IP Telephony: Hosted and Managed Services Options. Presented by: Hobart J. Harris, Ph.D. July 20, 2006

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1 IP Telephony: Hosted and Managed Services Options Presented by: Hobart J. Harris, Ph.D. July 20, No part of this document may be reproduced in any form or by any electronic or mechanical means, including information storage and retrieval devices or systems, without prior written permission from Technology Partners International, Inc.

2 2 Session Agenda Introductions and Stage Setting IP Telephony Managed Services: Fundamentals Transaction Strategy for Managed Services Acquisitions Managed Services: Market Overview Service Provider Landscape Overcoming Risks Key Take Aways and Wrap-Up

3 3 TPI: Thought Leadership, Broad Experience Our impact is amplified by our history in helping the largest, most accomplished companies in the world to face and overcome their greatest sourcing challenges. Credentials Favorable Outcomes: Clients find the sourcing mix best optimized to their business as a result of our objectivity, informed analysis, practical insights and flexible approach Full Life-cycle Services: We have unmatched skill and experience in strategy design, implementation and sourcing management Real-world Expertise: A deep roster of skilled advisors (350+) gives TPI the human capital necessary to put the right team on every project Speed-to-Results: Having successfully advised many of the world s most complex organizations our solutions are robust, viable and deployable Sustainable Value: Sourcing solutions must return value to shareholders over a continuum; we help our clients evaluate their efficacy over the short, medium and long term Sourcing Management and Governance Contract Initialization and Transitions Expertise Sourcing Strategy and Assessment Contract Development and Negotiations Internal and External Sourcing Solutions Service Provider Assessments / Due Diligence

4 Introductions and Stage Setting. No part of this document may be reproduced in any form or by any electronic or mechanical Copyright means, 2006, Technology including information Partners International, storage and retrieval Inc. All Rights devices Reserved or systems, without prior written permission from Technology Partners International, Inc.

5 5 Meet The Experts Hobart Harris Senior Advisor Sourcing assessments across all Industries CRM assessments Voice communications transactions Trader turret transactions Over 26 years of industry participation Premise voice system design and procurement ACD design and development Assessments and needs analyses Credentials Major clients include 4 of Top 10 U.S. Banks; 2 of Top 10 Insurers; 2 of Top 10 Manufacturers; 2 of Top 5 Hospitality and Lodging corporations Ph.D. Organizational and Social Psychology

6 6 Discussion Roadmap IP technology has spawned an opportunity to acquire telephony solutions as a managed service. It should be seriously consider as it can provides significant advantages. Understanding Managed Services Benefits of Managed Services Service Provider Landscape Risks and How to Mitigate Them

7 IP Telephony Managed Services: Fundamentals. No part of this document may be reproduced in any form or by any electronic or mechanical Copyright means, 2006, Technology including information Partners International, storage and retrieval Inc. All Rights devices Reserved or systems, without prior written permission from Technology Partners International, Inc.

8 8 What Are IP Managed Services? IP managed services are packages of functionality, service arrangements, converged IP networks, systems integration and management capabilities that transfer services suppliers. IP managed services are: IP-based voice switching systems Services arrangements Converged IP networks Systems Integration Management Capabilities Transfer most design, implementation and operations responsibilities to providers Details of contracts and agreements between providers and enterprises often determine extent of benefit that can be obtained from a managed services solution

9 9 What Makes IP Telephony Managed Services Different? Managed services transfer most design and operations responsibilities to providers, offering substantial benefit and technology infrastructure for new-generation IP systems. Managed services Service provider responsible for system implementation and ongoing operations System can be purchased, hosted or leased; often located on customer premise Provider responsible for remote management, MAC, performance reporting Provider performs routine system upgrades and business integration activities Hosted IP PBX Hardware dedicated to one customer, located remotely at provider s site Provider provides managed services as listed above Provider responsible for routine system upgrades and business integration For large enterprises, providers will customize managed services Solutions can include almost any required mix of services and financial models Solutions often include a converged IP network, although vendors are equally willing to connect to existing enterprise networks once QOS & bandwidth issues are addressed They can also include arrangements for flat rate-based, off-net calling

10 10 Potential Advantages of a Managed Services Acquisition Managed services can provide a number of distinct advantages, depending upon the financial, technical and operational situation of the enterprise: Cost minimization Cost savings are central to any business case Improved operational effectiveness Support for complex, newly emerging technologies TPI believes that support for new technologies is the most important reason to selected a managed services approach New services being developed now appear to offer significant improvements in business functioning but also require high levels of systems development skills Managed services arrangements make such skills available to companies that may not have them readily available on their own

