BroadSoft Cloud. Whitepaper. Overview. Advantage Communications Service Providers

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1 Overview Communications service providers (CSPs) are currently forecasted to dominate the market for business voice service, fully reversing a market historically owned by premise equipment vendors, such as internet protocol (IP) private branch exchanges (PBXs) and key telephone systems (KTSs). PBX and KTS vendors have long held an advantage in business voice communications. In 2010, 96.4 percent of business end points connected to PBX/ KTS equipment, and hosted PBX represented only 3.6 percent of lines shipped. Global revenue for PBX systems and handsets was a healthy $8.1 billion, driven by economics (long CapEx depreciation schedules and relatively simple operational support) and innovation (a less complex single-tenant environment). A growing demand for advanced unified communications (UC) functionality and improving cloud delivery models are projected to drive CSP market share quickly past that of PBXs. In fact, CSPs are expected to outsell PBXs because of reversal of advantages in economics and innovation. Figure 1. Historic Innovation Lead for PBX Vendors Communications service providers worked around PBX s advantages by offering a mix of utility-oriented user voice services for select business segments and a breadth of trunking services for premise equipment. Advantage Communications Service Providers Advances in cloud computing and other major trends are rapidly changing the business voice market. CSPs now have the opportunity to leapfrog PBX vendors by selling a far more compelling service offering: Unified Communications as a Service (UCaaS). According to a May 2014 MarketsandMarkets report, annual global revenue for UCaaS will total $23.34 billion by Ovum offers a similar forecast, anticipating that the global market for managed and hosted IP voice services will grow from $9.7 billion in 2013 to $25 billion in Figure 2. Cloud Impact for Business Voice First, cloud computing and delivery models lower operational overhead, and therefore total cost of ownership, through vastly more efficient centralized delivery of voice services. This reduces relative costs for CSPs and their customers. Second, important innovations and productivity gains now revolve around mobility-focused applications and integrations to both third-party UC systems and cloud services an area to which CSPs bring greater resources and are able to deliver more powerful solutions. broadsoft.com 1

2 Companies are moving from on-premise infrastructure to a cloud-based unified communications model, for cost savings and for more service options, MarketsandMarkets reports, citing the advantages of pay-per-need/pay-per-use, reduced travel, cost effectiveness and services that extend across sites. A March 2014 study from the Synergy Research Group shows that businesses that are switching from IP PBX are selecting UCaaS at a far greater rate than traditional hosted business VoIP. UC offers clear benefits to CSPs. UC functionality, as a central part of a UCaaS offering, drives more CSP revenue by enabling a greater net volume of lines or subscribers, greater ARPU per line and greater sales of auxiliary services, including bundled access circuits and network services. And CSPs are choosing UCaaS. According to Synergy Research, in the fourth quarter of 2013, 8x8, ShoreTel and RingCentral accounted for a combined 36 percent of the UCaaS market. A fascinating battle is playing out between traditional telcos on one hand and much smaller specialist operators and technology vendors on the other, said Jeremy Duke, Synergy Group founder and chief analyst. Clearly UCaaS is going to carve out an ever-greater share of the managed and hosted business voice market, and at the moment the telcos are being very slow to respond. BroadSoft believes that CSPs can not only respond to specialist operators, but ultimately surpass them by leveraging brands core competencies in customer support and solution engineering and cloud delivery s importance in customer decision-making. This paper explores the general factors driving the adoption of cloud delivery, challenges and innovations specific to cloud UC and strategies and options for CSPs to achieve a leadership position in the evolving business voice market. Figure 3. Managed and Hosted Voice Growth by Segment UCaaS offers CSPs battling increasingly fierce competition for basic telecom services the opportunity to differentiate and build margins through tailored services for horizontal (such as SMB and mid-market) and vertical (such as legal and healthcare) markets. Considering the size of the existing PBX market, a UCaaS investment in areas such as sales, marketing and operations offers promising returns. Factors Driving the Adoption of Cloud Delivery The more than 10-year migration to cloud delivery initially began with applications such as and web hosting. These applications benefitted from improved performance when operated in a network and lower total cost of ownership with the offload of capital investment and operating overhead. Today, customer relationship management (CRM) and enterprise resource planning (ERP) systems are moving to the cloud delivery model to take advantage of reduced wide area network (WAN) bandwidth costs, increased data transmission speeds and improved access to the high speed data connectivity that meets user demands for greater mobile access. broadsoft.com 2

