Ensim VoIP ROI. A Compelling Case for Automated Delivery of Hosted VoIP Services Introduction. ROI Highlights 1

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1 This white paper examines the substantial financial impact Ensim s solution can have on your business. A Compelling Case for Automated Delivery of Hosted VoIP Services Introduction While the market opportunity in business VoIP, residential VoIP and other hosted VoIP services is now well understood, the economics of profitably delivering these services remains a challenge for many service providers. Ensim developed its Ensim VoIP to specifically address this challenge. By combining automated softswitch provisioning and OSS integration capabilities with powerful visualization to monitor growth, this solution enables service providers to eliminate manual service fulfillment processes, speed service delivery, improve productivity and open new retail and wholesale delivery channels. This white paper examines the substantial financial impact Ensim s solution can have on your business. Investment in the Ensim VoIP solution can yield immediate savings as well as permanent and ongoing benefits from operational efficiencies and accelerated revenue. Combined with a unique success-based licensing model, these benefits facilitate rapid payback of solution costs and a high Return on Investment. ROI Highlights 1 6 Month Payback Cost Per Line Reduced 33% 73% Margin Improvement Revenue Per Employee Increased 67% 1

2 While results will vary with each customer scenario, this case is representative of a highgrowth environment. ROI Study Methodology Ensim collaborated with an independent research organization which specializes in ROI and cost benefit analysis to perform an objective analysis of the financial benefits generated by the deployment of Ensim VoIP. The study evaluated a service provider offering IP Centrex services primarily to the small/medium business market. At the time of the study, this service provider had approximately 10,000 lines in use and was rapidly adding new customers through both direct retail channels and new wholesale/resale partners. The study analyzed each area of the customer's service provisioning organization and processes, and quantified such factors as: Headcount Operating Margin Employee Training Revenue Per Employee End-to-End Provisioning Time Service Revenue Account & Line Growth Customer Churn Equipment Costs Ensim Solution Costs The "after Ensim" results were calculated and then extrapolated for subsequent years to enable a 5 year analysis period. While results will vary with each customer scenario, this case is representative of a high-growth environment. Service providers with higher growth rates and/or different installed bases may experience greater benefits. 2

3 Service providers have a unique opportunity over the next three years to capture market share and exploit the demand for hosted VoIP services. Hosted VoIP Services Opportunity Figure 1 shows the growth of the IP-PBX and IP Centrex markets, and the decline of traditional TDM Centrex services. The projected growth rate for IP Centrex is very high (44% Compound Annual Growth Rate), driven by the cost and functionality advantages of IP-based services. Typically, IP services will cost the SMB market approximately $40/seat, compared with the typical $60-65/seat for legacy Centrex services. Additionally, IP Centrex solutions have reached a maturity level capable of supporting carrier class requirements, as well as providing user-based control and customization functionality unmatched by traditional Centrex. Service providers have a unique opportunity over the next three years to capture market share and exploit the demand for hosted VoIP services. By leveraging their speed to market and flexibility to meet demand and pricing models, those suppliers with effective IP solution offerings have an opportunity to grow significantly faster than the market (for purposes of this ROI study, the growth rate in IP Centrex lines is assumed to be 44%, per the market projections in Figure 1). The biggest challenge for most service providers is funding that growth, and in particular managing the growth in staff. The business imperative for such companies will be to control the operational costs of provisioning new customers as they migrate to hosted VoIP services, and managing the revenue stream from these customers. Centrex, IPCentrex & IPPBX Lines (M) Market Growth of IP Lines (M) IPPBX IPCentrex Centrex Figure 1 - Market Projections Source: IDC

