MANAGED TELEPHONE AND INTERNET SERVICES

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1 MANAGED TELEPHONE AND INTERNET SERVICES Managed Business Solutions Market Brief Insert service provider logo here 2001 Nortel Networks. All Rights Reserved.

2 CONTENTS Introduction...2 Managed Business Solutions... 2 Managed Telephone and Internet Services... 3 Technology...4 Business Drivers... 4 Applications... 5 Adoption Issues... 5 Market Dynamics...6 Competitive Landscape...7 Total Value Proposition...9 i

3 INTRODUCTION With the advent of the Internet, industry analysts touted the fact that this new way of doing business would level the competitive playing field. Yet, while larger companies were quick to utilize the Internet to expand their business opportunities, many small and medium size businesses (SMBs) have been trying to play catch up. That s because oftentimes SMBs lack the capital and skilled resources to implement advanced Web-based solutions that can help them harness the power of the Internet. Today, companies large and small are turning to bundled solutions that enable the integration of voice and high-speed Internet access capabilities into a single network. In fact, according to a report entitled, Broadband Access Business Survey 2000 issued by the Yankee Group; The most important trend occurring in the telecom and datacom marketplace is the convergence of voice and data. The reasons for this integration are quite clear. Companies that implement voice and high-speed Internet access solutions are able to reduce operational and capital expenses, eliminate the need for costly technical resources, build better customer relationships, speed up transactions with business partners, and deploy new applications, such as integrated call centers or unified messaging. While SMBs understand the benefits of deploying an integrated voice and high-speed Internet access solution, many recognize the fact that they don t have the capital or the skilled technical resources to implement and manage such a solution on their own. Which is why companies are turning to service providers that can provide true managed business solutions that provide implementation, management, and ongoing support services all in an affordable bundled package. Through these solutions, SMBs can purchase the services they need, and then add new services as their businesses grow. Managed Business Solutions Managed Business Solutions (MBS) are a set of cost-effective solutions that address all the communications requirements of companies large and small. For a set monthly fee, a customer can subscribe to one or more turnkey solutions, adding more services as their needs change or grow. These turnkey solutions include voice, high-speed Internet access, local area networks (LANs), and virtual private networks (VPNs). Through these offerings, a service provider manages a company s network and provides the customer premise equipment (CPE) that enable companies to meet their current and future business requirements, while reducing time to revenue and time to profit. Managed Business Solutions enable companies to focus on their core business, work more effectively with their business partners, build better customer relationships, and increase employee productivity. These offerings provide companies with essential tools to put them on an even footing with larger competitors, including expanding their geographic reach by establishing a presence online. 2

4 Managed Telephone and Internet Services Managed Telephone and Internet Services are a single, cost-effective bundled solution that address the communications requirements of SMBs. For a set monthly fee, this bundled service combines toll-quality voice communications with always on, high-speed Internet access. Through the implementation of this solution, SMBs can: send faxes or make long distance calls over a data network instead of a phone line. maintain a telephone system over the Web, even from a remote location. set up one central phone number for customers and have the system intelligently route the call to the appropriate party or location. enable employees to access the company s database, network, or while on the road. lower the total cost of ownership by providing a single system for both voice and data. Unlike more traditional managed solutions, Managed Telephone and Internet Services offer SMBs a key feature: the service provider owns all the equipment, which eliminates the need for SMBs to purchase the hardware to run their applications. And since the service provider owns and manages the network equipment/router at the customer premise as part of this monthly fee, SMBs can focus on their core business without having to worry about maintaining network equipment, their technology becoming obsolete, or incurring capital outlays to get up and running quickly. 3

