Calculating TCO of hosted unified communications solutions

Learn what elements to account for when calculating the total cost of ownership (TCO) of your hosted unified communications solutions.

The decade-long transition from analog phones to IP telephony systems deployments set the stage for a dramatically shorter transition from mandatory on-premises solutions to hosted or "cloud-based" options for voice and unified communications.

With this new alternative, though, network managers need to take a fresh look at how the total cost of ownership (TCO) compares between the two approaches. In this article, we'll explore the most significant elements of capital expense (CAPEX) and operational expense (OPEX) of enterprise-class unified communication solutions.

If there is a single reason to consider hosted UC, it would be to control CAPEX costs. Hosted UC solutions will typically charge a per-user license fee, and that's it. All of the hardware typically associated with traditional, on-premises telephony/UC solutions disappears -- at least from perspective of a network manager or voice engineer.

The infrastructure elements required to provide UC functions -- such as voice mail, chat, calling, presence and so forth -- reside in the data center of your service provider. Your public or private IP connection to that cloud provides the path for your users to access that functionality.

As we explore the details of CAPEX savings, it is important to keep in mind the lifespan of your company's computing infrastructure. For our purposes, we will assume a lifespan of five years.

The on-premises infrastructure may vary by vendor but will typically include:

  • Proprietary control units to house analog telephony boards;
  • Server(s) for hosting voice mail;
  • UC functions (chat, presence and so on); and
  • Management and administration functions, in some cases.

The larger the enterprise, the greater the CAPEX requirements are for the on-premises gear.

More on hosted unified communications solutions

Understand the cloud service models for unified communications.

Learn about unified communications cloud services.

Don't forget to read the fine print of UC cloud computing contracts.

All of the above needs to be installed -- which requires either time from your staff or paying an outside contractor. The infrastructure requires rack space, power, cooling and the like. Using our five-year lifespan, it will also need to be replaced in year six. And, of course, you will need phones. With a hosted solution, you require none of the above -- except for the phones.

At the OPEX level, on-premises unified communications solutions will require ongoing maintenance and service contracts for both hardware and software. Additionally, on-premises solutions require that you provision an appropriate number of analog landlines for inbound/outbound calling. Typically, these are provisioned in blocks of 23 that a full T1 circuit can provide. The T1 circuits require contracts with your local telephone company.

With hosted unified communications solutions, the landline connectivity, where needed, is provided in the cloud. So, there is one less contract to worry about -- since the cost of this connectivity is bundled into your per-user fee.

With hosted solutions, all of the back-end infrastructure and front-end functionality is, ultimately, bundled into your monthly fee. The reliability and fault-tolerance of the back-end infrastructure is not visible to you (as it is with your on-promises solution) but the cost certainly is.

For on-premises solutions, the licensing is typically more granular and thus more complex. You may need to choose particular packages of functionality. For example, some vendors may charge extra for functionality that extends their UC solution to tablet computers.

The user license costs may largely be upfront CAPEX costs for initial licensing. There will, however, also be OPEX costs as you will need to pay software maintenance on the user license to be sure to get support and functionality upgrades.

With hosted UC, your monthly fee will get you the latest version of the offering. Thus, you will always be up to date.

The TCO benefits of hosted UC are significant when viewed in traditional terms. The outsourced, cloud-based approach, however, makes you completely reliant on both your Internet link and the hosting service for business-critical phone services. Fortunately, Internet connectivity is quite reliable and backup links are economically feasible. Look for cloud-based UC providers that are willing to talk about both their business models as well as describe the key elements of their data centers to be sure that you sign on with a UC vendor that won't let you down.

As hosted UC matures, though, one would expect to see those vendors addressing fault-tolerance and providing up-time guarantees to reassure businesses that hosted UC is a viable alternative.

This was first published in April 2013

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