4 The results provide compelling evidence of the value generated by Ensim. The Business Case for the Ensim VoIP Solution Table 1 details the business case for Ensim's solution, based on a starting scenario of 10,000 installed IP Centrex lines, and growing with the industry at a 44% CAGR. The results provide compelling evidence of the value generated by Ensim, including: 6 month payback of the startup investment 274% ROI over the 5 year study timeframe Nearly $11M in savings (in net present value terms) over the 5 year period Contributing to these results are impressive revenue gains and savings from operational efficiencies. The business case line items are discussed in detail below. Project Summary Payback Period (months) 6 % Improvement in Revenue/Employee 67% IRR (Internal Rate of Return) 274% Cumulative Five Year Net Benefit $14,689,939 Project Costs ($000) Startup Year 1 Year 2 Year 3 Year 4 Year 5 Software $100 $196 $324 $466 $669 $960 Hardware $100 $0 $0 $0 $0 $0 Operational, Development & Implementation $100 $20 $20 $20 $20 $20 Software Maintenance $0 $20 $18 $18 $18 $18 TOTAL COSTS $300 $236 $362 $504 $707 $998 Benefits ($000) Overall Productivity Savings $991 $1,954 $2,890 $4,275 $6,322 Equipment Cost Savings for Growth $9 $16 $23 $34 $48 Additional Billing of Revenue $81 $155 $222 $319 $458 TOTAL BENEFITS $1,080 $2,125 $3,136 $4,627 $6,828 Financial Analysis ($000) Net Value ($300) $845 $1,763 $2,632 $3,920 $5,830 Cumulative Value ($300) $545 $2,380 $4,940 $8,860 $14,690 Net Present Value $10,924 IRR (Internal Rate of Return) 274% Payback Period (Months) 6 Key Performance Indicators (KPIs) % Improvement in Revenue/Employee 67% % Reduction in Capital Requirements 7% Table 1 - Business Case for the Ensim VoIP Solution 4

5 By far, the biggest contributor to the overall solution results is productivity savings resulting from increased operational efficiencies. Ensim enabled the service provider to reduce the time to provision its IP Centrex service by 38% on average. This resulted in savings of 27 workdays per order, or conversely, permitted the service provider to begin billing its customers over one month earlier. Project Costs The project costs include all expenses related to deployment of Ensim VoIP. These include both software costs related to the Ensim license and hardware on which the solution is installed. Ensim has several licensing options, including a subscription model aligned with service provider growth that minimizes the up front investment and only grows as the service provider adds additional customers. For this ROI study, the subscription licensing model has been used. Additional costs are related to customized development and implementation services and standard software maintenance. These are not representative of every deployment and are variable depending on software configuration, customer usage and installed components, however, the figures in Table 1 provide a conservative estimate for most service providers. Benefits The benefits produced by the Ensim solution can be divided into two categories: productivity savings (OPEX reductions) and additional revenue. By far, the biggest contributor to the overall solution results is productivity savings resulting from increased operational efficiencies. In this category, benefits enabled by Ensim include: Reduced time and effort to provision services Reduced time and effort to support existing services Increased employee productivity and reduced downtime Reduced employee training time and effort Reduced staffing levels to support a given order volume Reduced employee specialization Reduced support costs via customer self-service Reduced errors and order fallout Ensim also enables additional revenue generation from a given service instance. This is primarily attributable to faster service provisioning. In this ROI study, it was found that Ensim enabled the service provider to reduce the time to provision its IP Centrex service by 38% on average. This resulted in savings of 27 workdays per order, or conversely, permitted the service provider to begin billing its customers over one month earlier. A 20% reduction in the customer churn rate was also observed. Spread across the entire customer base, this resulted in a reduction from 15% to 12% of the customer churn rate that would otherwise have discontinued service to move to another carrier. Financial Analysis Table 1 summarizes the value created by the Ensim solution net of project costs on a yearly and cumulative basis. Startup costs are separated from year one costs 5

6 The startup costs associated with the Ensim VoIP solution are fully covered by the project savings after 6 months of operations. The high IRR provided by Ensim enables service providers, even those with extremely high cost of capital, to invest in this solution with the confidence of attaining substantial financial benefit. with one-time solution deployment expenses categorized as startup costs, and all expenses incurred after the solution is placed into production listed in year 1 and subsequent years. Over the 5 year analysis period, the Ensim solution generates $14,689,939 of additional value to the service provider, or in Net Present Value terms, a net benefit of $10,924,000 (assuming a discount rate of 9%). These sizeable returns enable a 6 month payback of the startup investment and a rapid return on additional solution licensing cost in subsequent years. Using Internal Rate of Return to measure ROI (i.e., the rate of return where the Net Present Value of benefit cash flow equals zero), the return is 274%. Using this metric, when compared to most service providers cost of capital, these returns provide a clear and compelling case for investment in Ensim's solution. Discussion of ROI Highlights 6 Month Payback Using the classic definition of payback period, the startup costs associated with Ensim VoIP are fully covered by the project savings after 6 months of operations. This calculation involves a comparison of the net benefit generated by the project versus the investment, fully reflected in the startup costs. However, Ensim offers a licensing model tied to its customers' success with a minimum up front investment and an ongoing subscription, thereby accelerating the payback of startup costs. ROI and IRR Internal Rate of Return (IRR) provides a more accurate measure of the total project cost and return. IRR is the rate at which the Net Present Value of cash flow (in this case, the net savings produced by the Ensim solution over the life of the project) is zero, representing the break even point. This must be compared against a company's Internal Cost of Capital (also referred to as the Discount Rate), which in today's market may range from 5% to 20% for most service providers. IRR represents the break-even point on this investment, thus when the Discount Rate is less than IRR, the investment results in positive financial returns. To look at it another way, IRR measures the return of an investment over its entire life. The high IRR provided by Ensim enables service providers, even those with extremely high cost of capital, to invest in this solution with the confidence of attaining substantial financial benefit. 6

