MARKET I NSIGHT. Brought to you by Netfortris

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1 MARKET I NSIGHT Brought to you by Netfortris A Sustainable Approach to Hosted IP Telephony and UCC Services Deployment Ensuring the Long-term Viability of Communications Investments

2 Executive Summary... 3 Introduction... 3 The Hosted Communications Value Proposition... 4 Factors Driving Hosted Communications Adoption... 4 The Best Fit... 5 A Structured Approach to Hosted IP Telephony and UCC Services Deployment... 7 Conclusion Legal Disclaimer The Frost & Sullivan Story... 20

3 A Sustainable Approach to Hosted IP Telephony and UCC Services Deployment Executive Summary Businesses increasingly deploy hosted Internet protocol (IP) telephony and unified communications and collaboration (UCC) services in order to gain flexibility, reduce costs and risks associated with communications investments, and more effectively support remote branch office and mobile workers. Underserved small businesses can more easily gain access to advanced functionality and a large pool of technology expertise in spite of budget and information technologies (IT) staff constraints. Large, distributed organizations can leverage hosted communications services to consolidate their infrastructure and thus reduce costs, more effectively manage vendor relationships, offer a consistent feature set across the organization as well as deliver communications capabilities to various locations based on specific user needs rather than underlying technology. Businesses, especially those favoring operating expense (OPEX)-based technology investments such as education and government organizations, can replace large upfront capital outlays with predictable monthly charges. Businesses considering hosted communications must first assess their existing communications infrastructure and IT staff skill sets, review business objectives, and develop a comprehensive and sustainable communications infrastructure evolution roadmap. Based on the findings of this initial assessment, businesses must conduct a thorough due diligence investigation of available hosted communications solutions and providers. Most businesses are likely to begin the process with a feature/functionality and cost comparison of multiple solutions (including premises-based alternatives if the decision to move to hosted communications is not yet final). Furthermore, ease of use for both end users and IT administrators can ensure more efficient solution deployment and management and broader end-user adoption of new tools and capabilities. Deployment options (private lines versus public broadband) can determine the quality and reliability of the service as well as service level agreements (SLAs) offered by the provider. Businesses must also obtain information about the data center design, solutions architecture, and other factors that determine the reliability and security of the hosted service. Total cost of ownership (TCO) analyses can help compare the short- and long-term value of communications services and solutions. Finally, in-depth insight into the prospective service providers financial performance, track record, vision and technology roadmap, partnerships, customer service, and technical support should factor heavily in the final decision. 3 This article provides a guide to a structured and sustainable deployment of hosted IP telephony and UCC services. It can help businesses maximize their return on communications investments and leverage technology for a competitive advantage. Introduction Businesses increasingly leverage communications and information technologies (IT) to improve business agility and more effectively meet shifting market and workforce requirements. Over the years, communications and IT budgets have grown considerably as businesses seek to enable higher employee productivity and superior customer service. However, economic uncertainty and accelerated technology development are compelling businesses to apply a more cautious approach to communications and IT investments. More specifically, customers are looking for flexible deployment models that reduce risk and upfront costs while providing faster access to advanced functionality. As a result, cloud architectures and as-a-service business models software-as-a-service (SaaS), communications-as-a-service (CaaS), etc. are gaining significant appeal among business customers. Over the past decade, hosted IP telephony and cloud UCC services have matured and are offering a compelling value proposition to businesses of various sizes and vertical industries. This study discusses the benefits of outsourcing communications from a trusted service provider partner; identifies the best fit in terms of matching organizational composition, existing communications infrastructure, and end-user needs; and proposes a methodology for assessing hosted IP telephony and UCC solutions and providers.

