Hosted IP: CENTREX in IP Clothing?Hosted IP: CENTREX in IP Clothing?

Hosted VOIP! Hosted IP! Hosted IP CENTREX! Hosted IP PBX! IP Centrex! Software as a Service (SaaS)! The trade press is teeming with articles about hosted offerings in general. Some tout all the benefits and why this is the “next big thing.” Other articles warn about the potential pitfalls and drawbacks. Do your eyes roll into the back of your head as you try to make sense of it all?

First, let’s define our terms. There are plenty of definitions floating about, but the Office VOIP Solutions’ VOIP dictionary has a pretty straightforward one:

That sounds a lot like a definition of "traditional" Centrex, doesn’t it? How similar are the two offerings? How are they different? Which is the right way to go for your business?

There is no doubt that this type of service offering--we will settle on “Hosted IP” for this article--is gaining in popularity. Most of the new Hosted IP service providers target the small to medium business (SMB) market, which ranges from 10-500 stations. Some SMBs are single location, while others have multiple locations or even many small locations, e.g., retail. However, some larger Centrex organizations (1,500+ stations, multiple locations) are considering it.

Hosted IP receives strong consideration for many of the same reasons that Centrex experienced a resurgence in the early 1980’s and has always been a viable alternative in the SMB sector. The organization:

1. Does not want to be in the voice telecommunications "business" for its employees.

2. Can focus more on its core business objectives.

3. Does not have or cannot retain the staff, skill sets, or the resources to manage, support, and/or operate customer premises equipment (CPE) and applications.

4. Wants to offload all that responsibility to the service provider.

5. Needs high reliability and business continuity for its voice communications.

6. Is drawn to a lower capital investment than a premises-based solution offers.

7. Likes the relative predictability of operating expenses and the "advertised" lower total cost of ownership (TCO).

8. Wants a technological foundation for advanced applications, such as unified messaging (UM) and unified communications (UC), when business needs dictate deployment.

9. Can theoretically deploy one or more new stations as a "utility" when and where needed.

10. Need not worry about technology refreshes.

11. Has access to a more robust feature/ function complement then current Centrex.

Conversely, Hosted IP has the same perceived drawbacks as Centrex and a couple of new ones, which any buyer must evaluate:

1. Less control of management, administration, and upgrades than a CPE solution. These are not under the customer's control, although web portals provide visibility to usage and access to users to change individual settings and parameters

2. Requirement to carefully formulate specific service level agreements (SLAs) and establish objective tools and processes to measure and verify compliance along with appropriate incentives or penalties based on service provider performance.

3. Aggressive contract management will be required to assure service provider performance is in the customer’s best interest, not the provider’s profitability.

4. Less flexibility of advanced applications deployment, i.e., progress and implementation at the service provider’s schedule with associated professional services fees.

5. Potential increased complexity for integration with installed customer systems and applications.

6. Requirement for a robust network with full quality of service (QOS) capability. Hosted IP assumes that the customer will converge its voice, data, and video communications on a single physical network, which is usually the incumbent local area network (LAN).

7. Requirement for potential significant capital investment for some premises-based equipment, network upgrades, and power redundancy.

8. Higher TCO over a longer term.

The Hosted IP definition has several components that we will examine more closely to clarify what "hosted IP" really is and how hosting can change the traditional support model within an enterprise. First, "business class phone service" comprises several components: features, functions, applications, high availability, and quality. Second, "service provider" is the responsible organization that will implement and support the hosted service. Third, "necessary PBX hardware and software" indicates the technical configuration of the hosted service, which might or might not include an actual PBX; rather; the term "PBX" in this instance connotes a robust and comprehensive complement of user features and functions. Finally, "so you don't have to own and maintain it yourself" indicates that an organization need not worry about traditional ownership responsibilities for its voice communications, since the service provider will presumably do that.

