An ADTRAN White Paper. Unif ied Communications: Hosted versus Premises-based

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1 An ADTRAN White Paper Unif ied Communications: Hosted versus Premises-based

2 Table of Contents 4 What is Unified Communicaions? 4 Implementing UC Solutions Hosted UC Premises-based UC 5 Choosing a Hosted vs. Premises-based Unified Communications Solution Determine the Business Purpose Access to UC Capabilities Cost 8 Reliability, Security and Control 9 Bottom Line

3 Unified Communications: Hosted versus Premises-based What is Unified Communications? Unified Communications (UC) is a concept where multiple modes of business communications are seamlessly integrated. UC is not a single product but rather a solution set which consists of various elements, including (but not limited to) the following: unified messaging (receiving voice mail and fax via ), presence, instant messaging, Interactive Voice Response (IVR), personal assistant with Find Me/ Follow Me and call flow management, conferencing, collaboration tools, mobility, and Communication Enabled Business Processes (CEBP). UC integrates systems that an individual or business might already be using to unify real time and non-real time communications in an effort to improve efficiency. UC fulfills two primary functions: n Increasing personal productivity: UC improves communication and collaboration between employees which results in increased personal productivity. For example, UC technology eliminates wasted time through the use of Unified Messaging (UM) and desktop faxing features, while making team collaboration easy and location independent. In the latter case, team members can reach into other members calendars, with presence and availability information, and quickly establish voice conferences and tele-collaboration sessions. n Achieving business process improvements : Businesses use UC to make business process improvements, including both customer-facing services and internal communications and interactions. A variety of applications are found here including the common ones of Call Centers, IVR for both inbound and outbound applica tions, customer care, and management interactions. Businesses achieve even greater impact by using UC capabilities to transform business processes to realize substantial Return on Investment (ROI). Some examples include: n A retail customer can call a location and, using voice response, check on the status of an order. n A real estate agent is able to record a description of a house, which a prospective buyer can access by calling a phone number and entering a property ID while sitting in their car in front of the house. n A doctor s office or pharmacy can automate outbound reminder calls when integrated with appointment and/or prescription databases. In almost all cases, UC involves voice calls that are seamlessly joined with other communication forms (e.g. ) and/or business systems and databases to provide a competitive advantage. By bringing these functions together, efficiency and communication is increased. Implementing UC Solutions UC is usually a software application that runs on general purpose servers or PCs within the data center. The UC application is typically integrated with a voice system (PBX). If the UC application is to offer business process integration, then the UC application would also have access to established business database applications. UC applications may reside on separate servers with a connection to the voice system or, as is the growing case, may be a part of the voice system where it is by far the most complex component. Voice and UC services are deployed either as a hosted service or as CPE. n Hosted UC Most (if not all) hosted UC offerings include both the PBX functionality as well as the various UC services. The host platform is housed by a service provider with broadband IP connectivity to the client location(s), by private or public 4 Unified Communications: Hosted versus Premises-based

4 internet networks. A hosted provider delivers service to multiple customers using shared hardware to gain both capital and operational cost benefits. All voice communications, either station to station or outside calls, are controlled and supported by the external IP PBX. In many cases, phones and adaptors are provided by the hosted service provider and are included in the monthly lease cost. n Premises-based UC As the name premises-based implies, the PBX (IP or legacy) and UC servers are located on the customer s premises; although the system management may be outsourced. As mentioned previously, a premises-based UC service may be implemented using an existing PBX. However, it is important to understand that a number of functions considered integral to UC will require the functionality provided by a modern VoIP PBX, and therefore may warrant an upgrade to a more robust IP PBX. Choosing a Hosted vs. Premises-based Unified Communication Solution The choice between a hosted or premises-based UC solution is governed by a number of factors. Factors to be considered include: the intended business application, access to UC capabilities, cost, and reliability. Determining the Business Purpose While UC is an exciting technology, the purpose for investing is to increase profitability. There are two broad ways to achieve this namely through enhancing personal productivity and improving business processes. Having decided on your reason for acquiring UC capabilities, it is possible to decide on the trade-offs to make between a hosted versus premise-based solution. n Hosted: In general a hosted solution will have lower up front capital outlays, serve a small and highly distributed organization well, and require fewer in-house management and operational skills. However, it will integrate poorly with in-house IT infrastructure and the data center, offers much less customizable capabilities, and can get very expensive as the number of end-points grows. n Premises-based: A premises solution may have higher up front costs, but if the pricing window is above three years the Total Cost of Ownership (TCO) will be lower. The driving forces for selecting a solution to run in your own facilities are to achieve business process integration, company specific customizations, specific features and having in-house skills and capabilities to fully exploit the systems capabilities. For many companies data security and ensuring there is no data exposure to the outside world may be the single greatest determinant. A final factor favoring a premise-based solution is that it is generally possible to implement it gradually. Access to UC Capabilities UC holds the promise of providing very specific capabilities that best suit the purpose of a particular business. This is based on the services included and the customization that can be accomplished with the services. n Hosted: A hosted provider offers certain options but is usually limited in the amount of customizations they permit since the whole benefit of hosted is the sharing of common infrastructure and services. Other restrictions are inevitable since the UC system is separate from the data center and the customer s business systems. Although the options may be limited, the customer will not be burdened by any complexity associated with customization. An ADTRAN White Paper 5