4 Frost & Sullivan Market Insight The Hosted Communications Value Proposition Factors Driving Hosted Communications Adoption Hosted IP telephony and UCC services adoption is growing at a steady pace with the installed user base expanding at about 25 to 30 percent year-over-year. Customers have gained considerable awareness of the benefits of IP telephony and cloud business models and are actively exploring hosted IP communications as a viable alternative to existing premises-based implementations, typically based on legacy technologies. Multiple factors are driving demand for hosted communications, including: macro-economic conditions, shifting user demographics, organizational dynamics, and technology evolution. Frequent economic downturns have limited access to lines of credit and other external funding for many businesses, especially small ones, and have encouraged demand for flexible solutions that allow fast and costeffective capacity adjustments. Fiscal uncertainty, coupled with rapid technology evolution and accelerated technology refresh cycles, have also increased the risks associated with technology investments. As a result of these trends many businesses are looking to avoid locking into risky CAPEX investments in premisesbased solutions. Instead, they are switching to hosted communications for the benefit of predictable monthly charges, which can be adjusted based on actual usage and changing capacity requirements. 4 Furthermore, the complexity of enterprise communications infrastructure has increased dramatically. Businesses use a plethora of communications tools including: telephony; ; voice and unified messaging; presence, instant messaging and chat; audio, web, and video conferencing; content and file sharing; mobility; and more. IT staff is increasingly overwhelmed with both the workload and challenges of deploying, managing, and maintaining a continually expanding set of IP-based communications tools. Finding skilled IT staff and ensuring that in- house personnel has the necessary expertise to cope with evolving technology requirements represents a growing challenge and cost burden for most organizations. Outsourced solutions provide access to a larger pool of technology expertise and enable businesses to reduce the costs associated with hiring, training, and retraining skilled IT staff. Maturing voice over IP (VoIP) and cloud technologies are also fostering improved customer confidence in hosted IP telephony and UCC services. Over the past decade, technology developers and service providers have greatly enhanced the quality and reliability of real-time communications delivered over IP networks. Improved quality of service (QoS) management, advanced security tools, and greater availability of highbandwidth access networks represent some of the technology factors driving the adoption of hosted IP communications services.

5 A Sustainable Approach to Hosted IP Telephony and UCC Services Deployment Exhibit 1 shows the factors creating favorable conditions for the adoption of hosted IP MARKET READINESS Macro-economic uncertainty Customer focus on flexibility and cost management Growth of the virtual organization increasingly dispersed and mobile workforce Large and untapped SMB market Maturing VoIP and cloud technologies Rapid technology evolution and shorter product life cycles Increasing complexity of IT/comms infrastructure (virtualization, UC) New business models: UCaaS, cloud UCC The Perfect Storm for Cloud UCC 5 Source: Frost & Sullivan Favorable market conditions will drive a gradual, but steady shift to hosted communications over the next decade. In some world regions, such as North America, over 25 percent of business telephony users are likely to migrate to hosted IP telephony and UCC services by Counterpoint I: Hosted IP telephony and cloud UCC services require a move to converged, IP- based networks which pose specific challenges related to bandwidth utilization and management, real-time applications (such as voice and video) prioritization and quality of service (QoS) management, IT/telecom department re-organization, and IT staff skill set and job role adjustments. Businesses with considerable investments in legacy infrastructure, including analog and time-division multiplexing (TDM) endpoints, and/or major security and regulatory constraints must proceed with greater caution and even consider keeping the voice and data networks completely separate. Counterpoint II: With the adoption of hosted IP telephony and cloud UCC services businesses relinquish a considerable degree of control over their communications capabilities to a third party. This process requires a major culture shift and a significant investment in change management. Businesses embarking on this journey must have a long-term plan for both technology and organizational (structural and cultural) evolution. The Best Fit Hosted IP telephony and UCC services can provide significant benefits to businesses of any size and any vertical industry. However, there are certain business scenarios where hosted communications can provide greater value. Small Businesses and Small Sites: For small businesses or small sites within large organizations (e.g. bank branches, retail franchises) with less than 50 users, hosted solutions can provide a greater return on investment than premises-based alternatives. Limited budgets, lack of locally deployed IT staff, and small capacity requirements make the cost of premises- based solutions and related ongoing maintenance prohibitive

6 Frost & Sullivan Market Insight for such organizations. Through hosted solutions they can economically gain access to advanced functionality and a broad pool of technology expertise that can create a competitive edge for the business. Distributed Virtual Organizations: Distributed organizations with several or many remote and mobile workers can use hosted communications for their remote sites/users or gradually migrate their entire communications infrastructure to the cloud. Through the latter approach, they can eliminate the cost and hassle associated with deploying, maintaining, and upgrading disparate, multi-vendor solutions and managing multiple vendor relationships. Furthermore, a hosted or cloud service infrastructure enables such organizations to more effectively support and deliver capabilities to each user based on actual needs rather than underlying technology. Organizations with OPEX-based Technology Budgets: Public sector organizations tend to favor OPEX-based investments because of the way they receive funding and government or other incentives (E-Rate programs, for example). Government and education organizations also typically have multiple locations or campuses and can therefore benefit from hosted services in the same way as other distributed organizations: they can consolidate their communications infrastructure, support mobile users, and realize overall cost efficiencies. Many government and education organizations are currently deploying traditional voice-centric Centrex services. By transitioning to more advanced hosted IP telephony and UCC services such organizations can gain access to robust features and capabilities not supported on TDM Centrex platforms. 6 There are certain factors that typically trigger the evaluation of new communications solutions and, potentially, the decision to move to hosted communications. Most businesses consider hosted communications alternatives in the following scenarios: Aging (preferably amortized) premises-based infrastructure that no longer supports user needs and may also be becoming expensive to maintain due to frequency of repair, service disruption, and limited parts and skilled staff availability Expired Centrex contract, especially if Centrex no longer provides the functionality required by end users Rapidly evolving user needs due to organizational shifts or evolving user demographics (e.g., growth of remote or mobile workers, opening of remote sites and branches in new geographic locations, influx of younger workers) Uncertain or frequently changing capacity requirements (e.g., rapid company growth; need to downsize due to macro-economic or other challenges; seasonal or project- based shifts in workforce size) Need to gain a competitive edge through advanced communications solutions that reduce costs, enhance user productivity, or accelerate business processes After businesses have acknowledged the need to upgrade their communications capabilities and potentially deploy hosted communications solutions, they need to properly assess their assets and user needs before making their final decision.