FEATURES AND FUNCTIONS

"Standard" features and functions can differ significantly. Traditional Centrex offerings normally include a basic set of features:

* Call Transfer
* Call Hold
* Call Forward
* Three-Way Calling
* Call Transfer
* Call Divert (on no reply /on busy)
* Call Waiting
* Call Pick Up
* Last Number Redial
* Hunt Groups

Class 5 central office switches that are the basis of Centrex offer more and advanced features, which are available to users on a monthly recurring charge (MRC) per feature. Voice messaging is an extra MRC per voice mail box.

Hosted IP providers, such as Vantage Communications or Star2Star, routinely offer a more robust complement of features, functions, and applications in their standard package. The "standard" package usually includes the features of traditional Centrex or PBX phone system: Hold, transfer, conference, call forwarding, call waiting and more advanced PBX functionality. Network services are often included:

* Clear channel data T1 for voice and data
* Unlimited local and domestic long distance calling
* Unified messaging to the desktop
* Direct Inward Dial (DID) numbers to every station
* Local Number Portability

Advanced professional features, such as automated attendant and receptionist and basic call center capabilities, are included. Often, previously unavailable features are now part of the usual offering:

* Soft phone, IP fax, and secure Instant Messaging (IM)
* Onscreen programming and missed calls
* Unified messaging, i.e., voicemail integrated with web and e-mail
* Direct dial from Microsoft Outlook (Lotus Notes and Groupwise integration are less prominent)
* Pop-up screen on the PC to show incoming calls
* One converged network for all communication--voice, data, video and Internet
* One network for all features - voicemail, call forwarding and others
* One website to control and manage voice applications
* Connection to multiple locations via reduced-digit interoffice dialing
* Interoffice transfer, common voicemail, and common receptionist
* Mobility and telecommuting
* Disaster recovery and business continuance

The Hosted IP platform and development should support capabilities for future enhanced applications to improve business performance with applications programming interfaces (APIs) that facilitate integration with other systems and databases within the organization.

One area in which a potential issue exists among Hosted IP offerings is that of 911 and E911. Based on preprogramming, some solutions will route a user’s instrument to the user's "home/local" public safety answering point (PSAP), even if the device is physically in another town or state. In this scenario, if the caller is in a California hotel and his "softphone" is logically active in NJ, the user must make the hosted system "aware" of the change of location. Upon doing so, any 911 calls are routed to the California PSAP. If not, the emergency call goes to the NJ PSAP, and bad things might happen to the caller during a crisis situation. Service contracts usually put this responsibility for notification and potential liability on the user.

Even with the potential 911 issue, the differences between Centrex and Hosted IP features (more akin to an on-premises PBX) appear significant to the user. Assuming "more is better," Hosted IP has the clear advantage.

ARCHITECTURAL CONFIGURATIONS

Technologically, Centrex already meets architectural requirements well, since the service provider, usually the local exchange carrier (LEC), is assuming the bulk of the responsibility. The LEC takes care of all equipment support, operation, upgrades, and administration and management (although self-administration options are usually available). The LEC also provides connectivity from the central office (CO) to the customer premises, usually via copper or fiber. The customer must provide an on-premises infrastructure of copper or fiber/copper from the demarcation point via main and intermediate distribution frames to the user’s telephone instrument. Notably, this physical infrastructure is passive and physically discrete from the organization’s data network.

Hosted IP service providers address the requirements in much the same manner in terms of equipment support, operation, upgrades, and administration and management (usually via a web portal). Additionally, the Hosted IP service provider will recommend a link configuration, such as a bundled T1, SIP trunking, or other high capacity wideband facility, with its offering. This configuration allows the service provider to better control the quality and manage available bandwidth to accommodate traffic volumes between the customer and the service provider. However, the converged network that supports voice, data, and applications must meet a new level of performance with associated customer-premises equipment that is discussed below.

CLASS 5 SWITCH-BASED ARCHITECTURE FOR HOSTED IP

Hosted IP's configurations usually fit into two broad architectural categories, which center on the system in the hosted location. The first is the Class 5 Switch Architecture (source: www.ip-centrex.org, see Figure 1 below) in which an existent Class 5 switch, e.g., 5ESS, DMS-100, or GTD-5, supports IP Centrex service in addition to traditional plain old telephone service (POTS) and ISDN lines.