5 TECHNOLOGY Traditionally, SMBs have had to support separate voice and data networks. This is because the telephone calls were carried over the public switched telephone network (PSTN) and the data traffic was communicated over public or private data networks. Many companies have voice switching systems in place, such as private branch exchanges (PBXs) or smaller key telephone systems to consolidate phone lines. Others outsource voice-switching using services such as Centrex from local telephone companies. A company s data wide area network (WAN) is probably based on routers that direct traffic flow over public or private data networks and connect the company to the Internet. In many cases, an SMB may have contracted with a service provider to provide dedicated bandwidth on a private WAN or to transmit traffic over a public data network. In Managed Telephone and Internet Services, an integrated voice and data network is created through the use of a multiservice access switch that aggregates traffic flow from PBXs, key systems, and routers for transmission over the WAN to another multiservice access switch, that breaks the single high-speed channel into separate voice and data channels. However, if there are no legacy network considerations, a company will probably prefer IP communications systems that interface directly with telephone sets and network devices. These platforms support voice-switching and services, and consolidate traffic from local area networks (LANs) in a single space-saving platform. They also provide WAN connections to remote facilities and allow the addition of enhanced voice applications in a modular fashion as the network grows or telephony needs increase. Business Drivers For many SMBs looking to implement Managed Telephone and Internet Services, cost reductions are the primary business drivers. For example, by consolidating onto a single network, SMBs can reduce bandwidth charges since they no longer have to pay separate charges for voice and data networks. In addition, they can lower their capital costs since they no longer have to purchase separate equipment to support voice and data functionality. And, since the solution is owned and managed by the service provider, SMBs no longer have to employ a wide range of IT professionals to support their network infrastructure. In addition to the cost savings, SMBs can create new opportunities to improve business communications and efficiencies. For example, employees can easily share files over the network, talk to co-workers in branch offices without toll charges, and retrieve and voic from any location. An integrated network can also help SMBs improve customer and partner relationships. In fact, a white paper published by InterForum, entitled, Convergence On Your Network, reports; With the delivering of combined voice and data, businesses have not only the possibility of gaining significant cost efficiencies but, far more important, can drive their products and services to customers through a variety of channels which can be tailored to meet each customers specific needs and desires. 4

6 Applications The integration of voice and data networks enable SMBs to deploy advanced applications that allow them to compete effectively against larger companies. These applications consist of: Unified messaging Allows employees to combine their voice, fax, and messages into a single inbox that can be accessed from their PCs or laptops. Call centers Enable companies to better organize and manage their incoming calls through routing capabilities. Web-based call centers also enable companies to better respond to their online customers needs and help them link their marketing and sales initiatives. Computer telephony integration Combines the intelligence of a phone system with the power of a PC to enable applications like point-and-click dialing or automatic file retrieval based on a customers incoming calling line identification. Voice networking Enables functionality such as four-digit dialing between locations, the transfer of voic messages to anyone on the network, the broadcasting of messages to specific departments or the entire company, and the option to have voice traffic carried over an existing data network. Adoption Issues There are several issues raised by companies regarding the implementation of Managed Telephone and Internet Services. These include: Voice quality SMBs are concerned that the quality of their voice connections will deteriorate, causing unnecessary disruptions to normal business operations. Reliability SMBs believe that data networks are not yet as reliable as voice networks. Since the telephone is a critical component of any business, SMBs will not risk the chance that they will miss or lose a phone call. Security SMBs are concerned that once voice and data networks are combined, the chance that the network might come under attack will increase. Lack of skilled resources Since the integration of voice and data networks is relatively new, SMBs worry that their service providers might not have the qualified staff in place to integrate these two technologies and support and manage the network infrastructure once it is in place. Loss of control SMBs believe they will lose control over their network infrastructure and the data on those networks when they outsource the network management and support. 5