11 11 Managed Services: Cost Minimization Industry observers currently believe that managed IP services can save between 10% and 50% of an enterprise s current voice expenditures. Savings come from: Lower CapEx Requirements Per active user based pay by the drink pricing as opposed to up-front outlay Reduces installation and customization costs Avoids software development expense Eliminates need to purchase equipment to respond to peak seasonal demands Avoids one-time handset cost Network review and QOS assurance can also be rolled into the monthly fees Lower Support Costs Reduces internal support staff Avoids investment in Network Operations Center Simplifies MAC processing Avoids investment in management tools Eliminates internal Help Desk Reduces branch support costs No out-of-pocket, routine upgrade costs Cont d next slide

12 12 Managed Services: Cost Minimization Industry observers currently believe that managed IP services can reduce an enterprise s current voice expenditures by 10 50%. These savings come from: Lower Network Costs More efficient use of converged network Reduction of the number of network contracts Often slight voice network cost reductions due to preferential pricing available to large managed services suppliers Enhanced Revenue Advanced systems make staff more productive (gains more difficult to achieve without use of managed services) More effective call center functioning due to advanced services Caveat: True savings are highly dependent on an enterprise s actual financial and staffing situation. A financial cost base case must be constructed to identify the potential savings opportunities and to estimate amounts.

13 13 Managed Service Support for Emerging IP Technologies New, highly promising business functions are emerging that leverage IP Telephony. Successful implementation of these services poses a significant challenge. New Business Functions Presence-Based Routing One Number/One Mailbox Business Rule-Based Routing Transfer To And From Wireless Voice Virtual Customer Assistance Across Enterprise Browser-Equipped Phones Speech Recognition and Text-To-Speech-based services Systems Requiring Integration IM Call Routing - Messaging IM Outlook PBX Cellular - Messaging IM Outlook PBX Cellular - CRM PBX WiFi Dual Handset WLAN - Cellular CRM IM ACD PBX - Outlook HTML PBX - Outlook Speech recognition engines-messaging-pbx-etc.

14 14 Managed Service Support for Emerging IP Technologies TPI believes that leading-edge managed services providers can be more efficient, more cost-effective and more successful than an internal telecom team. New Business Functions Presence-Based Routing One Number/One Mailbox Business Rule-Based Routing Transfer To And From Wireless Voice Virtual Customer Assistance Across Enterprise Browser-Equipped Phones Speech Recognition and Text-To-Speech-based services Systems Requiring Integration IM Call Routing - Messaging IM Outlook PBX Cellular - Messaging IM Outlook PBX Cellular - CRM PBX WiFi Dual Handset WLAN - Cellular CRM IM ACD PBX - Outlook HTML PBX - Outlook Speech recognition engines-messaging-pbx-etc.

15 15 Making the Transition With the emphasis on interoperability and federation between network elements, the traditional advantages of CPE over service provider offerings will disappear. Hosted on-demand service options will make the transition easier, faster, less disruptive and more cost effective. Business Communications Review, June 2006

16 16 Managed Services: Operational Advantages IP Telephony integrates many different technical components. A service provider can manage, monitor and support MACs more efficiently. A managed service is: Better able to monitor a converged IP network Better able to monitor distributed voice components Efficient MAC processes Positioned to meet required SLAs -- with clear contractual requirements, penalties More likely to have trained technical staff to implement and integrate the newest technologies More efficient Help Desk operations; global language support Much more efficient support of multiple locations (branches, etc) More knowledgeable of local telecom regulations in global networks

17 Transaction Strategy For Managed Services Acquisitions. No part of this document may be reproduced in any form or by any electronic or mechanical Copyright means, 2006, Technology including information Partners International, storage and retrieval Inc. All Rights devices Reserved or systems, without prior written permission from Technology Partners International, Inc.