5 n Premises-based: Since the end user-owns the UC system, access to customized UC features is often greater than a hosted solution. Customization is limited only by the capabilities of the UC system, user training, and the ability to deal with the necessary provisioning. The end-user is typically responsible for the system provisioning. There is also the option of a hybrid approach to implementation in which the end-user owns the UC system but the provisioning expertise is provided by a qualified IT consultant. n Acquisition Costs n Hosted: In the case of a hosted provider, the majority of the equipment costs are for new phones. In some cases, the cost for new phones may be paid for as part of the monthly fee (based on a minimum contract term). The hosted provider will include a hosted PBX so any on-premises PBX will need to be retired, or at least for the users that will be using the hosted UC service. Cost When considering the cost of a UC solution, it can be viewed from a "cost recovery" approach, based on ROI; or, it can be viewed from a TCO approach. In evaluating ROI, it is based on a calculation that is dependent upon the features and planned use of the system. Generally, ROI is made up of both soft and hard calculations. For example, the soft ROI from unified messaging is usually calculated as saving between 30 and 45 minutes per day, per employee. A hard ROI can be determined from the cost of incorporating a centralized fax server or implementing an appointment notification service, or conference server, or other business process automation. Both hosted and premise solutions offer these capabilities to some extent and should very much be part of your cost benefit analysis. Whereas, the TCO approach has three specific components to be considered. These components include acquisition costs, monthly recurring costs (including operations and management costs), and annual maintenance costs. To better understand the varying components when evaluating TCO, and how each one affects the decision to choose hosted or premises-based, let us review each one in detail. Note: If all users are not converted to the hosted PBX, then inside, station to station (four-digit) dialing can become problematic. In other words, a user that is still served by the existing PBX may not be able to use the same extension to reach a colleague that is now served by the hosted service. While it is technically feasible to connect those still served by the PBX and those served by the hosted server using four-digit dialing, the expense and complexity may make this approach impractical. This obviously impacts efficiency and training. In addition, each time more users are converted to the hosted PBX, all employees may be impacted by the required dialing change. For practical purposes, selecting a hosted solution will require a complete transition of all employees to the hosted PBX and will raise the monthly costs and, potentially, raise the acquisition costs for phones. 6 Unified Communications: Hosted versus Premises-based

6 The network infrastructure will need to be evaluated and additional equipment may need to be purchased to support the VoIP phones that will be required. Installation costs will include upgrades to the internal network and the decom missioning or re-provisioning of the existing phone system. If VoIP phones must be purchased, the acquisition cost can be estimated at approximately $200 to $400 per user. n Premises-based: Acquisition costs for a premises-based system is often higher due to the cost of servers and software licenses. If a PBX is currently in use, it is entirely possible to add UC functionality without replacing the PBX. This reduces equipment costs since new phones are not required, and also affects installation costs since the existing network infrastructure will not be disturbed. The UC functionality can be implemented in a phased approach with limited or no affect on the day-to-day operations for those employees without need for the UC system. Training costs would be restricted to those impacted by the new UC capabilities. Also, due to the flexibility inherent in an on-premises system, new PBX functionality can be added alongside an existing PBX. In using an on-premises system, station to station dialing would not change and only some users would start using the new phone system. Note: Regardless of the approach selected (hosted or premises), the network infrastructure requirements are essentially the same, and therefore the costs for network assessment and upgrade would not vary significantly. The acquisition cost of a premises-based solution is approximately $75 per user for a 500 user application, without phone conversion. With the addition of IP phones and IP PBX features, this cost increases to a range of $250 to $450 per user, including the cost for new phones. n Monthly Recurring Costs Any ongoing or monthly operation expense is considered as part of the monthly recurring costs. These include such items as charges for voice/data service, access service costs equipment lease, and system management expense (either provided by an internal resource or a contracted service agent). n Hosted: A hosted provider typically bundles all service costs, equipment lease costs, software licenses and management expense into a monthly fee. This fee is based on a contract of some length (e.g. a two-year agreement). There may be sepa rate charges for access and for backup telephony service. The monthly cost for service varies based on the services included and whether the phones are purchased or amortized in the monthly fee. Note: It is worthwhile noting that the access bandwidth requirements for a hosted solution and a premises-based solution may be different. For multi-site applications using a hosted service, each site will only require enough bandwidth needed for that site s communications needs. Where as, in a premises-based approach one site may serve as the host for all sites, and may need additional bandwidth to support all calls for all other sites, as well as the communications needs of the host site. An ADTRAN White Paper 7

