SHARE



ABOUT THE AUTHOR


Gary Audin
SHARE



Gary Audin | February 05, 2009 |

 
   

Buy vs. Lease for Communications Technology

Buy vs. Lease for Communications Technology In the current capital-constrained times, enterprises are examining their options for procurement. Is it time to consider leasing instead of buying?

In the current capital-constrained times, enterprises are examining their options for procurement. Is it time to consider leasing instead of buying?

Communications technology is following the path of IT. Call servers, gateways and IP phones are not expected to remain in use much beyond five years. Communications technology life has been shortened considerably. The question becomes, "Should we buy or lease the rapidly changing communications technologies?"

Technologists often respond: "We have the cash, so why lease? Leasing will cost us money that we can save by buying the IT technologies." This can make sense from a simplistic point of view. But this is not necessarily the view of the CFO.

The CFO has to ensure that the cash is there when needed and is not tied up in a technology purchase that cannot be changed. The CIO/communications manager likewise needs to maintain the flexibility to react to changes in technology and the demands of his or her user group.

Avoiding paying interest and financing charges can be very attractive. Putting money in a bank pays interest to the enterprise, whereas leasing costs the enterprise interest. Cash, however, is not really free money to spend. It is a limited enterprise asset that can be applied to many areas of the enterprise, and thus there is an opportunity cost associated with it. The CFO may have better, more profitable uses for the cash on hand than buying communications technology.

Arranging financing can take time when an enterprise wants to take advantage of a business opportunity or business climate change that requires fast action. No cash on hand, then no opportunity and no flexibility to respond to the changes.

In addition, there can be tax advantages to leasing that are not available when the communications technology is purchased. Leasing is also beneficial because of the residual value of the technology—i.e., what the lessor (the provider) can expect to recover from the sale of the technology at the end of the lease period. The residual value will contribute to a reduced lease cost. Further, the residual value of the communications products will reduce the Total Cost of Ownership (TCO) for the enterprise.

The communications technologist may think that keeping the technology for four years makes purchase more sensible. But communications technology continues to improve, making earlier systems obsolete sooner; emerging technologies are constantly being offered.

Furthermore, a major shift is occurring towards greener operations in communications. Owning older equipment that consumes more electrical power will result in higher operating costs than the new, more energy-efficient products. Leasing allows the technologist to replace the power hungry equipment with less-costly-to-power systems. Replacing the equipment can reduce the power consumption by as much as 25% according to the EPA Report to Congress on Server and Data Center Energy Efficiency released in August, 2007 . This will actually more than pay the interest charges on the lease.

EVER CHANGING TECHNOLOGY

The constantly changing communications technology offerings create a difficult situation for the communications organization. Keeping up-to-date is a never ending process. Products go through an ever shortening life cycle:

* A product is announced.
* The product is shipped to the first customer.
* A newer, more capable product is announced.
* There is an end of sale date (sales terminated) for the earlier product.
* There is an end of maintenance date for the earlier product.
* There is finally an end of support date for the earlier product.
* The total elapsed time can be 36 to 60 months.

In IT, the pricing half life for storage systems is about 15 months, and servers about 36 months. It is common that the PC on the desktop, network routers, and switches are eclipsed with new products every 1 to 2 years. The same is happening to communications technologies. This encourages the enterprise to consider replacing the technology even faster. This fast replacement will be facilitated through leasing rather than purchase.

A technology refresh program is common in many enterprises. Leasing allows a fixed monthly payment while delivering proactive technology replacement.

Disposing of purchased communications technology is a hidden cost that is rarely considered. This hidden cost does not appear until the disposal time for the technology. The hidden cost will increase the communications budget, but with no return from the investment (money and labor) for disposal. In a leasing arrangement, the lessor has to deal with this disposal, at no cost to the enterprise, simplifying the communications procurement.





COMMENTS



Enterprise Connect Orlando 2018
March 12-15 | Orlando, FL

Connect with the Entire Enterprise Communications & Collaboration Ecosystem


Stay Up-to-Date: Hear industry visionaries in Keynotes and General Sessions delivering the latest insight on UC, mobility, collaboration and cloud

Grow Your Network: Connect with the largest gathering of enterprise IT and business leaders and influencers

Learn From Industry Leaders: Attend a full range of Conference Sessions, Free Programs and Special Events

Evaluate All Your Options: Engage with 190+ of the leading equipment, software and service providers

Have Fun! Mingle with sponsors, exhibitors, attendees, guest speakers and industry players during evening receptions

Register now with code NOJITTEREB to save $200 Off Advance Rates or get a FREE Expo Pass!

