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

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