Case Study: Evaluating IP Telephony Purchase Options

Transcription

1 Research Publication Date: 29 November 2005 ID Number: G Case Study: Evaluating IP Telephony Purchase Options Jay Lassman, Rich Costello With a maintenance contract for its telephone equipment expiring within a year, a company had to decide whether to upgrade its existing equipment or replace it with a new IP telephony system, possibly from a new vendor. Reproduction of this publication in any form without prior written permission is forbidden. The information contained herein has been obtained from sources believed to be reliable. Gartner disclaims all warranties as to the accuracy, completeness or adequacy of such information. Although Gartner's research may discuss legal issues related to the information technology business, Gartner does not provide legal advice or services and its research should not be construed or used as such. Gartner shall have no liability for errors, omissions or inadequacies in the information contained herein or for interpretations thereof. The opinions expressed herein are subject to change without notice.

2 WHAT YOU NEED TO KNOW In this case, our client chose to stay with its established supplier and upgrade its telephone system so it was ready for IP technology. This meant it avoided the extra cost of IP handsets and network infrastructure upgrades while investing in a system that could support IPT. Even though the customer will incur additional expenses for IP phones, licenses, Power Over Ethernet switches, Category 5 cabling, and so forth, to fully implement IPT, the selected option provides the customer with other benefits as well. It provides the customer with time to assess the IPT market and standards-maturation process. It can then identify its requirements for pertinent IPT applications (that is, build a better business case). Furthermore, should the number of users grow, new phones can be IP-based and the company will likely realize cost savings from decreasing prices for IP telephones and PoE switches. Users can also do some testing with the IP infrastructure, which would allow trialing and knowledge-building before the actual migration of many users. In addition, organizations doing data network upgrades are provisioning for IPT in the future so the cost gets allocated to other upgrades not directly associated with the IPT upgrade. This is just one example of the selection process a client followed and does not automatically imply a preference for the existing vendor. In other cases, issues specific to the client s environment can result in the selection of a new supplier. CASE STUDY This research note presents a Gartner client's options when evaluating how to implement Internet Protocol telephony (IPT), whether through acquiring a new system or upgrading the existing one. It describes some of the costs involved and shows what the client decided and why. While some details are company-specific, the case study provides a good example for any organization considering replacing or upgrading its telephone system. Some organizations are involved in this process because their maintenance contracts are expiring, which provides an opportunity to evaluate how to proceed whether by updating or upgrading equipment or by buying new equipment. Many vendors advocate updating to the most-current software release for support purposes. In some cases, a new system makes more sense than supporting and maintaining old equipment. Vendors make a variety of claims about the advantages of IPT and voice over Internet Protocol (VoIP) technology, but many businesses are unsure whether to hold tight, make the switch now, or find an interim solution. Problem Our client, a large supplier of industrial parts, had PBX systems in six locations in the United States, with a total of about 2,600 users. Because the maintenance contract for this equipment was ending within a year, the company had to decide whether to purchase a software update to its existing equipment, which would continue to make it supportable by the vendor. Alternatives included replacing it with a system that was based on, or could support, IPT technology, or choosing a new vendor. Objective The company had two major objectives: Achieve the best return on investment (ROI) Update its telephone system to current technology Publication Date: 29 November 2005/ID Number: G Page 2 of 6

3 Approach The company sent a request for proposal to three vendors, including the current supplier, which proposed the following three options: A basic software-only update to the current system that would support some IP capabilities A software and common control upgrade to the existing system that would support complete IPT functionality A new hybrid system that used a combination of analog, digital and IP technologies with predominantly IP telephones Of the other two vendors, one proposed a new hybrid system, the other a pure IP-based product, resulting in a total of five choices. The company calculated the cost of initial hardware and ongoing maintenance for each option. It also considered the costs of the following: Assessing its network for a move to IPT Upgrading the network infrastructure new Power Over Ethernet (PoE) switches, router upgrades, and installing new Category 5 cabling in two locations Installing the IPT equipment Buying new system management software Training network administrators Table 1 shows a simplified set of these figures. Table 1. Comparison of Costs for Proposed Telephone System Options (Dollars) New Supplier New Supplier System Pure IP Hybrid Software Update Upgrade to IP- Ready Current Supplier Hybrid Main System 46,000 1,190,000 NA 432, ,000 Software Upgrade NA NA 82,000 NA NA Gateways 125,000 95,000 NA Included Included Voice Mail 120, ,000 NA 127, ,000 Routers Included Included NA 55,000 55,000 Network Infrastructure Upgrade 1,461,000 1,461,000 NA NA 1,461,000 Analog Gateways 223,000 NA NA Included Included Phones 313, ,000 NA NA 279,000 Subtotal 2,288,000 3,201,000 82, ,000 2,460,000 WAN Cost (First Year) 71,000 71,000 NA 39,000 71,000 Maintenance (First Year) Included Included 183, , ,000 Implementation Fee 658, ,000 20, , ,000 Publication Date: 29 November 2005/ID Number: G Page 3 of 6

