Canadian market for hosted PBX gains traction

When Integrus Brand Solutions, a marketing and promotions firm in Mississauga, ON, went looking for a new phone solution earlier this year, it made the fairly radical decision to go with a hosted IP PBX service from Primus Telecommunications Canada. While the hosted PBX market has been slower to take off in Canada than the US, more and more companies here are starting to explore the option. So far, it's mostly small and medium-size businesses like Integrus, but some analysts believe enterprises should and will begin to adopt hosted VoIP services too. The appeal to companies like Integrus is clear enough. It invested no capital up-front and pays Primus $40 to $50 per month for each of about 50 employees. The price includes IP phone sets, local dial tone delivered over a dedicated T-1 connected to Primus's central office, and rich IP PBX functionality. The only thing not included: long distance. But as with other business IP services, on-net calling - including calling between a customer's own offices - is toll free. Integrus was in the process of opening a third office, in Vancouver, and anticipating a significant increase in inter-office long distance. The firm considered updating its aging Meridian PBX from Nortel Networks, but wanted some features only IP could provide, such as unified messaging and softphones. In the end, it was a no-brainer. Justin Aniballi, an advisor to the president at Integrus, compared the all-in cost of the on-premise solution Bell Canada Enterprises offered, amortized over three years, to the cost of the Primus service for the same three years. The Primus solution was 25% cheaper. "Plus we were looking at no capital outlay, easier implementation and the fact that it had all the VoIP features we wanted," Aniballi says. "Mainly though it came down to a purely economic decision." Hosted PBX services of the type Primus offers are part of a spectrum of telephony outsourcing solutions available today. At one end is the original outsourced phone solution, Centrex, offered by local exchange carriers. Those carriers are now trying - with mixed success - to move existing customers to new IP-based Centrex offerings. At the other end of the spectrum are consumer/SOHO offerings, mostly out of the US but available in Canada, that use the customer's existing PSTN lines for the last mile and rely on call forwarding to route calls. But it's the true hosted IP PBX services that appear to have the best chance of gaining traction. Service providers typically use an enterprise-class IP phone switch, often running software from BroadSoft Inc. or Sylantro Systems to enable multi-client use. (Switch makers such as Mitel Networks with its Mitel 3600 Hosted Key system also offer fully integrated systems.) Unlike the consumer/SOHO virtual PBX products, these services use end-to-end IP. Sometimes, as with Primus, it's a managed IP network with dedicated last-mile connections, but too many providers rely on the very unreliable public Internet. Most today are tier two or even tier three companies - including, in the US, small regional start-ups. Canadian providers come from a variety of backgrounds, says consultant Roberta Fox, president of Fox Group Consulting. Aizan Technologies, for example, came from applications development. Computer Talk Technology is a contact centre infrastructure and outsourcing vendor. And Activo Inc. is a data communications services provider. (All coincidentally are in Richmond Hill, ON.) The majors are also dabbling and appear poised to get more involved. Telus Corporation offers Business One in the west, a suite of telecom services for small and medium-size enterprises, and will introduce it in eastern markets soon. Rogers Communications Inc. had announced a partnership with Mitel to offer hosted PBX-type services, but it's unclear whether that will go ahead now that Rogers has refocused on consumer businesses. Bell, according to one source, was developing a hosted PBX platform with a major IP telephony equipment vendor before the deal fell apart recently. Paul Rowe, Bell's vice president of enterprise product programs, says, "In Canada, we're seeing interest at this point, but I would not classify it as strong demand. We're investigating the technology now. It's on our roadmap for introduction when market demand becomes stronger." Analysts and vendors point to a bunch of reasons why hosted PBX services will, or should, have appeal. Low or no capital investment. Subscribers usually have to buy phone sets but pay for everything else on a monthly basis. Primus claims to be unique in including phone sets in monthly charges. "That's attractive to a lot of organizations," says Jayanth Angl, a senior research analyst at Info-Tech Research. "But there is probably stronger demand for it among small and medium-size businesses where resources are apt to be more constrained." Fixed, predictable monthly costs. Per-month costs range between $25 and $70 per user, depending on features, what's included and length of contract. "What we've found in talking to small to medium-size businesses is that they say, ‘Tell me how much it is on a monthly basis,'" says A.J. Byers, senior