3 Business subscriber and UC voice services are among the last applications to move to cloud delivery, and CSPs need to be prepared, especially with strategies around cloud delivery economics and rapid innovation. The more effectively CSP leaders understand these two factors, the better equipped they will be to prepare offer requirements, development plans and investment strategies. Figure 3. Cloud Delivery Framework for Unified Communications General Economics of Cloud Delivery The cloud model achieves economic benefits for CSPs and their business customers in seven primary areas: 1. Hardware utilization rates Cloud delivery, which shares hardware across multiple applications and customers, can help achieve annual utilization rates of close to 100 percent, compared to the average utilization rates of 5 percent to 20 percent offered by traditional servers that typically run only one application/workload. The economies of scale cloud providers achieve in hardware utilization across diverse workload schedules, types and geographies enable them to offer innovative pay-as-you-grow or pay-peruse models to their customers. 2. Energy costs Currently, an average data center with traditional IT infrastructure achieves a power usage effectiveness (PUE) level of 2.5. PUE measures the ratio between the total power delivered into a data center and the critical power required to run the servers. A data center using a cloud provider with its own large, heavily invested data center, by contrast, reports considerably lower PUE values. The increased power efficiency and decreased power costs per unit of cloud delivery give companies the opportunity to significantly lower the amount they spend on energy to run their IT operations. 3. Reliability costs Cloud delivery can also dramatically reduce the costs of running a highly reliable, always available, disasterready IT infrastructure on its own. Doing so requires companies to own and maintain reliable storage and backup devices, redundant networking devices and connectors between data centers in addition to a tested and working solution for disaster recovery. By deploying these functions to the cloud, companies can achieve the reliability and disaster readiness they need with significantly lower expense and complexity. 4. Security costs A move to the cloud similarly reduces IT security costs. On their own, companies spend significant sums to protect data integrity, confidentiality and availability from continuously changing and increasing security risks, incurring capital expenditures for network security, software licensing, dedicated IT security personnel, regulatory compliance and physical security requirements. Cloud providers are able to reduce these costs, while still offering dedicated security expertise that adheres to industry best practices, by leveraging their economies of scale. 5. Personnel efficiency By eliminating the need to dedicate labor costs and hours to such activities as network maintenance, data center design and build, hardware procurement, upgrade installation and security, cloud delivery enables more efficient use of IT personnel. broadsoft.com 3

4 6. Agility costs Building, extending or turning down infrastructure requires significant resources, which can cause companies to miss opportunities or move too slowly. Cloud delivery allows companies to address needs immediately as they arise and become more agile, more responsive and ultimately more productive. 7. Planning and strategy costs Along with cost savings and enhanced services, cloud delivery promises greater simplicity. A traditional IT system is typically burdened with complexity such as vendor evaluation processes, deployment issues, roadmap concerns, hidden costs and unforeseen scalability limitations. Cloud-based services, however, are available in more discrete packages with more concrete service descriptions and transparent pricing. By offering companies what they need when they need it and not charging for anything more than the necessary services the cloud greatly reduces this complexity and its associated costs. Businesses are already realizing the benefits of the cloud service delivery model. In a cloud.com survey of IT decision makers, 68 percent reported hardware savings, 66 percent were able to deploy infrastructure more quickly, 57 percent reduced their systems management burdens, 51 percent saved money on the ability to scale up and down as needed and 42 percent saved on automation capabilities. As cloud technology continues to advance and IP connectivity continues to deliver more speed and stability at lower costs, the efficiencies will drive more CSPs and business customers to the cloud delivery model. In fact, many applications will only exist in a cloud model. The success of applications launched as cloud-only, such as LinkedIn and Twitter, disproves several key objections specifically scalability and security to cloud delivery. These applications have shown how cloud-based applications can support hundreds of millions of interconnected users, provide needed security for business markets and offer a quality user experience. Communications Service Providers (CSPs) and Delivery of Business Voice Businesses are finding the cloud delivery model attractive for communication. Both voice-only and UC services are being deployed via the cloud at a rate that exceeds PBX line sales. This preference stems from the increased operating cost and management complexity of premises-based (IP) PBXs. UC greatly increases the cost and complexity of PBX-based service delivery, and more businesses are looking to CSPs for cloud-based alternatives. CSPs have launched exploratory programs to bring hosted or cloud UC offerings to market. This includes BroadSoft s work with CSPs to integrate BroadWorks IP voice switching with UC applications such as IM&P, video calling and directory management. While the integration of voice and UC applications is functionally straightforward, BroadSoft has observed some CSP struggles. In particular, development and the commercial launch projects were delayed when the integration of multiple communications applications created downstream complexity across BSS/OSS operations and required unplanned development. These UC project experiences caused many CSPs to reexamine how they deliver UC services. BroadSoft determined that CSPs needed a more effective way to bring UC services to market. The answer: bring CSPs a new UC delivery platform one that leverages a CSP s strong brand, offers a streamlined product launch, and enables rapid innovation that surpasses UC vendors in the IT and PBX markets. broadsoft.com 4