18 18 What s Included in a Managed Services Transaction? Large managed services agreements are highly customized, and extend from system management to advanced integration services. Typical deals include the following elements: Basic Services Initial installation and configuration Basic performance reporting IMAC management 24 x 7 real-time fault monitoring and case management of failure events Web portal access to tickets and performance reports Converged Network Management Services Network carrier integration for planning, fault response and optimization Voice engineering and QOS assurance Converged network management Advanced Services Scheduled service reviews and service enhancement recommendations Management of all associated vendors Complex design and feature integration

19 19 IP Telephony Decision-Point Spectrum Five key decision points must be addressed in a managed services acquisition, as most of the criteria concern business/services issues rather than technical capabilities. Technology Services Systems Supplier Hosting Supplier Converged Network Supplier Business Services Required Commercial Terms Provider Platform Components Should / can systems provider help configure complex business functioning? Hosted internally or externally Provider SLAs Can provider provide configuration and mgmt. services? Scope Provider SLAs Can the network provider also host system? Supply off-net services Advanced services What provider is best equipped? What design and performance guarantees? Long-term design support SLAs $ commitments Amount of upfront money Service Level penalties Supplier IMAC responsibilities Governance

20 Managed Services: Market Overview. No part of this document may be reproduced in any form or by any electronic or mechanical Copyright means, 2006, Technology including information Partners International, storage and retrieval Inc. All Rights devices Reserved or systems, without prior written permission from Technology Partners International, Inc.

21 21 Market Research Snapshot Not only is IP Telephony maturing, but managed services have become a viable acquisition alternative. InfoTech predicts that hosted IP Telephony will account for 25% of all telephony line shipments by 2010 and total $5.9 billion in revenue Juniper Networks forecasts North American hosted IPT annual service revenue will total between $6 to $8 Billion per year between 2006 and 2008 Citing Gartner and Ovum research, BT estimates that two-thirds of PBX acquisitions will utilize managed services by 2009

22 22 Market Research Snapshot In current versus anticipated IP managed services agreements, actual purchase behavior parallels the projections: Current managed services penetration ~ 20% Projected managed services interest ~ 50% Current VOIP Deployment Strategies Company Owned & Supported % 55% Respondents Interested In Managed Svcs. MPLS Users - IP Telephony % 47% Pilot In Progress Provider Supported System On Premise (Manage service) Hosted System on Provider Site Shared System From Provider s site Source: Network Computing Poll, June % 11% 5% 3% Managed Services Non MPLS Users- IP Telephony MPLS Users Site To Site VOIP Non MPLS Users Site To Site VOIP Source: Forester Research, % 54% 44%

23 23 Major IP Managed Services Transactions An increasing number of large deals are being reported. Many of these involve partnering among several service providers, for a specific component of transaction. Ford Motor Company 50,000 users in 110 locations Cisco CallManager systems SBC (AT&T) PremierSERV Managed Care IP Telephony services ABN ANRO 18 Countries Avaya managed services Royal Bank of Canada 8,400 phone lines across Canada Cisco Call Manager Systems Bell Canada: single point of contact, infrastructure planning / support (with IBM) Abbey National (UK) 750 branches, 12,000 customer-facing staff BT (British Telecom) lead supplier Cisco Call Manager equipment Cost savings claimed in 20% range

24 Service Provider Landscape. No part of this document may be reproduced in any form or by any electronic or mechanical Copyright means, 2006, Technology including information Partners International, storage and retrieval Inc. All Rights devices Reserved or systems, without prior written permission from Technology Partners International, Inc.

25 25 Leading System Providers The premier TDM PBX providers have developed IP systems. They offer their own managed services, or work together with channel partners to provide the required services. The Big Two Leader in overall IP telephony shipments Largest traditional Telecom Vendor Feature-rich Utilizes both channel partners and internal resources Having equipment manufacturer implementation as an option reduces risk Other Large Systems Providers* Dominant Data Communications vendor Playing catch-up with features and getting close Utilizes only channel partners for sales and implementation (one current document lists 25) Customers must choose the right distributor (are all 25 of equal skill?) Has focused on signing up larger partners Traditional TDM market leader Recently experiencing business problems * This is a partial list of providers HiPath 8000 Platform Has integrated network and services organizations Global capabilities Large deal with Verizon Verizon brands Alcatel service Recently bought Lucent

26 26 Network based IP Voice Providers Virtually every network and larger IT provider has announced either full IP Telephony services or co-branding/cooperative agreements with other providers. Large Network Providers* Uses several vendors systems BT OneVoice global IP network offering Particularly appropriate for EMEA, global implementations Recently merged with SBC Offers focused around network services Utilizes network management tools from Bell Labs Utilizes Cisco CallManager systems Claims availability in 50 countries, based on legacy MCI relationships Network based providers typically combine their own transport services with one of the large manufacturer s systems. The Bell Canada/IBM/Cisco deal is one example of the multiple relationships required to provide a complete IP service. * This is a partial list of providers

27 Overcoming Risks. No part of this document may be reproduced in any form or by any electronic or mechanical Copyright means, 2006, Technology including information Partners International, storage and retrieval Inc. All Rights devices Reserved or systems, without prior written permission from Technology Partners International, Inc.

