IP Centrex pricing causes confusion

When a number of municipalities just west of Toronto amalgamated in 2001 to form the new City of Hamilton, Ont., the combined locality faced not only the colossal task of marrying disparate civic policies and support structures; it also faced a massive telecom bill: $2.8 million per year.

To alleviate the cost crunch, Hamilton sought a new telephone system to replace its mishmash of Centrex and PBXs.

The city ultimately chose a Cisco Systems Inc. IP PBX, to be managed by Bell Canada. According to Dr. Louis Shallal, Hamilton’s CIO, the move would chop nearly $2 million from the city’s annual telecom ticket. “It’s a huge reduction,” he said.

Cost is an important aspect of sourcing telecom. Oddly, it’s also one of the more baffling elements of an up-and-coming technology, IP Centrex. No one seems quite sure if this new communication service should be regulated – and that could affect the amount of money an enterprise would have to pay for it.

IP Centrex is a novel spin on Centrex, a hosted service. But the newcomer supports advanced multimedia applications and easier network management in the adds, moves and changes department – features that Centrex couldn’t match.

Pricing Centrex is easy. It’s regulated by the Canadian Radio-television and Telecommunications Commission (CRTC), so carriers are supposed to charge only as much as that organization will allow, say $30 per line, per month.

Pricing IP Centrex is more complicated. This technology relies on the Internet Protocol. The CRTC doesn’t regulate the Internet. Some people say it shouldn’t regulate IP Centrex either.

“The reason you regulate things is because there’s no opportunity to compete,” said Brownlee Thomas, a Montreal-based analyst at Forrester Research Inc. “The cost of doing things is too high to make it a viable business, to enter the market…. On the IP side, none of those things apply.” She explained, IP-based services are relatively easy for carriers to provision and, in turn, require no regulation.

If the CRTC didn’t regulate IP Centrex, carriers could charge as much for the service as they see fit. However, the Commission may yet regulate.

In an e-mail to Network World Canada, the CRTC said IP Centrex is a telecommunications service, and “telecommunications services offered to the public are regulated.”

It said regulations are “technology neutral.” Regardless of the electronic underpinnings, if IP Centrex offers the same basic features as Centrex, it would face regulatory treatment similar to that of Centrex. If that were the case, carriers would have to get Commission approval for the service’s price.

Incumbent telco Telus Corp. is building an IP Centrex platform, and plans to offer service before the end of the year.

“Depending on how we configure and design the solution, that will go a long way to determining whether we’ll be able to file for…deregulation,” said David Boroevich, Telus’s vice-president of product management in Vancouver. He said if Telus built the system such that competitors could duplicate it at no exorbitant cost, the Commission might take a hands-off approach.

Telus wouldn’t charge sky-high prices for IP Centrex, were it unregulated. In fact, Boroevich said it might cost less than Centrex does. The carrier would depend not on the service itself, but on value-added features to reap profits – perhaps offering VPNs to connect off-site employees to the corporate network securely.

Despite the regulatory confusion, some people seem keen on IP Centrex. The Vancouver Police Department, for instance, asked about it during a request for proposals (RFP) regarding its telecom system, but none of the respondents offered the service, according to Jack Hunter, a member of Vancouver’s telecom department.

He said the police chose Centrex service because it matched IP Centrex in one manner: “The telephone company looks after it totally. That means you don’t need any experts in house, you don’t need hardware, hardware contracts, software – you don’t need all those headaches.”

But IP Centrex isn’t right for everyone. Shallal, Hamilton’s CIO, said hosted telephony has certain charms, but this municipality isn’t prepared to swallow the cost. “You were paying for it,” he said of the city’s Centrex service, “paying through the nose.”

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Jim Love, Chief Content Officer, IT World Canada

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