7 A Sustainable Approach to Hosted IP Telephony and UCC Services Deployment A Structured Approach to Hosted IP Telephony and UCC Services Deployment Exhibit 2 shows the steps businesses need to take in order to first properly assess their existing communications environments and then select the most appropriate hosted communications solution and provider. Exhibit 2: Deploying Hosted IP Telephony and UCC Services: A Structured Approach Ensures Long-term Viability of Communications Investments DEPLOYING HOSTED IP TELEPHONY AND UCC SERVICES: A STRUCTURED APPROACH ENSURES LONG-TERM VIABILITY OF COMMUNICATIONS INVESTMENTS First Steps 1. Inventory Existing Communications Investments 2. Assess IT Staff Capabilities 3. Evaluate End-user Needs 4. Review Broader Business Objectives and Company Vision Company Growth Plans Economic and Financial Projections Vision for the Role of Communications Infrastructure in Enabling Key Differentiators and/or a Competitive Advantage Selecting the Right Solution and Service Provider Feature Set Ease of Use and Management Managed Hosted Communications Versus Bring-Your-Own-Bandwidth (BYOB) solutions Networking and Endpoint Requirements TCO Service Quality and Reliability Security and Regulatory Compliance Integration with Existing Platforms and Services Analytical Tools Service Provider Attributes and Characteristics 7 Source: Frost & Sullivan

8 Frost & Sullivan Market Insight First Steps Inventory Existing Communications Investments 8 Before deploying a new communications solution on the premises or in the cloud, businesses must inventory their existing assets. Age, functionality, feasibility of upgrade, and amortization schedules of existing investments should be considered before making a final decision. If certain communications systems have been fully depreciated, then businesses may consider hosted alternatives that provide the same or greater functionality as well as some additional benefits such as better flexibility and reduced CAPEX. Unamortized, as well as complex and highly customized solutions are more likely to remain deployed on the premises, unless service providers are able to offer a compelling alternative. Keeping certain communications capabilities on the premises may be a temporary or a permanent solution, depending on evolving business needs. Security and regulatory requirements may also tip the scales in favor of premises-based deployments for some elements of the communications infrastructure (for example, proprietary databases such as user data, call logs, call recordings, etc.). It is also important to take into account existing or anticipated future integration of the various communications platforms and applications deployed within the organization. Sometimes customized integrations of premises-based solutions are tough to replicate in a multi-tenant service provider environment. However, most hosted IP telephony and UCC service providers are offering comprehensive bundles of interoperable and pre-integrated capabilities that may be a viable alternative. Businesses should also consider hybrid implementations (a combination of hosted and premises-based capabilities) that extend the life of some premises-based investments, while enabling access to other (more advanced, flexible, or cost-efficient) communications solutions in the cloud. Before upgrading their communications solutions, customers must also assess their internal and external networks and their ability to handle more users and/or the addition of more bandwidth-intensive applications such as video, for example. Migration from analog or TDM solutions to IP telephony (premises-based or hosted) may require a significant upgrade of the routing and switching infrastructure at the customer s premises. A move to hosted communications also requires an assessment of the wide area network (WAN) connections. Depending on various factors, businesses will have to decide whether to run voice and data on the same or separate access lines and whether to add more bandwidth capacity.

