The time is right for IP Centrex

One trend I’m forecasting for this year is that VoIP services will go mainstream. I was thrilled to get this e-mail from a reader two weeks ago:

“I thought I’d share a prediction of mine,” writes this person, who manages outsourced services for a large bank. “I continue to be impressed with the bits and pieces of information that I’ve been seeing from MCI (WorldCom Inc.) and other telecom players about managed VoIP (or IP Centrex, if you prefer). Cisco Systems Inc., Avaya Inc. and other manufacturers are going to shift their approach to selling into the service provider realm. Doing it yourself for any business except the largest will become unattractive due to the management requirements.”

He’s essentially talking about IP PBX vendors and service providers collaborating to offer managed IP-based Centrex services. BellSouth Corp., MCI, Qwest Communications International Inc., SBC Communications Inc., Verizon Communications Inc. and Burnaby, B.C.’s Telus Corp. are aggressively promoting such services, and vendors such as Cisco, Lucent Technologies Inc., Nortel Networks Corp. and smaller players are driving partnerships with these providers.

Centrex services, you’ll recall, are basically “PBX-less” business phone services in which all the functionality resides on a Class 5 switch on the carrier’s network. In other words, as with consumer phone services, the carrier owns and operates the switch, but unlike consumer phone services, Centrex offers business-class services (a private dialing plan, call transfer, conferencing and forwarding). Most importantly, the carrier assumes both the capital cost of the equipment and the day-to-day management responsibility for users.

By offering such services over IP, telcos potentially can reduce the cost to end users — because voice and data share the same circuit, dedicated voice circuits aren’t required as often. Moreover, the cost for user moves, adds and changes can go down dramatically. Nemertes Research Inc. has benchmarked that the typical in-house PBX user pays roughly US$100 per user change. With IP, costs can drop to virtually zero. Finally, IP Centrex providers easily can offer integrated data services such as unified messaging and Web hosting.

The combination of lower cost and better service is compelling, but that’s not all. IP Centrex services can simplify network configuration, resulting in easier management and higher reliability.

“To my mind there are two really compelling points in MCI’s offering,” the reader writes. “First, domestic long-distance is included in the base rate. Second, and very important to simplifying management, is MCI’s ability to provide local numbers from multiple branch locations via a single connection. Avoiding the need for local (public switched telephone network) gateways at each branch-office site seems extremely attractive to me.”

The upshot is IP Centrex could radically modify how vendors and service providers position their offerings. From a user standpoint, while such services might initially take off in the small to mid-sized enterprise market, managed VoIP services will begin to become attractive to all organizations, particularly as carriers fine-tune their business models and evolve to offer innovative converged services.

Johnson is president and chief research officer at Nemertes Research, an independent technology research firm. She can be reached at

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