November 1, 2017

Your customers (internal and external) demand that you offer them the ability to connect by any means. With the adoption of cloud communications tools you now have access to an expanded portfolio o

October 18, 2017

Microsofts recent Ignite event had some critically important announcements for enterprise communications. Namely, Microsofts new Team Collaboration offering, Teams, will be its primary communicatio

September 20, 2017

Customer experience can make or break your business. But how do you achieve outstanding customer service when you're dealing with outdated organizational structure, lagging technology, dated proces

October 23, 2017
Wondering which Office 365 collaboration tool to use when? Get quick pointers from CBT Nuggets instructor Simona Millham.
September 22, 2017
In this podcast, we explore the future of work with Robert Brown, AVP of the Cognizant Center for the Future of Work, who helps us answer the question, "What do we do when machines do everything?"
September 8, 2017
Greg Collins, a technology analyst and strategist with Exact Ventures, delivers a status report on 5G implementation plans and tells enterprises why they shouldn't wait to move ahead on potential use ....
August 25, 2017
Find out what business considerations are driving the SIP trunking market today, and learn a bit about how satisfied enterprises are with their providers. We talk with John Malone, president of The Ea....
August 16, 2017
World Vision U.S. is finding lots of goodness in RingCentral's cloud communications service, but as Randy Boyd, infrastructure architect at the global humanitarian nonprofit, tells us, he and his team....
August 11, 2017
Alicia Gee, director of unified communications at Sutter Physician Services, oversees the technical team supporting a 1,000-agent contact center running on Genesys PureConnect. She catches us up on th....
August 4, 2017
Andrew Prokop, communications evangelist with Arrow Systems Integration, has lately been working on integrating enterprise communications into Internet of Things ecosystems. He shares examples and off....
July 27, 2017
Industry watcher Elka Popova, a Frost & Sullivan program director, shares her perspective on this acquisition, discussing Mitel's market positioning, why the move makes sense, and more.
July 14, 2017
Lantre Barr, founder and CEO of Blacc Spot Media, urges any enterprise that's been on the fence about integrating real-time communications into business workflows to jump off and get started. Tune and....
June 28, 2017
Communications expert Tsahi Levent-Levi, author of the popular BlogGeek.me blog, keeps a running tally and comprehensive overview of communications platform-as-a-service offerings in his "Choosing a W....
June 9, 2017
If you think telecom expense management applies to nothing more than business phone lines, think again. Hyoun Park, founder and principal investigator with technology advisory Amalgam Insights, tells ....
June 2, 2017
Enterprises strategizing on mobility today, including for internal collaboration, don't have the luxury of learning as they go. Tony Rizzo, enterprise mobility specialist with Blue Hill Research, expl....
May 24, 2017
Mark Winther, head of IDC's global telecom consulting practice, gives us his take on how CPaaS providers evolve beyond the basic building blocks and address maturing enterprise needs.
May 18, 2017
Diane Myers, senior research director at IHS Markit, walks us through her 2017 UC-as-a-service report... and shares what might be to come in 2018.
April 28, 2017
Change isn't easy, but it is necessary. Tune in for advice and perspective from Zeus Kerravala, co-author of a "Digital Transformation for Dummies" special edition.
April 20, 2017
Robin Gareiss, president of Nemertes Research, shares insight gleaned from the firm's 12th annual UCC Total Cost of Operations study.
March 23, 2017
Tim Banting, of Current Analysis, gives us a peek into what the next three years will bring in advance of his Enterprise Connect session exploring the question: Will there be a new model for enterpris....
March 15, 2017
Andrew Prokop, communications evangelist with Arrow Systems Integration, discusses the evolving role of the all-important session border controller.
March 9, 2017
Organizer Alan Quayle gives us the lowdown on programmable communications and all you need to know about participating in this pre-Enterprise Connect hackathon.
March 3, 2017
From protecting against new vulnerabilities to keeping security assessments up to date, security consultant Mark Collier shares tips on how best to protect your UC systems.
February 24, 2017
UC analyst Blair Pleasant sorts through the myriad cloud architectural models underlying UCaaS and CCaaS offerings, and explains why knowing the differences matter.
February 17, 2017
From the most basics of basics to the hidden gotchas, UC consultant Melissa Swartz helps demystify the complex world of SIP trunking.
February 7, 2017
UC&C consultant Kevin Kieller, a partner at enableUC, shares pointers for making the right architectural choices for your Skype for Business deployment.
February 1, 2017
Elka Popova, a Frost & Sullivan program director, shares a status report on the UCaaS market today and offers her perspective on what large enterprises need before committing to UC in the cloud.
January 26, 2017
Andrew Davis, co-founder of Wainhouse Research and chair of the Video track at Enterprise Connect 2017, sorts through the myriad cloud video service options and shares how to tell if your choice is en....
January 23, 2017
Sheila McGee-Smith, Contact Center/Customer Experience track chair for Enterprise Connect 2017, tells us what we need to know about the role cloud software is playing in contact centers today.