4 Network Assessment 25,000 25, ,000 Administrator Training 15,000 15, ,000 15,000 Network Management Tools 100, ,000 NA NA 100,000 Total 3,157,000 3,816, ,000 1,019,000 3,112,000 NA = Not applicable Source: Gartner (October 2005) The company also developed a five-year projection of the costs of its current telephony system, then compared those to the proposed options to determine ROI. Table 2 summarizes those comparisons and shows that for all of the proposed options, except the basic software upgrade, there is a negative return on the customer s investment (see the ROI column). The ROI was calculated by subtracting the projected five-year costs for each proposed option from $1,151,000, the total of the current five-year costs that will be displaced. Table 2. Comparison of Five-Year Costs for Current Telephone Systems and Proposed Options (Dollars) Description Assumptions Current 5-Year Costs Equipment/Software Upgrade Basic software 88,000 - PBX Maintenance 100% of current 467,000 - Voice Mail Maintenance 100% of current 146,000 - Voice Conferencing 75% of current 280,000 - Moves, Adds, Changes NA 0 - Local and Long Distance Between sites 157,000 - PSTN, PRI, T1 lines 2 lines 13,000 - Total 1,151,000 - Projected Five-Year ROI Options Projected 5-Year Costs ROI New Pure-IPT System New vendor 3,548,000-2,397,000 Basic Software Upgrade Existing vendor 715, ,000 IP Ready Upgrade Existing vendor 1,502, ,000 New Hybrid IPT System Existing vendor 3,486,000-2,335,000 New Hybrid IPT System New vendor 4,173,000-3,022,000 PSTN = Public switched telephone network PRI = Primary rate interface NA = Not applicable Source: Gartner Research (October 2005) Publication Date: 29 November 2005/ID Number: G Page 4 of 6

5 Results Our client found that the new system choices, along with the IP-ready upgrade, would all result in a negative ROI. This supports what many Gartner clients have discovered: Business cases for IPT often show increased costs, and businesses will often find it hard to justify the investment based on "hard" costs and benefits alone. The costs shown in Table 1, however, indicate that staying with the existing supplier and system would cost less than switching to another vendor. Critical Success Factors/Lessons Learned A basic software upgrade to the existing system, at $285,000, would cost the least of the five options and show a positive ROI ($436,000), but it would be effectively the same as doing nothing. When the inevitable move to IP technology came, the company would have to spend another large sum to provision IPT. However, the company didn't have to rip out its current system and spend more than $3 million to prepare for IPT. By selecting an interim solution with an initial cost of slightly more than $1 million, it protected its equipment from obsolescence and obtained what it believed to be the best value for its money, despite an ROI of negative $351,000. As such, Gartner stresses that buying an IPT system based solely on ROI can be difficult and deceiving. Business process integration and employee productivity benefits, although difficult to define in hard numbers, must also be considered as a major part of the formula for making the decision. Publication Date: 29 November 2005/ID Number: G Page 5 of 6

6 REGIONAL HEADQUARTERS Corporate Headquarters 56 Top Gallant Road Stamford, CT U.S.A European Headquarters Tamesis The Glanty Egham Surrey, TW20 9AW UNITED KINGDOM Asia/Pacific Headquarters Gartner Australasia Pty. Ltd. Level 9, 141 Walker Street North Sydney New South Wales 2060 AUSTRALIA Japan Headquarters Gartner Japan Ltd. Aobadai Hills, 6F 7-7, Aobadai, 4-chome Meguro-ku, Tokyo JAPAN Latin America Headquarters Gartner do Brazil Av. das Nações Unidas, andar World Trade Center São Paulo SP BRAZIL Publication Date: 29 November 2005/ID Number: G Page 6 of 6