7 Overall, the cost to deploy and support one IP Centrex line decreased 33%. In a high-growth environment this is significant since reduced cost on a per line basis can dramatically impact overall margins. Cost Per Line Reduced 33% Taking the business case data from Table 1, it is possible to divide the results by the number of in-service lines to create a financial model on a per-line basis. Table 2 shows the before- and after-ensim impact on the revenue and cost structure of an IP Centrex line in a high growth (44%) environment. Typical Break down of Costs/Line Before Ensim With Ensim Benefit Reduction Annual Revenue (Per Line) $480 $491 $11 2.2% Switch Equipment $20 6% $20 9% $0-0.7% (Depreciation on Capital $100/Line) Staff Costs New Account Provisioning $32 10% $6 3% $ % Current Account Support $175 53% $90 40% $ % Sales/Management/Other $52 16% $44 20% $7-14.3% Training Staff for Growth $19 6% $4 2% $ % Total Staff Costs $277 83% $145 65% $ % Ensim Costs $36 16% $(36) Other Costs $36 11% $23 10% $ % TOTAL COSTS $ % $ % $ % Table 2 - Annualized Before/After Ensim Impact In this case, revenue increased due to faster service provisioning (and thus faster service billing) and reduced customer churn. Equipment costs were slightly reduced due to better timing of purchases. Operational (staff) costs were dramatically reduced by the following factors: Operational capacity improvement of 48% through automation, standardization, reduced errors and self-serve capabilities Ramp time for personnel decreased from 60 days to 25 days Note: it is assumed that the same provisioning personnel can concurrently work on new line additions (new accounts) and change requests for existing lines (existing accounts). Estimates were made to allocate effort to each of these tasks, which appear as separate line items in Table 2. Overall, the cost to deploy and support Ensim Cost and Benefit $9.73 Monthly Benefit $2.25 per line Ensim Cost $11.98 per line $.91 Additional Revenue $3.99 Reduced OPEX supporting new accounts $7.08 Reduced OPEX supporting existing accounts Return With Ensim Figure 2 - Per Line Investment and Return 7

8 The old adage "time is money," is particularly appropriate in this case as the high growth of this service provider (44%), when managed in a low cost, operationally efficient environment, creates a multiplier effect on overall margin growth. one IP Centrex line decreased 33%. In a high-growth environment this is significant since reduced cost on a per line basis can dramatically impact overall margins. Figure 2 compares the investment in the Ensim solution with the results produced on a per line basis. Further validating the high ROI and rapid solution payback, these results indicate a benefit attributable to both existing in-service lines as well as new lines, and demonstrate the positive results produced by the Ensim VoIP solution in a given deployment from day one. 73% Margin Improvement Additional top line revenue growth, combined with substantial operational savings yielded impressive margin gains with Ensim's solution. In the first year of the study, margin increased 73% and by the final year, the margin increase was over 100%. Figure 3 illustrates the doubled, and accelerating operating margin made possible by Ensim (although the revenue benefit is not visible due to the scale in Million Top Line and Bottom Line Results $25 $20 $15 $10 $5 Margin After Margin Before Revenue Cost Before TeleGea Cost After TeleGea Figure 3 - Operating Margin Before and After Ensim Figure 3, the operational benefits are sufficiently large enough to demonstrate the margin growth). The old adage "time is money," is particularly appropriate in this case as the high growth of this service provider (44%), when managed in a low cost, operationally efficient environment, creates a multiplier effect on overall margin growth. Revenue Per Employee Increased 67% As was previously mentioned, the operational efficiencies gained with the solution enable dramatic staff efficiencies at a given order volume, producing a 67% increase in revenue per employee. In this example, revenue per employee grew from $121,000 to $203,000. Figure 4 compares the staffing Staffing Requirements to Support Service Delivery Total Support Staff requirements with and without the Ensim VoIP solution, assuming the current levels of productivity remain in place. The starting point is an installed base of Employees for IPCentrex Without Ensim Employees for IPCentrex With Ensim Number of IPCentrex Seats k 14.4k 20.6k 29.6k 42.5k 50k 40k 30k 20k 10k Figure 4 - Staffing Requirements Before and After Ensim IP Centrex Seats 8