5 Requirements and Challenges for Delivering Cloud UC Services A root cause of many UC commercialization challenges is downstream operational complexity such as provisioning and billing. To analyze and understand this downstream complexity, BroadSoft broke CSP operations apart into commonly understood elements and worked with CSPs to understand the requirements and challenges of each component. 2. Service delivery: activation, installation and connectivity Once an order has been accepted, its components are converted to provisioning instructions. These instructions perform functions like turning on call control features, IM&P and other UC service elements. Activation messages are sent to multiple service delivery systems. Instructions include user, group and account IDs and package details, and additional tags (such as an on-call display within a contact s presence icon) are used for interworking between different service delivery systems. CSP preparation at this stage includes: Equipment for delivery, installation and activation Figure 4. Breakout of Typical CSP Operations 1. Sales and order management: order entry, management and processing UC requires an integrated service experience, beginning with the ordering of services and preparation of orders for provisioning. For this, CSPs need order entry systems that can consistently present and manage, from different back-end systems, product components such as subscriber feature packages, phone types, minutes plans, mobile device OSs and site locations while combining these elements to form user IDs, group IDs and account IDs or map to APIs with external platforms. Order management systems need to be able to manage these data components consistently through the process of service quoting, order refining and service provisioning. Order management also need to accommodate software updates and new feature functionality from external systems and respond to business changes such as adjustments to pricing, packaging and service bundling. Updated device firmware versions for phones and any additional equipment, such as routers and switches Device and client configurations for application on top of firmware, allowing for cost-efficient and simplified service turn-up Accounts for telephony services, LNP requests and any other regulatory elements that need to be activated and correctly associated with user, group and account IDs CSPs also need to activate feature packages for users, groups and accounts in multiple dimensions, including portal access for admin users. They also need to correctly coordinate multi-tenancy across service delivery systems. For certain group level services, silo rules might need to be engaged to prohibit visibility and the interworking of certain features across different customer businesses. During installation, service connectivity must be validated across all service delivery platforms. Call quality tests at target office locations can provide a support baseline for streamlining service calls broadsoft.com 5

6 during commercial operations. Testing should involve extended flows of real-time media traffic to ensure the minimum necessary LAN and WAN environments for a high-quality calling experience. 3. Capital infrastructure: call control, media mixing, voice and instant messaging and more UC services are delivered through a combination of call control systems, media mixing equipment, IM&P servers, SBCs, firewalls, load balancers, web services platforms and phones the systems that drive featurefunctionality across phones, mobile clients and web portals. Standing up this combination of systems involves a high commitment of both capital and staffing. The process begins with service definition, typically the documentation of the target service offering, end customer value proposition, sales strategy, market and risk environment, capital commitments, product architecture and anticipated ROI. Determination of this information usually requires a cross-functional team and broad organizational support. CSP teams then begin RFx processes, vendor selection and contract negotiations. Once infrastructure has been procured, IT staff begins integrating service delivery systems with the BSS/OSS infrastructure and refining and documenting business processes. Functional testing on individual systems is followed by the testing of integrated systems, the end-to-end test and finally the complete systems test and business process refinement and documentation. The multiple systems, devices, and service elements required to commercialize UC services often raise overhead and extend the delivery timeframe, increasing the risk that services will be off the mark in terms of user trends and the offering s novelty. 4. Customer service: training, tier 1,2,3+ support, field teams and troubleshooting tools As an extension of voice services, UC services are considered mission critical. Users expect reliability levels closer to the 5 x 9s of a voice service rather than the 3 x 9s of a cloud IT application, and customer support for UC services brings together many elements: network connectivity, voice services and business productivity applications. These multiple service components can make training, support, servicing and troubleshooting more demanding for CSPs. Furthermore, interworking between systems introduces new variables, and the source of issues can be harder to identify across a range of system elements. CSPs with experience in business voice services may be in a better position to extend customer service capabilities to UC than service providers who are familiar only with network connectivity or business productivity applications. Yet, regardless of existing customer service strengths, the preparation to introduce UC services requires time and resources. CSP teams need to plan upfront training for customer service staff, new employees in internal support and other additional staff. The greater a CSP s investment in up front elements such as media handling, online training tools and online portals, the less likely it is to be burdened by support issues. 5. Finance and billing: service data aggregation, compilation, invoicing and collections Billing systems pull in data on subscribers, assigned packages and variable usage totals, such minutes of use from multiple service delivery and mediation platforms. Invoices are calculated based on contracted rates between the CSP and business customer. Many of the challenges with billing UC services result from the variety of package options: moving users between different package options, providing billing options to manage disputes and customer service issues, and exploring new options that respond to consumption preferences. broadsoft.com 6