Two new components are necessary for this architecture. They are the Network Gateway (NG), which connects to the Class 5 switch, and the Customer Gateway (CG), housed on the customer premises. The NG connects with the Class 5 and translates signaling information it receives from the CG into a protocol that the Class 5 understands. The NG also de-packetizes the voice stream for delivery to the switch. Similarly, it translates signaling messages from the switch into the IP telephony protocol and packetizes the voice stream for transmission to the CG.

The CG communicates with the NG via packets in IP telephony protocol, e.g., H.323 or Session Initiation Protocol (SIP), and supports traditional device interfaces for analog and ISDN devices. As a result, the NG, CG, and connecting packet network appear to the Class 5 switch as an ordinary digital loop carrier (DLC) system. The telephone sets connected to the CG appear as ordinary phone lines to the Class 5. Consequently, the Class 5 can deliver the same features to IP Centrex, analog, and ISDN Centrex users without need for an upgrade by the service provider.

FIGURE 1 Class 5 Switch-Based Architecture for IP Centrex

Legend

A. Ordinary analog telephone sets and fax machines may be directly served by a Class 5 switch or may be served through the CG. On behalf of the analog devices, the CG performs voice digitization and packetization. It also converts analog signaling into IP telephony messages.

B. The Class 5 switch can serve digital ISDN telephone sets directly or through the CG. On behalf of the digital telephone set, the CG performs voice packetization and converts ISDN signaling messages into IP telephony messages.

C. The CG has an Ethernet interface for connecting to the customer LAN. It also provides jacks to connect analog devices (telephones, fax machines) and/or ISDN telephone sets. The CG sends packetized voice and IP telephony messages across the LAN, over the broadband access facility, and through the managed backbone network to the NG.

D. The IP Phone combines the CG functionality and telephone set functionality into one device. The IP Phone has an Ethernet interface to the LAN. The IP Phone may use the analog call model or ISDN call model when formulating IP telephony messages. Based on the call model used, the Class 5 switch offers analog-like or ISDN-like features.

E. The NG "translates" digital and packetized messages and voice traffic between the CG and Class 5 as necessary.

source: www.ip-centrex.org

SOFTSWITCH ARCHITECTURE

The second Hosted IP architectural configuration features a softswitch (Broadsoft, Deutsche Telekom, or Cisco) in place of the Class 5 CO switch. The softswitch is a telephony application running on an industrial grade server in the network. Like the Class 5 switch, the softswitch provides call control and service logic, but the softswitch is not involved in transport or switching of the packetized voice stream. The softswitch, CG, and IP telephones signal one another over a packet network using an IP telephony protocol, such as H.323 or SIP.

Upon receipt of call setup information, the softswitch determines the called party’s location. If the called party is a member of the Centrex group, then the softswitch instructs the originating CG or IP device and the terminating CG or IP device to route the packetized voice streams directly to one another. As a result, the voice stream never leaves the LAN/WAN. If the called party is served by the Public Switched Telephone Network (PSTN), then the softswitch instructs the originating CG or IP device to route the packetized voice stream to a trunk gateway (TG).

The TG has traditional interoffice facilities to Class 4 or Class 5 switches in the PSTN. The TG packetizes/de-packetizes the voice stream so that it can be transmitted over circuit-switched, i.e., PSTN, facilities. The TG works in conjunction with a signaling gateway. The signaling gateway is used to exchange SS7 messages with the PSTN. The softswitch provides signaling instructions to the trunk and signaling gateways. Figure 2 below depicts the softswitch architecture for Hosted IP.

FIGURE 2 Softswitch-Based Architecture for IP Centrex

Legend

A. The CG can serve ordinary analog telephone sets and fax machines. On behalf of the analog devices, the Customer Gateway digitizes and packetizes voice transmissions. It also converts analog signaling into IP telephony messages.