9 This analysis assumes a three-month employee training (productivity ramp) period before Ensim and a one-month training period once the Ensim solution is deployed. Those service providers who possess the agility, speed and financial strength to profitably offer hosted VoIP services today can capitalize on this opportunity and create a leadership position. 10,000 IP Centrex lines. The Ensim VoIP solution has a major positive impact on staffing requirements. The difference in staffing requirements is attributed to: Reduction in the effort required to provision new accounts (400% reduction) Simplification of the effort to manage existing lines (60% reduction) A high growth environment implies the need to hire new resources to scale the business. This analysis assumes a three-month employee training (productivity ramp) period before Ensim and a one-month training period once the Ensim solution is deployed. This factor directly impacts the cost of adding new service delivery capacity and ensures that people allocated to deploy lines are generating revenue sooner. The Ensim VoIP solution simultaneously reduces the risk of growing staff while dramatically cutting costs. It is important to note that "staff efficiency" in this study does not imply that employees are displaced, or otherwise removed from their positions when Ensim solutions are deployed. To simplify this analysis, service provider growth was held constant at overall industry levels and in the "after Ensim" scenario, staffing was reduced to accommodate productivity increases. In the real world, employees would be transferred to higher-value activities effectively keeping staffing constant and allowing the service provider to leverage productivity gains, with the existing staffing levels intact, to outperform overall industry growth. In later years, the employee ramp would be reduced (i.e., less additional new hires) at any given order level in the "after Ensim" scenario versus "before Ensim," but at no point is it a requirement that staffing be reduced below starting levels in order to realize the operational benefits described in this study. Additional Benefits The study observed significant benefits beyond those already discussed, which, for issues of simplicity and practicality, are more subjective and could not be adequately measured and quantified. While these benefits do not contribute to the financial results discussed in this white paper, they certainly contribute to the overall success of service providers deploying Ensim's solution. These benefits include: Increased customer satisfaction Empowering customers with self-serve capabilities, reliably activating services, eliminating order processing errors and offering innovative services creates a positive customer experience and engenders goodwill towards the service provider, which ultimately result in lower churn, greater service uptake and upsell and additional growth through "word of mouth" advertising. 9

10 Corporate Headquarters 1366 Borregas Avenue Sunnyvale, CA Tel: Fax: Ensim Waltham 245 Winter Street Waltham, MA Tel: Fax: Ensim India Plot No. 2, Survey No. 13/2 Sagar Society, NDA-Pashan Road Bavdhan, Pune India Tel: Fax: Enabling of service experimentation The Ensim VoIP solution provides a highly flexible platform to trial and customize service offerings with low cost and little risk. Service providers are free to implement innovative services and optimize their product mix for sales and marketing effectiveness to differentiate themselves from the competition. Leveraging speed and reliability as competitive differentiation Ensim's solution speeds the rollout of new VoIP services and the deployment of those services to customers while simultaneously eliminating unnecessary order processing errors and delays. In a dynamic market with aggressive price competition, agility, speed, service and reliability provide the necessary (and perhaps only) competitive differentiation to win customers. Better visibility into capital investment By implementing a standardized and predictable service delivery process, Ensim enables service providers to more accurately forecast their capital equipment and network capacity needs and implement just in time requisitioning for their core network and customer premise equipment. Through better timing of their expenditures, carrying costs for dark fiber and unused equipment are minimized, resulting in savings over manual, ad-hoc processes for allocating such resources. Scale Your Business with Increasing Margins Hosted VoIP services like business and residential voice have reached "critical mass" levels of customer acceptance and demand, as evidenced by the high forecasted growth rates for these services over the next 3 to 5 years. Yet there are relatively few dominant providers currently in this market. Thus, those service providers who possess the agility, speed and financial strength to profitably offer hosted VoIP services today can capitalize on this opportunity and create a leadership position. Ensim VoIP enables service providers to: 1 Based on the business case described in this study Ensim, the Ensim logo, are either trademarks or registered trademarks of Ensim Corporation in the United States and/or other countries. Any other trademarks/or service marks contained herein are the property of their respective owners. Dramatically reduce service delivery costs Improve cycle times Grow top line revenue and maintain (and improve) financial performance Utilizing Ensim's solution, service providers can seize the hosted VoIP opportunity while accomplishing the key challenge: Rapidly deploy new customers and scale your business with increasing margins. Copyright 2006 Ensim Corporation All rights reserved ROI 1140