28 28 What are the Risks? A managed services approach can reduce risk. It assigns technical responsibilities to providers who are developing deep expertise with all the diverse systems. Technical Risks Inadequate pre-implementation network readiness assessment Poor integration Inadequate security Business Services Risks Inadequate needs analysis Failure to take advantage of available features (highly underestimated) Commercial Risks and Recommendations Define SLA and detail responsibilities in a converged network Specify business volume commitments (true-up of monthly volumes and amounts) Outline termination rights (especially upon Change of Ownership, mergers, e.g.) Define responsibility for equipment and services upgrades Define responsibility for complex integrations Specify IMAC charging and details

29 29 Contract Negotiation Is Critical Because of the unique risks involved in managed IP Telephony arrangements, TPI strongly recommends that enterprises pay attention to financial arrangements and contract language. Potential deal-makers or breakers Usage billing average per month, total per month, postalized? SLA Definitions Penalties Earn-backs and Exceptions Responsibilities for underlying IP network Billing transportation from the Hosting Center to users locations Impact of upgrades and related processes on revenue commitments Revenue commitments and triggers Fixed-revenue penalties may be applicable if technology reduces prices Penalties should not be considered on a monthly basis, but monthly fluctuations may trigger enforcement Customers should be able to walk away from contracts without penalty as soon as their revenue commitments are achieved Any fundamental technology upgrade should trigger a reconsideration of financial commitments as the new technologies may result in a non-achievement of previous commitments

30 30 Other Risk Mitigation Tactics The key to mitigating risk in a managed services acquisition is to give appropriate attention to the commercial and business requirement components of the deal. Technical Mitigation Perform proper pre-design infrastructure reviews Business Services Mitigation Develop a clear vision of desired features and functions Perform pre-rfp Mutual Value Discovery sessions with potential suppliers Don t skimp on due diligence of supplier capabilities Commercial Mitigation Select a manageable pool of bidders Must be appropriately qualified technically Must be interested and flexible Must be willing to work cooperatively with other suppliers if necessary Define a carefully-structured bid process Develop clear language about key commercial points SLAs Dollar commitments Performance responsibilities

31 Key Takeaways. No part of this document may be reproduced in any form or by any electronic or mechanical Copyright means, 2006, Technology including information Partners International, storage and retrieval Inc. All Rights devices Reserved or systems, without prior written permission from Technology Partners International, Inc.

32 32 What Situations Favor a Managed Services Approach? Managed services are particularly beneficial when the enterprise lacks available capital, has many branches. It is valuable when the enterprise wishes to develop advanced services. Factor Traditional Purchase Managed Services Comments Insufficient available capital Providers can include one-time implementation costs in monthly charges Stretched or untrained telecom staff Ensures that advanced features & services can be implemented Capacity constrained network Providers often assume responsibility for assuring adequate bandwidth Many branch locations Significant cost savings opportunity Frequent or time sensitive IMACs Providers can be held to strict SLA s Need for advanced services such as unified voice, , IM Providers are better trained and more experienced in complex integrations Global integration requirements Providers typically have much more experience globally Complex call center services Call centers require the highest level of integration skills

33 33 Key Takeaways: Summary A managed services approach can benefit an enterprise under the right circumstances, but must be pursued as a service as much as a technical solution. IP technology has made managed services a viable alternative As a result, an increasing number of enterprises are turning to managed services instead of a traditional purchase Managed services can deliver cost savings and operational efficiencies Managed services may be most useful when an enterprise wishes to develop complex business applications capable of leveraging IP Technology But procuring a managed services solution requires a services-oriented procurement and negotiations strategy in addition to technical knowledge The procurement strategy must avoid typical services risks and contract mis-steps to assure that the available benefits are realized

34 Wrap Up / Questions and Answers. No part of this document may be reproduced in any form or by any electronic or mechanical Copyright means, 2006, Technology including information Partners International, storage and retrieval Inc. All Rights devices Reserved or systems, without prior written permission from Technology Partners International, Inc.

35 35 To Learn More To learn more about the potential advantages of a managed / hosted approach to IP telephony, or to gain a better understanding of the acquisition process, please contact: Hobart Harris, PhD, TPI Senior Advisor

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