B. The CG connects to the customer LAN. It also provides jacks to connect analog devices (telephones, fax machines) and/or ISDN telephone sets. The CG sends IP telephony messages across the LAN, over the broadband access facility, and through the managed backbone network to the Softswitch. The Softswitch provides the CG with the IP address of the other party. The CG uses this information to send packetized voice streams directly to the destination. The destination may be another CG or IP device on the same LAN, a CG or IP device on a different LAN across the backbone network, or the TG (for parties served by traditional lines on the PSTN).

C. The IP device combines the CG functionality and telephone set functionality into a single device. The IP device connects directly to the LAN and sends IP telephony messages across the LAN, over the broadband access facility, and through the managed backbone network to the Softswitch. The Softswitch provides the IP device with the IP address of the other party. The IP device uses this information to send packetized voice streams directly to the destination. The destination may be another IP device or CG on the same LAN, an IP device or CG on a different LAN across the backbone network, or the TG for parties served by traditional lines on the PSTN.

D. The Softswitch provides the call control and service logic for the Hosted IP service. The Softswitch exchanges IP Telephony messages with CGs, IP devices, Signaling Gateways, TGs, and other Softswitches.

E. When a call must pass between the backbone packet network and the PSTN, e.g., a Hosted IP customer calls a traditional analog customer, the Softswitch uses the Signaling Gateway to exchange SS7 messages with PSTN Class 4 and Class 5 switches through Signal Transfer Points.

F. When a call must pass between the backbone packet network and the PSTN, e.g., an IP Centrex customer calls a traditional analog customer, the Softswitch directs the call to a TG. The TG packetizes/depacketizes the voice stream so that it can be transmitted over a DS1 trunk to PSTN Class 4 and Class 5 switches.

source:www.ip-centrex.org

A unique twist on these architectures is offered by Star2Star Communications, which President/CTO Joe Rhem describes as a "distributed" configuration. In this scenario, a solid state PBX is located at the customer’s site. The PBX, which supports up to 500 users, handles all on site traffic, while calls among distributed locations are handled by a "mirrored" system in the data center. In this way Star2Star manages traffic more efficiently and reduces packet latency.

PRICING AND COSTS

Eliminating or decreasing capital expenses (CAPEX) is a compelling reason for an organization to consider a Hosted IP solution--and why not? The service provider is offering to maintain, upgrade, and operate the technical portion of the service during the term of the agreement. The Hosted IP services are normally based on a per-seat monthly recurring charge (MRC), so the CFO can predict operating expenses (OPEX) more reliably and consistently in budgeting forecasts. Customers need to maximize their value in relation to expenditures, especially in this slow yet turbulent economic environment. Credit is tight, and OPEX money is generally easier to justify then CAPEX.

But Hosted IP is not a free ride, and the organization must consider several other cost elements. First, the Hosted IP solution will require a Customer Gateway (CG) component of some sort, probably a router/ switch/ firewall assembly, and, in Star2Star’s case, an on-site PBX.

The customer might ask, "Is one of my installed devices able to accommodate the Hosted IP service?" Answer: "Usually not."

The service provider will want to place its components on site to minimize potential problems. If a new CG is necessary, who provides and pays for that? Usually the customer can buy the component or roll its cost into an operating lease included in the MCR. Sometimes it might be less that a more traditional CPE solution, but "your results may vary." Any organization should conduct a full lifecycle TCO evaluation on any solution it is considering.

Second, is the organization's current data network able to handle real time, i.e., voice, applications? Does it have quality of service (QOS) capabilities and enough bandwidth to prevent jitter, latency, and packet loss? If the Hosted IP is serving one location, the LAN probably has enough bandwidth to handle voice calls, even without QOS. However, if the Hosted IP must serve multiple locations and/or bandwidth-greedy applications are running on the network, then the organization will probably need to upgrade its backbone LAN/WAN significantly. Power Over Ethernet switches (POE) are a frequent issue as well. Since POE switches cost more than their non-powered brothers, many organizations typically would not install them prior to considering VoIP-POE demanding applications. Bob Phelan, President of Vantage Communications, notes that this is usually a necessary prerequisite for any organization considering a Hosted IP solution, but it especially applies to smaller (up to 15-20 stations) companies.