9 A Sustainable Approach to Hosted IP Telephony and UCC Services Deployment Key takeaway: Hosted communications deliver significant benefits, but may not be the best fit for some businesses and specific communications solutions. Certain communications capabilities may always need to remain on the premises. Assess IT Staff Capabilities With the growing complexity and rapid evolution of communications solutions, it is becoming increasingly difficult and costly to hire, retain, and continually re-train skilled IT staff. By outsourcing communications from a third party, businesses can reduce IT staff costs and gain access to a larger pool of technology expertise. Existing IT staff can be re-allocated to more strategic projects as the service provider takes over the day-today communications infrastructure maintenance and management. In certain organizations, however, IT staff may be highly specialized in managing and maintaining customized or very specific (e.g., vertical) solutions, which may tip the scales in favor of premises-based deployments managed internally. 9 Overall, IT staff size and skill set represent important factors in the choice between hosted communications and premises-based infrastructure. When comparing premises-based and hosted communications investments, businesses must also add IT staff costs to that of the technology-related expenses in order to accurately measure the TCO of each alternative solution. It is important to note that IT staff will most likely continue to play a key role even in a hosted communications environment, especially in larger organizations with more complex needs and requirements. Key takeaway: With the exception of some very small businesses and branch locations, a switch to hosted communications should not result in eliminating or reducing the role of IT staff. Rather, this is an opportunity for the organization to re-assign such highly specialized experts to high-value projects.

10 Frost & Sullivan Market Insight Evaluate End-user Needs 10 Dial tone and voice mail no longer suffice to achieve the productivity levels required by many users today. Evolving end-user demographics and needs represent a key factor in deciding what communications solutions to deploy. User age, skills, experience, expectations, location, and business roles determine their preference for specific communications applications and devices. Younger users, typically more tech-savvy than baby boomers, are more likely to demand access to text-based communications tools such as IM and presence; visual and more collaborative tools such as video, web conferencing, file sharing and social technologies; as well as mobile access to various corporate communications applications. Overall, business users are becoming more mobile. Long-distance business travel, lengthy commutes, rotating days at different sites, hot-desking, desk-sharing, and remote working (teleworking) are all factors driving demand for mobility solutions. Business users also increasingly expect employers to support their own mobile devices (i.e., bring-your-own-device or BYOD). Advanced mobility solutions typically require a significant investment when deployed on the premises. Therefore, businesses need to consider service provider mobility solutions, whether deployed as standalone applications or as part of a broader communications bundle. A holistic assessment of user needs will allow the organization to decide what new capabilities to deploy in order to ensure user productivity and job satisfaction. Based on this analysis businesses can compare premises-based and hosted solutions to meet on functionality, price, and other criteria. The larger the gap between existing capabilities deployed on the premises, on one hand, and user demand, on the other, the more compelling the switch to advanced hosted communications solutions that deliver a comprehensive set of preintegrated applications. Key takeaway: Businesses compete through people, strategy, and technology. End-user needs should determine the final set of communications features and capabilities to be deployed, as well the deployment strategy.

11 A Sustainable Approach to Hosted IP Telephony and UCC Services Deployment Review Broader Business Objectives and Company Vision Businesses need to align technology investments with broader business objectives and the company s vision for the future. They must build for today while planning for tomorrow. More specifically, technology decision makers need to consider the following factors: 11 Company Growth Plans Including Global Expansion, Opening of New Remote Sites, and Support for Work-at-home Programs. This factor will determine both overall capacity requirements and demand for specific capabilities (e.g., conferencing, social technologies, UC) that enable collaboration among employees no matter where they are located. Rapidly growing organizations, especially those with multiple, geographically dispersed sites and many virtual workers, can use hosted communications to more effectively manage shifting capacity requirements and varying user needs. Economic and Financial Projections Including the Need for Cost-cutting Measures or Downsizing. A tough macro-economic environment or company-specific financial distress will have an impact on the type of applications and services that are deployed, as well as the deployment model used. Cash-strapped businesses may outsource strictly to save money in the short run. They typically choose their hosted solutions based on cost, rather than feature set and capabilities. Other businesses facing an uncertain future are likely to choose the hosted/cloud deployment model in order to more flexibly adjust capacity and to add or discontinue new features and functionality based on actual demand and financial capabilities in the long run. Overall, predictable utility-based billing and the ability to avoid sunk costs and ongoing maintenance charges could be compelling factors steering troubled organizations on the path to hosted communications. Vision for the Role of Communications Infrastructure in Enabling Key Differentiators and/ or a Competitive Advantage. Advanced communications can reduce costs, enhance user productivity, accelerate decision making and business processes, and improve customer service. Therefore, it is critical to align technology investments with both short-term and long- term business priorities and develop a strategy around communications-enabled business processes (CEBP). Businesses can integrate communications capabilities with business process applications in order to eliminate human error and latency and thus streamline key business processes. CEBP can simply mean automating repetitive or low-value functions such as appointment or payment reminders that can have big business impact. Similarly, a simple call-back feature

