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TCO metrics key, but complex in IP telephony systems deployment

Total cost of ownership (TCO) metrics for new IP telephony systems are often overlooked by enterprises, according to a new study, but other factors rank high in importance.

It may be tempting to buy new IP telephony systems from the vendor that offers the deepest discounts, but a new Aberdeen Group unified communications study urges IT managers to take a different approach. The study recommends that enterprise buyers analyze total cost of ownership for their IP telephony deployments by using several unified communications (UC) TCO metrics to make more informed purchasing decisions.

The Aberdeen study claims that buyers often focus sharply on initial capital investment when purchasing IP telephony systems. On the other hand, however, they infrequently pay attention to longer-term operations and maintenance costs associated with integrating an IP telephony system with existing enterprise infrastructure, technology and business processes. Other experts note that while TCO metrics matter, individual business requirements are equally important in the decision-making process.

In a year-long 2011 benchmarking study commissioned by ShoreTel, Hyoun Park, Aberdeen's collaboration and integrated communications analyst, applied TCO metrics to six IP telephony systems from Avaya, Cisco, Microsoft and ShoreTel, as well as legacy time-division multiplexing (TDM) systems from a variety of vendors. His January 2011 study, "The Total Cost of Ownership Benchmarking Study for Unified Communications," included data from 236 enterprises around the world.

The main value of the study, according to Park, is in analyzing the ongoing cost structure for support and maintenance over what is now a six-year product lifecycle for IP telephony systems rather than their previous three- to five-year lifespan.

"Enterprises often skip assessing the cost of supporting and maintaining [IP] telephony services," Park said.

Understanding different TCO metrics for IP telephony systems

Aberdeen looked at 13 TCO metrics for comparing the cost of IP telephony systems, grouping them into four categories: up-front capital costs, up-front operational costs, annual UC system operating costs and annual ongoing network costs.

To gauge the real cost of an IP telephony system, it's essential to look beyond up-front equipment, installation and training costs, according to Aberdeen. Unified communications TCO analysis must also include consideration of a wide variety of annual and ongoing UC system operating costs, like electricity consumption and end-user training.

Here's how Aberdeen broke down the four main categories of TCO metrics:

  • Up-front capital expenses: IP telephones and related equipment, including local area network (LAN) and wide area network (WAN) equipment upgrades;
  • Up-front operational costs: Implementation and administrator training;
  • Annual UC system operational costs: System maintenance and management; software assurance; moves, adds, changes and disconnects (MAC-D); recurring system administrator training and system downtime;
  • Annual ongoing network costs: Long-distance charges.

IP telephony TCO analysis a priority for Pittsburgh law firm

According to Park, many enterprises do incomplete TCO analysis. But Pittsburgh law firm Cohen & Grigsby, P.C., made sure it understood the lifespan costs of a new telephone system. The firm decided to replace its legacy Nortel system at the same time it moved to new offices.

"We do a fairly good job of doing our research and negotiating, so it's not unusual for us to be able to get a better deal because of our ability to understand what the real costs are," said Kevin Sullivan, the firm's director of technology.

After evaluating systems from Nortel, Avaya, Cisco, Mitel and ShoreTel, Sullivan said, the firm decided in favor of ShoreTel, and purchased a hosted IP telephony system with about 400 phones in one location and 30 at another.

Although he did not divulge the final cost of the ShoreTel system -- which included upgrades, equipment and a five-year maintenance and growth plan, paid up front -- Sullivan said the capital expense for the new IP telephony system was about 11% lower than the Cisco system, which was the firm's other finalist.

"The amount of time needed to train someone to do the basic adds, moves and changes [on the ShoreTel system] was about 10 minutes," Sullivan said. "We never got to try it with the Cisco system during the demos; the people they brought didn't know how."

Factoring integration into IP telephony vendor selection

While the major vendors included in the Aberdeen study -- Cisco, Avaya, Microsoft and ShoreTel -- all compete for similar business, each has a different focus. Vendor selection, obviously, will be determined as much by the customer’s existing infrastructure and technology as it is by what the TCO metrics say.

Mark Arman, vice president of business development at ShoreTel, said he agrees that in addition to TCO metrics, the customer's size and existing technology help determine what kind of solution will work.

A hybrid system may provide lower up-front costs with cheaper digital phones, but limits what you can do with unified communications solutions, according to Arman. He also said that deploying two different types of technology -- TDM and IP -- leads to a higher degree of complexity and a considerably higher TCO because system management or administration costs will be higher.

Although the cost of Cisco and Avaya IP telephony systems are higher than other vendors in every TCO category of the Aberdeen study, ShoreTel hasn't penetrated data center business with its standalone system.

"When it comes to the data center," said Irwin Lazar, vice president for communications and collaboration research at Nemertes Research. "ShoreTel is not on that side of the market yet. It can’t compete for an enterprise environment."

Top vendors in the IP telephony systems market

Market leader Avaya is the largest provider of traditional and hybrid IP telephony systems, with its roots going back to Lucent and AT&T.

Cisco's Unified Communications Manager had 37% of the IP telephony market in the third quarter of last year. Its approach to the IP telephony market targets service providers that host UC for their enterprise customers using Cisco products.

ShoreTel, on the other hand, is striving to make headway in the hosted telephony market, though it remains perfectly positioned in its specialty, new IP telephony installations for small and medium-sized businesses. Its purchase of M5 Networks, which could be completed as early as March, will improve ShoreTel's position in the hosted telephony market, raising its capabilities to the 5,000-seat category.

Microsoft's Skype acquisition brings more of a communications focus to the company's software-centric approach to the UC market.

IP telephony system TCO should be specific to each customer

TCO calculations should be only one consideration in a procurement decision that compares products and vendors, according to analyst Frank Stinson of IntelliCom Analytics, a research firm that tracks market share and evaluates competitive pricing trends in IT.

"When comparing TCO among products and providers, you must be very specific about requirements and the individual customer," Stinson said. "Companies have to think about their business requirements first.

"For example, does the customer have distributed teams? Is there complexity involving a lot of servers? If you have a data center and you upgrade to IP telephony, then that will dramatically reduce hardware requirements, which will change TCO," he added.

Stinson maintains there are two ways of looking at IP telephony TCO. A company that wants basic, cost-effective, standalone IP telephony that doesn't have to be integrated into the data center can look at IP telephony systems with a narrow focus, he said. But it changes the TCO metrics equation if a company wants to integrate its business applications with existing infrastructure along with smartphones and tablets.

"If an enterprise has Microsoft Exchange [Server] in one building [and] Avaya in another, with multiple sites spread out geographically, the IP telephony decision becomes a network infrastructure decision," Stinson said.

Enterprises have to consider whether a vendor has the ability to integrate all of the technology, provide new functionality and ensure IT has visibility into the IP telephony system being deployed. The analysis must include which business processes will be affected and what makes sense to have all these pieces working together.

In situations like this, Stinson said, "If IP telephony is analyzed narrowly, what looks like the obvious choice may not be the best decision for the business processes and infrastructure already in place."

Let us know what you think about the story; email: Lisa Sampson, Feature Writer

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