Where IP Centrex Will Win

The dominant manufacturers of Centrex systems have adopted the philosophy that the marketing of the service is a three-sided arrangement, a partnership of the system supplier, the service provider (often the telco), and the customer (or end user). The aim of this partnership is to provide the most cost-effective, multimedia telecommunications services, while keeping the customer's transactions on a shared public network.

A survey by Nortel Networks asked telecom and IT managers to rate the relative importance of a number of needs, on a scale of zero to three. The results of the survey appear in Figure 1. A significant finding from the survey is that managers identified less expensive networks and less costly administration as their two most important needs.


Figure 1: Enterprise convergence needs.

The benefits to an enterprise of using hosted VoIP (in other words, IP-Centrex) are as follows:

- Network consolidation that results in long-distance savings;

- Reduced costs of MACs;

- Productivity improvements with collaborative services;

- Extended service reach and ubiquity.

While some of these benefits can be claimed for IP-PBXs, which are owned and (usually) operated by the customer, the advantages of IP-Centrex can be quantified for those organizations that have a significant number of telecommuters and mobile professional workers (say, more than 10% of their employees), who also benefit from unified messaging and shared applications. A Nortel study that compared IP-Centrex and PBX costs for a company with several fairly large branch offices (at least 100 employees per office) is summarized in Table 1. The business model used for this case study included the full purchase cost of hand- or headsets and was inclusive of LAN upgrades.


Table 1: IP-Centrex Versus PBX: Cost Savings

Most studies of the competition between Centrex and PBXs clearly show that PBX vendors gain most of the business for medium-sized, single-site enterprise communication systems. Where multiple office sites are served by one telco within a Local Access and Transport Area (LATA) in the United States or within an extended area service, legacy Centrex has been attractive, compared with multiple PBX systems and a network of leased lines.

Those owners of small businesses and home offices who were aware of Centrex have gained benefits from that service. The concept of national Centrex, with harmonized features and billing, has been developed, and international Centrex has been demonstrated, but not really used so far.

The advent of IP-Centrex should change the shape of the telecommunications marketplace, as it could be made attractive to small businesses and to organizations that are geographically distributed, to the national or international level, as summarized in Table 2.


Table 2: IP-Centrex Market Segmentation

Two more dimensions that are difficult to portray in this table are:

1. The users' requirements for integrated applications;

2. The proportion of mobile/remote users within the organization.

These two factors should make the choice of IP-Centrex decisive. If an organization has already decided to outsource its Web site or its messaging service to a provider on a contract, then it is a prime candidate for IP-Centrex services. A Lucent executive was quoted in 1999 as stating that "there couldn't be a better time for Centrex, as network convergence creates options for new business services and better efficiency."

In order to identify which organizations should be the targets for Centrex marketing efforts, it is useful to know the distribution of companies by type of industry. Figure 2 (taken from U.S. Census Bureau statistics) shows that more than 70% of large companies (companies with over 500 employees) can be classified as being within six industry groups. These numbers can be safely extrapolated to most countries with a modern infrastructure.


Figure 2: Large companies by industry classification.

Another set of figures shows that 18% of these large organizations are local in scope, while 20% are nationwide and 26% have an international presence. It is easy to guess that education and health care organizations are frequently local operations. However, large financial and professional services companies often have national or international activities and, therefore, should be prime prospects for IP-Centrex.

Significantly, while these quoted statistics show publicly funded organizations, direct governmental administrations that operate at three or four levels in most countries are not included. Most governments have offices in many locations and, frequently, find it difficult to recruit and retain well-qualified telecom and IT professionals. We can state unequivocally that government organizations are excellent candidates for IP-Centrex.