12 Frost & Sullivan Market Insight or intelligent automatic call distributor (ACD) can be a huge boost to customer satisfaction and retention for certain businesses. Customers need to be upfront with their prospective service providers about their specific pain points and business challenges. Frequently, technology providers propose radical changes to the communications infrastructure that may not be necessary. On other occasions, they may propose only partial solutions that do not completely resolve specific company issues. Premises-based communications solutions sometimes provide greater functionality and enable tighter and more customized integration with other platforms and applications deployed on the premises; however, they typically require a commitment to a certain vendor and its technology evolution roadmap. Hosted communications, on the other hand, provide greater flexibility in terms of both adding features and capacity on demand and switching providers if needed. Furthermore, hosted solutions based on open standards typically support integration with other cloud applications, including customer relationship management (CRM) and productivity applications. 12 Key takeaway: Short-term goals typically compel businesses to select their communications solutions based on price, features/functionality, and the convenience of existing relationships. A holistic perspective on the company s long-term objectives and evolving market conditions can help decision makers employ a more sustainable approach to communications investments. Selecting the Right Solution and Service Provider Feature Set Some businesses begin their due diligence process with a feature/functionality comparison across premisesbased and hosted communications solutions. Others first choose the deployment model and then compare feature sets. Most vendors and service providers deliver comprehensive communications portfolios to enable one-stop shopping for their customers. For example, many hosted telephony and UCC service providers offer telephony, voice mail and unified messaging, presence and IM, conferencing, contact center, mobility, and more. Certain providers, however, offer more differentiated capabilities such as video, integration with customer relationship management (CRM) solutions, more advanced mobility, and so on. Other providers may be missing services such as contact center or presence. However, not every business needs all the bells and whistles. Overall, it is important to look for providers capable of appropriately packaging features and functionality that enable the right capabilities for the different users within the organization.

13 A Sustainable Approach to Hosted IP Telephony and UCC Services Deployment Key takeaway: Businesses must evaluate providers based on both their current capabilities (breadth and depth of the portfolio) and their long-term technology roadmap. A holistic, long- term alignment of customer and service provider vision and objectives is likely to deliver the greatest customer value. Ease of Use and Management End users are often overwhelmed with the proliferation and increasing complexity of business communications tools. Sometimes, they fail to use the new tools effectively due to complexity or lack of training. There are also significant differences in terms of how workers use communications tools based on their age, skill set, and job roles. For example, more conservative or less experienced users prefer to use desktop phones, whereas younger workers and workers heavily reliant on their communications tools to fulfill their job tasks are likely to use graphical user interfaces (GUI), such as UC soft clients or click-to-call applications, to manage their communications. Overall, the user interface can have a major impact on the adoption and proper use of new communications tools. Ease of management is also critical. Hosted communications typically reduce, but do not completely eliminate the role of internal IT staff. In fact, a key benefit of IP-based communications is the ability of IT administrators and even end users to easily handle simple tasks (such as user/device provisioning, various feature/service settings, or moves, adds, and changes (MACs)) themselves, rather than relying on third parties, which typically involves higher costs as well as delays. Furthermore, internal IT staff is sometimes better qualified to handle potential integration or customization of various hosted or premises-based and hosted applications and therefore requires access to a convenient solution management and administration platform. Overall, internal IT staff s ability to effectively and efficiently handle tasks related to the implementation and administration of a new communications solution can significantly impact the return on investment. Certain hosted solutions offer notably simplified, automated, and intuitive management tools that greatly improve IT staff s efficiency. Such solutions can considerably reduce implementation, training, and management costs as well as other costs associated with the transition to a new solution (e.g., downtime). 13 Key takeaway: Businesses must avoid highly complex end-user and administrative interfaces that may increase rather than reduce workloads. However, they must also beware of fully plug- and-play solutions that seemingly eliminate all internal administrator involvement. Such designs typically indicate a cookie-cutter approach that limits flexibility and the ability to customize and personalize the solution in meaningful ways. Managed Hosted Communications Versus Bring-Your-Own- Bandwidth (BYOB) Hosted communications can be delivered over private networks or over public broadband connections. The former are referred to as managed hosted communications. The latter are typically referred to as over-thetop or BYOB solutions. Managed hosted communications can be delivered over the same provider s private lines and multi-protocol label switching (MPLS) network, or over a third-party access lines in conjunction with an MPLS network. The key value of managed-bandwidth solutions is the service provider s greater quality of service (QoS) assurance and a one-stop shop for customers. These bundled deals may be more cost-effective as well. BYOB services, on the other hand, provide greater flexibility. Businesses can deploy hosted IP telephony and UCC services over less expensive broadband connections sourced elsewhere and continue using existing broadband providers. As the quality of the public Internet continually improves, so does the quality and reliability of BYOB hosted communications services. Service level agreements (SLAs) vary based on the delivery model and the provider s control over the various elements of the service.