Third, as IP network access becomes more reliable and available, bundled T1 access links, which assured access to the Hosted IP facility from the service provider, become optional. The organization has more choices on how it wants to access the network, e.g., cable, DSL, SIP trunking. The customer must ensure that its access choice provides availability and service reliability as well as evaluating price for competing technologies.

Fourth, the customer usually purchases the actual telephones, since paying for them over the life of the hosted term recalls the days of "leasing for life" with Ma Bell.

MRCs for Hosted IP solutions are relatively consistent. Prices range from $25-$50 per seat depending on feature sets. Some providers offer a single, all inclusive price, while others have tiered pricing that coincides with "administrative," "professional," and "executive" feature/ function sets. Some providers provide a basic set of features and functions and then allow users to add others for additional monthly fees, much like Centrex pricing models. Most Hosted IP solutions provide the full feature function complement in the MRC, which as we saw earlier, includes messaging, unified messaging, some unified communications, and unlimited local and domestic toll calling. According to Phelan, "nearly 100%" of Vantage's customers have implemented unified messaging (UM), while the overall market penetration (for all service models) of UM is generally under 25%...a remarkably low figure for a technology that has been around since the early 90’s!

Advanced applications, such as call center, computer telephony integration (CTI), or customer relationship management (CRM), are usually priced separately as "special projects."

SERVICE PROVIDERS AND TARGET MARKETS

Hosted IP service providers represent a spectrum of profiles. Some are the unregulated divisions of the traditional carriers, such as Verizon or AT&T. Others are "new and untraditional" entities that have only recently entered the voice telecommunications business and see it as an application to run on a converged data network. Still others are relatively new, but their management and perspective is more traditionally voice-oriented. Almost all service providers focus on SMB markets up to 100 stations but sometimes considerably smaller.

In any event, customers should consider the following criteria when investigating Hosted IP solutions:

* How long has the provider been in business?

* What is the "engine" for its Hosted IP offering? Is it state of the art, such as the Softswitch architecture described earlier?

* What types of facility houses the switch? Is it a “hardened” facility with redundant HVAC and power, such as uninterruptible power supplies (UPS) and generators?

* How has the service provider designed for high availability in terms of redundancy, disaster recovery, physical and logical security, route diversity, and remote monitoring and reporting?

* Does it have "referenceable" customers similar in size, applications, and complexity to your situation?

* What service level agreements and guarantees does it offer for availability and service outage avoidance?

* How does it compensate for outages?

* Does the service provider have a clear and documented implementation process that it is willing to share?

* Are there any technology "refresh" provisions for the core technology or end points?

* How will it support any advanced applications?

In any event, the surge of interest in Hosted IP has brought out many new providers. Some have good business models and know what it will take to do well, namely solid offerings, good sales and marketing and, most importantly, the implementation, support, and long term commitment to the customer.

SUMMARY AND CONCLUSION

Hosted IP is becoming a popular alternative for many organizations, especially in the SMB market. Hosted IP improves on traditional Centrex in several respects, but its principles, especially the economic ones, are quite similar. The matrix below summarizes Hosted IP’s potential strengths and weaknesses.

No single solution is right for every organization. An organization must understand its business priorities and weight them accordingly. Then it must evaluate potential solutions, such as Hosted IP, in a rigorous and objective manner. Price and the length of commitment, especially now, will be an important factor in developing a TCO. But price and TCO should be viewed in relation to the overall solution’s ability to meet the business communications requirements. If the solution does not meet the customer’s critical business requirements, then the outcome will be bad, no matter how little it costs. As a wise person once said, "The bitterness of poor quality remains long after the sweetness of low price is forgotten."

Byron Battles (www.battlesgroup.com) and Rick Hathaway are independent telecommunications consultants committed to finding the best value telecommunications solutions for their clients. Each has over a quarter century of telecommunications industry experience. They are Past President and President, respectively, of the Society of Telecommunications Consultants.