Sounding Board: Answering the IP PBX Threat

Major service providers, stung by the success of IP PBXs, are preparing a response to the competitive threat by launching IP Centrex.

Gary Andresen, the director of the packet services group at consulting firm RHK Inc., says SBC Communications Inc. and Verizon Communications Inc. own about 75 percent of the traditional Centrex service market. "If they don't do something [to respond to the IP PBX threat], they're going to start losing that base." He notes with IP Centrex the provider doesn't have to even be near the customer. "The provider could be in Europe."

Competitive service providers are projected to maintain their market lead in IP Centrex through this year, but ILECs are expected to move ahead with IP Centrex revenue of approximately $142 million during 2003, RHK reports.

SBC expects to make IP Centrex services generally available by the end of the year "in niche markets where we see an opportunity," revealed Nancy Lambros, lead member technical staff at SBC Technology Resources Inc., in a speech at the recent VON show in Seattle.

The company, which has been reselling IP PBXs for at least a year, already has done several trials of IP Centrex technology, she says.

Verizon also is rolling out IP Centrex this year on a limited basis as large customers demand it, says Tom Dalrymple, director of voice switching for the Verizon Enterprise Solutions Group. "We found most customers need IP telephony but not in all locations. So, they can keep TDM Centrex as is and add IP Centrex for remote access/road warrior applications." He adds that Verizon doesn't see IP PBX as a threat. "We distribute IP PBXs. We're working with customers [by using a variety of technologies]. We walk in ask what they need." Verizon initially is using Lucent Technologies' iMerge as its IP Centrex platform.

"There are certainly a lot more IP Centrex RFPs from incumbents, most describing staged deployments," says Rich Barry, marketing vice president for application packager StarVox Inc. "This year will be a year of trials, and broad deployments will happen next year."

AT&T also expects to offer IP Centrex eventually, possibly starting out with a small scale roll out by the end of the year, says Joe Aibinder, director of AT&T voice over IP business services. But enhanced IP PBX services are in AT&T's more immediate future.

"We are working to integrate signaling from IP PBXs with our own local network," says Aibinder. "Eventually we'll be able to do premises support and operations for an IP PBX and signaling so IP PBX calls can run on-net on AT&T's network or we could pass them off to off-net in the most cost-efficient way." AT&T expected to make those IP PBX services available last quarter.

A broad scale IP Centrex deployment from AT&T is further out, says Aibinder. "That's harder because it requires a single pipe for local (911, etc.) and long distance. We have a local network services division, and they would have to be networked to long distance.

"Before we announce [IP Centrex] we want it to scale," Aibinder adds. "Maybe by the end of the year we will roll this out in some way, but it's unlikely it could scale this year."

Whatever the timing, IP Centrex looks to be in the cards for many service providers in the not too distant future. Companies including Telverse, Vonage, Talking Nets and GoBeam already are playing their IP Centrex hands.

Deepak Kamlani, of venture capital firm Interprise Ventures, says IP Centrex is hot and companies offering such services appear to have "sustainable business models." IP Centrex also is a focus for Highland Capital Partners, says Sean Dalton, general partner at the VC.

"I don't think any [service provider] isn't seriously looking at IP Centrex. We are seeing very serious interest," says Alec Henderson, a product marketing manager for Cisco Systems Inc.

It was Cisco Systems that made the first significant inroads with IP PBXs. The company has sold well more than 700,000 IP PBX phones to date, says Henderson. And Cisco projects it will deploy 1 million IP PBX seats this year (see April xchange, page 12). "We sell equipment for IP PBX and IP Centrex," adds Henderson. "We are working on a way to hook up customers that want to go IP Centrex with a service provider."

Virtually all Fortune 500 companies are doing at least something with IP PBX, whether it's a trial or a major deployment such as Cisco and Merrill Lynch have done, says Henderson. Moving voice on to IP PBX or IP Centrex from traditional circuit-based systems eliminates the costs of moves, adds and changes for companies. That's because IP devices can plug into the LAN at any point in the network, whereas standard phone moves mean rewiring and PBX reprogramming, which costs around $350 a head, Henderson notes. Of course, putting voice on to the same network as data also means potentially lower equipment and management costs since there is just one set of wires to manage as a result.

"The big drive [in the IP telephony space] is IP PBX in the enterprise, that'll push the service providers to respond," says Hubert Whyte, president and CEO of net.com. While Whyte was at oil company Shell, the company spent $100,000 a week on moves and changes. "So enterprise is seeing the value of [IP PBX]."

And while traditional Centrex is tied to a telephone with a 10-button interface, IP Centrex is deliverable to WAP or PDA devices, a PC or to any analog, digital or IP phone, says Matt Collier, president and CEO of Telverse, which sells an IP Centrex service for $49.99 per subscriber per month. Collier adds, "We expand the ability of users to access their phones in their office from one device to three devices -- and two of them are mobile."

The IP Centrex Opportunity
Source: RHK Inc.

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