14 Frost & Sullivan Market Insight The choice between managed and BYOB services must be based on the customer s service quality and reliability requirements. No matter whether they choose managed or BYOB service, customers must decide if they wish to run their voice and data communications over the same access line or over separate lines. The first option can provide significant cost savings by reducing the number of access lines deployed. The latter option may, however, help ensure superior quality of real-time communications as well as business continuity and disaster recovery (BCDR) options (e.g., via voice services fail-over to the data line in main voice line disruption scenarios). Key takeaway: Businesses choice of a managed or BYOB hosted solution must be based on the required balance of cost, flexibility, and reliability. Providers that offer both options can make the best long-term partners. Networking and Endpoint Requirements Hosted communications reduce CAPEX requirements, but rarely eliminate them completely. Businesses must evaluate the networking (i.e., access and connectivity) and endpoint costs related to specific hosted communications solutions. 14 Frequently, businesses must upgrade their routing and switching infrastructure in order to ensure superior quality of bandwidth-intensive real-time IP communications. Certain providers offer managed routers and switches as part of their service offerings. Occasionally, related costs can be included in the monthly service charges, thus converting CAPEX into OPEX. This option may be appealing to businesses that wish to fully eliminate any upfront costs, but may be more expensive in the long run. Communications endpoints (such as desktop phones) represent a significant portion of the overall cost of a communications solution. In a premises-based implementation, telephone instruments may account for as much as 50 percent of the upfront investment. Businesses must investigate options to re-use their existing telephone instruments. For example, when the hosted communications solution is based on the same technology as that of the premises- based infrastructure being replaced, customers may be able to retain existing phones. Customers switching from a certain vendor s premises-based telephony system (PBX) to a hosted service based on multi-instance or dedicated versions of the same platform typically have that option. The ability to re-use existing phone terminals also helps reduce training costs and eases end-user migration to the new solution. Furthermore, this scenario allows businesses to more cost-effectively switch back to premises-based deployments if the hosted solution fails to meet expectations. If the short-listed hosted communications solutions do not support existing phones, then businesses must carefully assess the value and capabilities of the prospective endpoint options. Some service providers offer a broad array of phone terminal choices (e.g., from Aastra, Cisco, Grandstream, Polycom, snom). Such offerings provide greater flexibility in deploying the right terminals for the various user roles within the organization. They may also reduce switching costs if the business eventually chooses to switch to another provider. Other providers standardize on a single vendor s terminals (e.g., from Cisco, Mitel, Polycom). Deploying a solution that supports multiple phone options provides greater flexibility. However, customers may choose a solution that only supports a single-vendor product line if the available models offer compelling functionality or the provider offers significant cost benefits. For example, some providers allow customers to lease or rent the phones instead of paying upfront. This model may be convenient, but not the most cost-effective over time. Key takeaway: For a successful migration to IP communications and/or cloud-based services businesses must strongly consider a networking infrastructure upgrade. Communications endpoints selection, functionality, and price also represent critical factors in deploying the most effective solution for both the short and long terms.