7 MARKET DYNAMICS As SMBs investigate the feasibility of implementing a voice and high-speed Internet access solution, many are realizing that they need the assistance of a management service provider. According to a study issued by the Phillips Group entitled, IP Telephony Managed Services: Market Demand for Converged Network Services, more than 50 percent of the enterprises surveyed expect to begin converging their data, voice, and video traffic onto a single next generation network during the next three years. Of those companies, 81 percent of the sites would be connected using managed services instead of private networks. At the same time, many of these companies are looking to purchase managed services from a single provider. According to the Phillips Group study, 79 percent of the decision makers that were interviewed stated that they would prefer to purchase all of their managed services for an integrated network from a single service provider, assuming that a bundled offer would be less expensive than purchasing these services from separate service providers. These bundled offers could consist of various combinations, including converged virtual private networks (VPNs), integrated access services, voice over digital subscriber lines (DSL), and IP Centrex. For many SMBs, working with a single service provider offers them a level of convenience they couldn t achieve from a multisource solution. According to a report entitled, Voice/Data Bundles for the SMB Market, the Yankee Group believes that; The prospect of a single bill and turning to one representative from one company for all communications orders, questions, or concerns is appealing. The bundle offering can also serve as a gateway for SMBs to become familiar with and aware of the latest technology available to assist them in achieving greater business efficiencies. In addition, according to the IP Telephony Managed Services: Market Demand for Converged Network Services, study issued by Phillips Group, 84 percent of the companies surveyed believe that managed services offered a more cost-effective solution, 71 percent believe managed services can help them minimize risks, 63 percent believe managed services can help improve security and reduce network complexities, and 61 percent believe managed services help address their lack of a skilled internal staff. According to the Yankee Group, service providers that provide DSL or other broadband Internet access to SMBs will have the opportunity to forge close customer relationships and offer new services. This is extremely important since the implementation of DSL lines to support a mix of voice and data services will continue to be strong. In fact, a report issued by International Data Corporation (IDC) entitled, U.S. Small Business DSL Services Market Assessment and Forecast, , states that small business DSL lines will increase to 2.5 million in 2003, representing 20 percent of all U.S. DSL lines. Sales revenue generated from sales of small business DSL links will rise to $2.3 billion in All of this means that the business opportunity for selling managed services is extremely high. In fact, the Phillips Group believes that the revenue for managed services involving next generation converged networks will exceed $7 billion in

8 COMPETITIVE LANDSCAPE There are three primary ways that SMBs can implement an integrated telephone and Internet solution. The first is to work with traditional hardware vendors that implement the solution; the second is for the SMB to purchase the equipment and manage the solution using its own internal staff; the third is to outsource to a service provider. The following chart outlines the competitive advantages and disadvantages that the enduser customer can experience from each of these scenarios. Solution Type Advantages Disadvantages Traditional Hardware PBX equipment Can effectively integrate functionality with existing corporate voice communications platforms Routers and other data networking Many years of experience building hardware and software that meets the reliability standards Have known expertise in IPtechnology PC-based gateway Exhibit great ability to rapidly adopt and even help drive emerging standards Multipath switching gear Ensure voice quality and reliability Eliminate possibility of vendor lock in In-house Staff Self-managed Offers complete control of hardware and applications that make up solution Minimal experience in IPcentric data networks Solution is tied so directly to highly proprietary PBX platforms; no commitment to standards-based technology Unfamiliar with voice technology and call management Continuing failure to rise to the reliability standards that have been perfected among telephony vendors Moving away from standards based solutions to ones that require proprietary technologies Lack of access to manufacturing scale lends itself to cost efficiency Expensive unstable products many not find broad acceptance Provides costly solution since company must purchase all the equipment and hire the staff to support it Demands that company train and retrain personnel to meet changing business needs 7

9 Forces company to obtain IT personnel in market that has scarce experienced resources Service Provider Traditional Managed Service Reduces costs by allowing company to outsource management of solution Causes finger pointing if a problem arises Enables company to maintain some control over its own systems Offers IT staff access to experienced resources that can help address system problems Allows company to focus more attention on core business issues Provides Service Level Agreements for specific components of the solution Management Service Provider Managed Business Solution Gives IT staff access to resources that can address all their system problems Causes perceived loss of control Offers one stop shopping for all hardware, application, and service needs Reduces capital outlays by eliminating company s need to purchase hardware Ensures company has access to the latest technological breakthroughs Allows IT staff to focus entirely on core business issues Enables company to standardize on a single platform Allows company to easily add new capabilities and evolve their business without having to purchase new equipment Provides Service Level Agreements that ensure continuous uptime of network and all applications Offers unified billing and service selection in which customer pays only for services that are used 8

10 TOTAL VALUE PROPOSITION Managed Telephone and Internet Services are a bundled solution that enable SMBs to quickly and costeffectively integrate toll-quality voice communications and always on, high-speed Internet access into a single, manageable source. Through the implementation of this solution, SMBs can outsource the complete management and maintenance of their integrated network infrastructure, thereby enabling them to focus their full attention on their core business. Managed Telephone and Internet Services enable SMBs to reduce operational and capital costs, improve employee productivity, eliminate equipment obsolescence concerns, improve customer and partner relationships, and deploy advanced applications such as unified messaging, Web-based call centers, and computer telephony integration that enable them to compete effectively against their larger competitors. 9

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