7 Typical costs range from $30 to $60 per phone, per month where the phones are purchased separately by the customer. n Premises-based: The monthly costs consist of the access cost and any additional management costs. As noted above, this is approximately the same as a hosted solution except for the main site in a multi-site application. If management of the UC/IP PBX is contracted to an outside IT service company, this usually costs $10 per user, per month. There is also the additional cost of power for equipment and environmental control for the UC servers n Annual Maintenance Costs The third component to consider as part of acquisition cost is the annual maintenance costs. These costs refer to the annual fees for continued access to maintenance or software license fees. n Hosted: Typically, a hosted provider includes any annual maintenance costs in the monthly fee, as opposed to charging one lump sum. If phones and other network equipment were purchased upfront, these items may also have an annual maintenance cost associated with them that may or may not be bundled into the monthly charges. Note: The annual fee for maintenance and support for network equipment and phones varies widely among vendors, with some (such as ADTRAN) offering continued technical support and firmware updates at no additional cost. n Premises-based: Any UC software typically includes an annual license fee as a percentage of the initial purchase price. Any network hardware and phones purchased also have an annual maintenance fee, but should be similar to the fees associated with equipment purchased as part of a hosted solution. While the initial capital expense for equipment in a hosted solution is definitely lower, the monthly expense is often significantly higher. In addition, due to the difficulty of merging a hosted PBX with an existing PBX, any hosted solution will require the complete conversion of all phones to the new hosted PBX, and the retirement of any existing PBX, regardless of age. This means that the number of user under monthly contract may be higher than necessary. A premises-based solution allows for the controlled migration of users onto the any new UC system. In this case, the greatest productivity gain may involve only 10 percent of employees, and the costs to implement the solution can be restricted to that number and not affect other employees. Reliability, Security and Control There are a number of considerations that fall under this heading. When considering reliability, a case can be made for the ability of a hosted provider to offer improved system redundancy, as well as site diversification. However, since communication with the hosted PBX requires an IP connection (Internet), any failure in this link may cause complete disruption of communications which cannot be mitigated by a simple emergency backup line. If security of corporate data is of particular concern, this may be reason enough to consider only a premises-based solution. Although a hosted provider may have impeccable security standards, it does offer another opportunity for a security breach simply by having information stored or exchanged off-premises. Also, with a hosted solution, you are not in total control 8 Unified Communications: Hosted versus Premises-based

8 of the security for s and voice mails, nor do you control who has access to these communications. Similarly, the issue of system control basically comes down to who you want making decisions about the system and how that may affect your business. Since you will be sharing a resource at a hosted provider, the provider may make decisions (such as a system upgrades), which may disrupt your communications at an inconvenient time. In effect, for all of these areas of concern, you are relying upon your service provider to make the important decisions about your communications and UC capabilities. Bottom Line Given the operational and personal efficiency benefits of UC, an excellent case can be made for implementing a UC solution. There are different driving forces behind such a decision, ranging from having a highly distributed work force appear as a harmonious centralized operation to having UC dramatically alter your business practices and appearance to the outside world. Either a hosted or premises-based approach will work but there are compromises to make with each approach. In this paper, the areas of concern have been identified as factors to consider prior to adopting either a hosted or premises-based solution. As a reminder, when considering the TCO for your chosen approach, it should be evaluated over a minimum of a two- to three-year period. While a hosted approach may appear on the surface to allow you to test the water due to the lower up-front costs, in practice it may be more of a revolution than an evolution. Finally, if the long-term vision is to enhance business practice, then the enhanced ability to integrate with your business systems and the control it provides you is a compelling reason to select a premises-based solution. In addition, a premisesbased approach can be evolutionary since the existing PBX can be left in place while only the UC features offering the best value to select employees are initially implemented, with additional features and employees added in time. An ADTRAN White Paper 9

9 About ADTRAN ADTRAN, Inc. is a leading global provider of networking and communications equipment, with a portfolio of more than 1,700 solutions for use in the last mile of today s telecommunications networks. Widely deployed by carriers and enterprises alike, ADTRAN solutions enable voice, data, video, and Internet communications across copper, fiber, and wireless network infrastructures. ADTRAN solutions are currently in use by every major U.S. service provider and many global ones, as well as by thousands of public, private and governmental organizations worldwide. ADTRAN, Inc. 901 Explorer Boulevard Huntsville, Alabama P.O. Box Huntsville, Alabama ADTRAN fax TL ADTRAN is an ISO 9001, ISO 14001, and a TL 9000 certified supplier. EN1387B Copyright 2011 ADTRAN, Inc. All rights reserved. ADTRAN believes the information in this publication to be accurate as of publication date, and is not responsible for error. Specifications subject to change without notice. ADTRAN is a registered trademark of ADTRAN, Inc. and its affiliates in the U.S. and certain other countries. All other trademarks mentioned in this document are the property of their respective owners. Five-year warranty applies only to products sold in North America. ADTRAN products may be subject to U.S. export controls and other trade restrictions. Any export, re-export, or transfer of the products contrary to law is prohibited. For more information regarding ADTRAN s export license, please visit

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