15 A Sustainable Approach to Hosted IP Telephony and UCC Services Deployment TCO It is important to compare the TCO and return on investment (ROI) of the evaluated communication solutions over a certain period of time. In assessing the costs of a premises- based implementation, businesses may overlook some of the recurring costs such as maintenance and IT staff training. In a hosted scenario, on the other hand, there may be hidden upfront costs (e.g., installation charges, network upgrades). Most hosted IP telephony and UCC service providers offer similar feature/functionality bundles at comparable prices. A basic hosted IP telephony offering can cost as little as $20 per user per month in an average deployment of 25 to 100 users. A feature-rich UCC bundle, including presence, contact center, mobility, and the access line may reach $100 per user per month in a similar deployment scenario. There are typically tiered packages within each service provider s portfolio as well as some variations across providers. Providers may include certain key capabilities in their standard bundles that other providers offer a-la-carte (e.g., IM/ presence, multiple auto attendants, or mobile clients). Similarly, the price of standalone capabilities, such as auto attendant, contact center, and mobility solutions, for example, may vary significantly. Businesses must look beyond the monthly fees when comparing solutions and service providers. They must consider all costs including all upfront charges and potential customization or integration costs. Factors such as IT staff and user familiarity with the technology or its complexity may impact training and maintenance costs, as well as user adoption and ability to reap benefits from the new solution. Finally, networking infrastructure and device requirements and purchasing options can affect TCO. Investments in new devices affect both current costs (e.g., purchase of new ones today) and potential switching costs (e.g., purchase of new devices if the business eventually moves to a new hosted or premises-based solution). 15 Key takeaway: Comprehensive feature bundles may appear appealing, but businesses must beware the hidden costs of provisioning and managing a broad array of capabilities as well as any potential challenges related to end-user adoption. Customers must also request a detailed breakdown of all costs related to the solution implementation and ongoing management from their prospective service providers. Service Quality and Reliability Service quality and reliability of hosted communications are determined by several factors including the data center set-up and the upstream links. Businesses must inquire about their service providers data center capabilities and require both server and geographic redundancy. Frequently, weather-related events and natural disasters affect entire geographic areas, therefore service providers must provide redundancy and failover capabilities in several geographically distributed data centers. Customers can request performance records from previous years that show the service provider s uptime and ability to efficiently resolve issues in the case of adverse events. Certain service providers are upfront about their capabilities and publish network performance data on their websites or readily provide it to potential customers. Businesses must insist on comprehensive service level agreements (SLAs) that stipulate commitments to uptime and potential compensation for excessive downtime. Most providers typically guarantee percent uptime, but actual performance is typically better than that. It is important to note that SLA commitments by hosted PBX/UCC providers delivering BYOB services typically cover the hosted applications servers and not the access lines, which may frequently cause service downtime. Therefore, businesses must ensure that their access providers (if different from the hosted PBX/ UCC providers) have redundant capabilities and appropriate business continuity and disaster recovery (BCDR) plans as well.

16 Frost & Sullivan Market Insight Finally, customers may need to deploy redundancy and failover measures at their premises. This includes the routers and switches as well as the access lines. Frequently, businesses choose to utilize a PSTN line for failover when the IP telephony service is experiencing downtime. Key takeaway: Service availability and reliability can have the largest impact on business performance. Businesses must give this consideration very high priority when selecting a hosted solution and service provider. Security and Regulatory Compliance The most security-conscious businesses and those in heavily regulated industries typically choose to keep their communications infrastructure on their premises. However, hosted communications providers are able to deliver appropriate security guarantees to most businesses. Hosted IP communications solutions security and regulatory compliance must be tackled on multiple levels. One factor that may impact customer s choice of provider or solution is the hosted communications solution architecture. Multi-tenant architectures use both shared hardware and shared software to deliver services to multiple business customers. Multi- instance architectures, on the other hand, utilize shared hardware with dedicated software instances, which may be perceived as a more secure option to some businesses. 16 Some providers have specialized in certain vertical industries such as banking/financial services, healthcare, or education. They are typically better able to handle specific industry requirements such as call recording and archiving, HIPAA, and so on. Frequently, they also provide additional vertical-specific services or capabilities, including integration with various vertical applications. Key takeaway: Understanding the underlying architecture allows security-conscious customers to make a final decision about their hosted solution and provider. Businesses must also request evidence that their prospective service provider can address the most stringent regulatory requirements in their respective industry. Integration with Existing Platforms and Services Customers must deploy solutions based on open, standards-based technologies that allow easier integration with other premises-based and/or hosted communications and business applications. Many businesses are migrating only selected communications capabilities to the cloud and keeping the rest of their communications infrastructure on the premises. Other organizations are already using various cloud services. Businesses can realize significant benefits by integrating their new hosted telephony and/or UCC services with other premises- based or hosted applications. However, all these solutions are typically based on multi-vendor technologies and frequently present interoperability challenges. Some providers offer hosted services that integrate with certain third-party solutions (e.g., Microsoft Lync, Exchange/Outlook; salesforce.com; GoogleApps; etc.) out of the box. Others provide application programming interfaces (APIs) and software development kits (SDKs) that enable customer IT staff to integrate their hosted communications with other services and applications. Service providers also offer professional services to assist customers in customizing or integrating hosted communications with other solutions. Businesses deploying hosted communications based on the same vendor s technology as that deployed on their premises can benefit from a tighter integration between the hosted and premises-based solutions. Multiinstance platforms developed by telephony vendors enable larger organizations to deploy hybrid architectures either as a permanent or a temporary solution until they migrate their entire communications infrastructure to the cloud. Standards- based, best-of-breed SIP-based solutions may also provide opportunities for easy and cost- effective integrations.