7 In order to simplify sales, marketing and billing, many CSPs offer and many SMBs prefer service bundles. Bundles also present a compelling option for the enterprise market; however, enterprise customers with more sophisticated procurement groups may need billing structures with broken out service components. Therefore, CSPs will require considerable billing flexibility if they plan to serve a mix of SMBs and enterprise customers. BroadSoft Works with CSPs to Offer BroadCloud: Offloading UC Complexity Because the bulk of a CSP s challenges reside in downstream operations, BroadSoft works with CSP partners to create a solution that combines cloud UC infrastructure with targeted downstream operational elements. This solution, BroadCloud, connects the BroadWorks platform to surrounding infrastructure and operations to offload both initial and ongoing development and maintenance costs. BroadCloud enables CSPs to leverage key branded, customer-facing and operational assets such as sales and marketing resources, customer service operations and wholesale termination networks at natural handoff points. This model enables CSPs more rapidly innovate and expand sales. Using the operational elements shown in Figure 5, BroadCloud delivers CSPs the following functions: Order management and processing: This includes portals for e-commerce (tools for a services catalog, CPE, pricing, promotions, discounting and customer site qualification), order management (to create, edit and cancel orders and check customer credit) and channel management. Service delivery: This includes service provisioning such as order certification and processing, delivering APIs for things such as CPE staging and shipping to the distributer/var, IP and wholesale VoIP interconnect, and LNP number assignment and porting. VoIP switching equipment: This includes BroadWorks call control, BroadWorks UC servers, BroadWorks mobile, tablet and desktop clients, and session border control ports and policies. Tier 2 and customer service: This includes portals for managing PacketSmart QoS LAN and WAN issues identification and customer service moves, adds and changes. Billing data aggregation: This includes APIs for providing CSP billing systems with billing data covering user packages, group/virtual packages and CDR mediation. This approach frees service providers to focus on the critical activities of sales, solution engineering, customer support and customer service. Moreover, much of the complexity of BroadWorks is concealed behind simple, intuitive, branded portals and rich system APIs, as shown below. Figure 5. BroadCloud Partner Model broadsoft.com 7

8 UCaaS sales numbers. Channel Partners Telecom concluded that, with growth exceeding 25 percent year-over-year and possibly still accelerating, CSPs should consider the value of going to market quickly with UCaaS. This mix of infrastructure and operations not only benefits the time-to-market for initial deployment, it also speeds the rate of ongoing innovation. For example, CSPs can now provide new features with an associated catalog entry, provisioning trigger, needed client functionality and relevant billable data. A rigorous testing and QA program ensures that updates are carried out with little to no disruption to CSP operations and the service experience. Communications Service Provider Strategies In the May 2014 article UC Sales Destroying PBX Market, Channel Partners Telecom reviewed recent They also need to understand the potential of lost revenues due to delays in customer acquisition, extended time to market, missed market windowsunder increasing competitive pressures. Figure 8 compares a product launch taking three months with one taking 18 months. In this high growth market, the sales impact of missing the UCaaS launch window could be severe. Figure 8. Subscriber Growth and Revenue Impact of Delayed Time-to-Market (TTM) BroadCloud s streamlined onboarding process in which CSPs leverage key brand, customer service and support assets enables a rapid time-to-market. Goto-Market (GTM) support throughout the onboarding process ensures a more effective launch, helping CSPs target horizontal and vertical segments, position key features and functionality for specific buying requirements and business communications needs. Figure 7. UC Applications Revenue, Year-over-Year Meanwhile, a structured approach to market planning and a comprehensive strategy can help CSPs take full advantage of a UCaaS offer to drive additional gross revenue for example, positioning a broader suite of cloud- or directly delivered services around broadsoft.com 8

9 UCaaS. CSPs have many avenues through which to attack the UCaaS market, and BroadCloud addresses the key blockers, including time to market, back office complexity and cost, giving CPSs the ability to rapidly launch a compelling UC package that integrates into CSP customer-facing assets. The continued turn-down of premise-based PBX systems in favor of cloud delivery models and UC puts a wide range of options at CSPs disposal. Whatever options they pursue, CSPs need to move quickly to take advantage of UCaaS, the service innovation that now gives network-based solution offerings the opportunity to compete and win. https://www.srgresearch.com/articles/ucaas-penetration-managed-hosted-business-voice-grows-where-are-telcos broadsoft.com 9

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