vice president of business services at Primus. "The technology is moving so quickly, they don't want to make an investment even in phones." Reduced IT management. Many companies simply don't have technical skills to manage a phone system. They have to pay contractors. Others are looking to shed IT management burdens. "That's definitely attractive to a lot of companies because it allows them to focus on their core competency rather than on managing enabling technology," Angl says. More should think this way, Fox argues. Even big enterprises. "A lot of larger organizations still think they should be [managing their own phone system]. I sit there and think, ‘But what's the real business value of that?'" Fox's own organization is entirely virtual, outsourcing all its telecommunications needs. "I don't want to own anything," she says. "Why have all those IT people?" Lower total cost of ownership. While Integrus calculated a considerable savings, it won't necessarily be the case for every organization. "We believe the cost for the customer may not go down that significantly," says Bell's Rowe. "But the value goes way up because of the kinds of features that become available." To evaluate on-premise systems, factor in the amortized capital cost of PBX, phones and LAN upgrades if you're going IP, plus annualized costs for system management - either by employees or contractors. Toll savings with free on-net calling between offices can tip the balance in favour of hosted VoIP for companies with multiple locations. Sophisticated features. All the economic benefits flow from service providers being able to share advanced enterprise-grade PBX features across multiple clients - more and more flexible features than Centrex or small business systems. They include user-configurable auto attendant, voice mail, call forwarding and other call management features, conferencing, screen-based consoles for managing call routing, unified messaging and integration with other IP-based applications such as Microsoft Outlook. Easy scalability. In the past, small companies gambled when they bought a phone system that it would have enough capacity to accommodate growth. Underestimating meant having to upgrade prematurely at considerable cost. Overestimating meant you blew more than needed on phone equipment. With hosted services, customers can add new users as and when needed and pay only for a new phone and/or additional seat. It's up to service providers to ensure they have capacity to support the expanding user base. Simplified business continuity management and telecommuting. Because service providers can route calls anywhere a user has Internet access, it's easy to reroute traffic away from a downed line or flooded office to an Internet-connected IP phone or softphone-enabled computer at another location - or out on to the PSTN or cellular network. This also makes it easy to support telecommuters. Not that hosted PBX services are a panacea. Analysts warn they pose real concerns, especially for phone-centric organizations. If the provider's server or the broadband link to your site goes down, you could lose dial tone. Byers argues that a company's on-premise system is more likely to go down than Primus's facilities, which are protected by uninterruptible power supply (UPS), proper climate control and redundant servers. If Integrus loses its dedicated voice T-1, the Primus service automatically fails over to a second T-1 normally used for data. But Angl stresses that prospective clients must do careful due diligence. "Our recommendation is to look to providers that are well established and have a number of reference customers for which they're delivering the service," he says. Today, it's mainly smaller companies that are adopting this solution, but that may change. A September 2007 study from ABI Research in the US, The Evolution of Enterprise VoIP, predicts that larger companies will start to adopt it as well. Angl believes many may balk, however, because outsourcing only PBX services will make it more difficult to pursue a converged communications strategy in which voice, Web and video conferencing, e-mail, instant messaging, presence and mobility are all integrated. Larger companies are more apt to be moving in this direction, he says. Providers are starting to offer converged services. "But I would say the richness of those offerings is not on a par with on-premise solutions at this point," Angl says. Computer Talk Technology, for example, is in the process of launching a hosted PBX service that will offer the option later this year of integrated services based on Microsoft's Office Communications Server platform. It will eventually add hosted Microsoft Exchange services to the mix. Convergence in the hosted market can't come soon enough for Fox. "Right now, we have 11 technology suppliers," she says. "I want a solution that bundles in my BlackBerry, bundles in my cellular, bundles in my hosted Exchange, bundles in my hosted voice." Call it the Holy Grail of telecom outsourcing: total integration, one monthly bill.

Canadian market for hosted PBX gains traction

News | 05/12/2008 7:58 pm EDT

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