17 A Sustainable Approach to Hosted IP Telephony and UCC Services Deployment Key takeaway: The communications infrastructure is constantly evolving and businesses must plan for greater flexibility as their needs change over time. Multi-vendor interoperability and possibilities for cost-effective integration and customization of various communications and business process applications can help reduce costs and deliver productivity benefits. Analytical Tools Businesses deploy advanced communications to accomplish specific objectives reduce costs, enhance productivity, improve customer service, etc. They need to be able to measure the impact and effectiveness of existing and new communications capabilities in order to take appropriate action. Advanced analytical tools can help assess the efficiency of specific communications events such as call duration and time on hold in a contact center environment, caller participation in a web collaboration event, and so on. However, analytical tools can be employed to provide a much deeper perspective on the impact of various communications capabilities on specific business processes or performance metrics. For example, analytical tools can help assess the efficiency of completing transaction orders or resolving customer issues based on the communications events involved in these business processes. Most businesses have certain key performance metrics (KPIs) in place that they monitor to assess the overall agility and responsiveness of their organization. As they increasingly leverage advanced communications to improve performance metrics of strategic and competitive value, they must have the right tools to measure their progress and success. Based on the results of such analysis, businesses can choose to enhance, upgrade or replace communications tools that are not delivering the desired results. Alternatively, they can choose to enable deeper integration of communications capabilities with business process applications in order to improve performance. 17 Some hosted communications providers are placing greater focus on delivering communications solutions that deliver business value. They acknowledge that communications are no longer a silo within the organization, but a key element of the overall company competitive structure and positioning. Such providers typically offer analytical tools that clearly demonstrate the value of their solutions and enable businesses to more effectively monitor the synergies between their communications capabilities and the rest of their business processes. Key takeaway: Businesses must look for hosted communications providers that offer advanced analytical tools that help compare solutions prior to deployment and then measure the impact of the new tools on specific business objectives and KPIs.

18 Frost & Sullivan Market Insight Service Provider Attributes and Characteristics 18 Before selecting a hosted communications solution, businesses must also evaluate the service provider s vision and capabilities holistically. Hosted services allow businesses to more easily switch vendors than is possible with premises-based solutions. However, a long-term partnership can deliver greater benefits to both parties as they can more tightly align their roadmaps. Furthermore, frequent changes of the communications infrastructure and the service running across it can be disruptive and expensive. Therefore, businesses must have confidence in the service provider s long-term viability. Case studies, customer references, and other evidence of the service provider s track record are essential. Most hosted IP telephony and UCC service providers in North America are private companies, and customers still are correct to request proof of the service provider s financial stability. Service provider size and market share also matter. As the customer organization grows, it may need support in multiple geographic locations. The service provider s footprint and channel network can determine whether a multisite business can deploy the same hosted solution in all locations and receive appropriate levels of support. Furthermore, as competition intensifies, a larger installed base and more stable revenue streams can help ensure the service provider s longevity. Customer service and technical support throughout the due diligence, sales processes and, potentially, trial phases are a valid indicator of the service provider s competency and readiness to address specific customer needs and challenges. Knowledgeable sales and customer/technical support staff can not only make the experience smoother but actually reduce costs related to implementation, troubleshooting, user and IT staff training, etc. Businesses must also align themselves with service providers with a vision and technology roadmap that best meet their long-term objectives. Service providers that understand broader industry trends and evolving customer needs are better positioned to continually innovate and deliver greater value. Furthermore, service provider partnerships also represent an important factor. No service provider can deliver all the communications and collaboration capabilities that businesses may eventually require. Therefore, technology partnerships and ecosystems can give customers access to a broader set of capabilities and thus a more viable long-term roadmap. Key takeaway: Businesses must look for a trusted, long-term partner. Communications are critical for business performance and businesses need guidance and support in order to gain maximum benefits from their communications investments.

19 A Sustainable Approach to Hosted IP Telephony and UCC Services Deployment Conclusion Hosted IP telephony and UCC services offer businesses a flexible way to upgrade their communications capabilities at a low upfront cost and with predictable monthly charges. Businesses considering the move to hosted communications must first assess their existing infrastructure, IT staff skill sets, and end-user needs followed by aligning their technology roadmap with broader business objectives. In order to gain maximum benefits from their hosted communications investment, they must evaluate service providers and solutions based on a comprehensive set of criteria, including features and functionality; ease of use and management; infrastructure and endpoint requirements; reliability and security; total cost of ownership; integration capabilities; and service provider track record, vision, and financial viability. A structured approach to hosted communications deployment can ensure a higher return on investment through reduced costs and increased user productivity. 19