few, if any, enterprises will replace in favor of IP Centrex once installed because of a lack of recognition of the potential competitive advantage of IP Centrex. Gartner Dataquest Perspective IP Centrex is on the "technology trigger" side of our recent Hype Cycle, nearing the Peak of Inflated Expectations. Legacy (circuit-switched) Centrex in its formative years was not a great driver of revenue for either carriers or vendors; however, both seem optimistic about the future of IP Centrex. To keep the optimism alive, vendors should do the following: Make risk-based investments, enhancing application servers to develop full-featured IP Centrex and hosted PBX solutions Balance the cost of investing in IP Centrex as a hosted service in competition with a managed IP enterprise solution 2003 Gartner, Inc. and/or its Affiliates. All Rights Reserved. 19 August 2003

11 Provide easy migration from host-based applications to shared applications Provide innovative extranet solutions for trading partners and modular packaging for low-end takeup Develop fully managed IP-PBX and IP Centrex management integration and understand where to position each SMB or branch office for Centrex For the service provider, marketing its VoIP solutions and being able to manage and support hybrid IP-PBX, hosted PBX and IP Centrex solutions via a unified customer provisioning and support interface will be crucial for its success and will help to differentiate it from pure IP-PBX solutions and vendors. The vendor community has recognized this as well, and is making an active effort to get into higher-margin managed and professional services. Traditional Centrex never fulfilled its early promise for a number of reasons: inflexible support and management options, slow and costly upgrades, feature paucity, and, last but not least, ineffective marketing. In the United States, the promise of IP Centrex will remain just a promise until the vendor and service provider communities seriously decide to invest in its development and deployment. For the service providers, IP Centrex could be the silver bullet to grow business voice services in their battle against CPE vendors, which are pursuing a strategy of building intelligence into the handsets and LAN servers. This places them in direct opposition to the service providers whose primary goal is to build this intelligence into the network "the network is the computer." Traditional service providers are being challenged by CPE vendors and integrators and outsourcers as never before for their core business. To avoid being commoditized and to maximize their opportunity for account control, they must be able to offer the broadest set of VoIP solutions. This means being able to manage and support hybrid IP-PBX, hosted PBX and IP Centrex solutions. Developing a unified customer provisioning and support interface would be a cost-effective solution that will be crucial to help differentiate them from pure-play IP-PBX or IP Centrex solutions and vendors. The vendor community has recognized this as well and is making an active effort to get into higher-margin managed and professional services. 11 Key Issues How are the markets for enterprise communications solutions expected to change during the coming years? How are communications applications evolving in enterprises? 2003 Gartner, Inc. and/or its Affiliates. All Rights Reserved. 19 August 2003

12 12 Traditional Centrex Sips From 'Fountain of Youth' With IP Centrex This document has been published to the following Marketplace codes: TELC-WW-DP-0583 For More Information... In North America and Latin America: In Europe, the Middle East and Africa: In Asia/Pacific: In Japan: Worldwide via gartner.com: Entire contents 2003 Gartner, Inc. and/or its Affiliates. All rights reserved. Reproduction of this publication in any form without prior written permission is forbidden. The information contained herein has been obtained from sources believed to be reliable. Gartner disclaims all warranties as to the accuracy, completeness or adequacy of such information. Gartner shall have no liability for errors, omissions or inadequacies in the information contained herein or for interpretations thereof. The reader assumes sole responsibility for the selection of these materials to achieve its intended results. The opinions expressed herein are subject to change without notice