So why all the commotion on the web, in junk emails and blogs that a hosted VoiP system is the choice of fortune 500 business professionals?
This is going to be a mouthful to take in. I wonder if LinkedIn will edit this post? I wonder how much money LinkedIn gets from web traffic surrounding this topic?
I am a very matter of fact guy. A wise man has more questions than answers. I welcome discussion to the following.
I have received random emails, calls and solicitations, read many blogs and spoke with sales persons surrounding the topic of Hosted VoiP verse in house verses TDM ††††
Some articles are fair and unbiased. Because of my knowledge and experience I do not agree whole heartedly. Some articles are just flat out lies written with great eloquence beyond my ability to sway the layman into a decision before he understands the facts.
Some time ago an email prompted me to follow a link to a blog entitled ” Hosted VoIP Phone Systems vs. TDM: Who Really Wins on Cost?”
Below the title was a Pinocchio doll. I happened to save that link.
I commented on the authors statements and listed several detailed examples where he was incorrect:
‘…smart businesses have been abandoning TDM solutions in droves… TDM phone systems are notoriously inflexible . . . you’re talking about thousands of dollars each year to manage your own PBX.’ I welcomed his rebuttal. The several paragraphs I had written were pulled down the next day. Hmmmm… Perhaps a glitch on a web server. Before I reposted my response I did a little web surfing to see the source of this blog.
It was not a blog or open forum. It was an advertisement disguised as a blog. Upon a quick search of the Who Is directory it also named the same registrar of the domain the original content was published on that coincidentally was mentioned in the blog as a provider of hosted VoiP. They posted a page from their site on a social media blog site that linked back to their site.
I agree that if you are a startup company with 3 home offices in Singapore, London and Chicago a hosted phone solution could make sense. If you are a company of five or more phones it does not make sense to pay a recurring monthly fee for a phone on your desk. I do not know of a fortune 500 company with only three officers.
Another point that I agreed on. The author mentioned:
“1. Depreciation of Hardware TDM PBX equipment, like a car, loses value the minute you deploy it. TDM PBX equipment, like a car, loses value the minute you deploy it.”
That is true. Like the computers you bought for your office, the first year your business pays a personal property tax appraised at 95% of the purchase price. The following year it is appraised at 85%. Until after a time it is a fixture taxed at 15% or less. You pay the same personal property tax on hosted <leased and rental goods>every year. They do not depreciate. That also ties into another point; cost of ownership.
If you need me 40 hours a week to maintain your phone system you do not need me. You need a new phone system.
One of my hourly gigs is remotely managing six of <name omitted by author> offices’ in house phone systems, voice mail, maintenance and setting up new hires across several of their US sites. They range from 28 phones in Arkansas to 300+ in the Connecticut home office. What I make in 2 weeks would not cover dinner and drinks for two at a New York restaurant. †††
Like a new PC, phone equipment comes down in cost. What was a $4500 voice mail in 2008 is now available with a warranty from many third party surplus providers at a fraction of the cost. NOS phones or refurbed with new desi’s, plastic and cords are available in droves with a warranty.
One of the in house system’s I maintain for <name omitted by author> at their main office is an Executone IDS 648 PBX. It was first installed in the 1990’s. They hired me at the end of the millennia; Feb 1999. I moved it once and expanded it as needed to it’s current 648 port size. I keep spare phones, handsets and cords behind our reception. If your phone is getting old looking swing by reception on your way into the office.
Side note – This system was not Y2K compliant. In November of 1999 what used to be our service provider called me to sell me on the ACPU software. An $18,500 upgrade, because the end of the world was coming soon. While I was on the phone with the sales agent I said keep talking, I’m all ears as I logged into the system and set the date and time for Dec 31, 1999 11:58PM. “Sir we don’t recommend that! We don’t know what it will do”
If our call drops in the next two minutes I guess I’ll take the software upgrade. At 12:01 AM Jan 1, 2000 we were still talking.
Cost of installation.
This section may get a little technical to understand. I am a licensed electrical contractor. I hold two licenses that cover telecommunications, voice and data networks and low voltage electrical work. I’m the guy you would hire to pull a building permit and install your voice or data network.
That old executone system- I do reference that a lot, they are still out there and it is a real world example I became quite familiar with- requires 2 cable pairs of less than 4000 ft run to your desk. A typical 4 pr voice grade cable can run two phones if you split the jack.
If they had bought an ITT/ eOn Millennium they could run a phone 17,000 ft† across a single voice pair. Pretty much any system manufactured after the late 1990’s could run 4 phones on a single 4/24 voice grade cable by just splitting the jack.
These systems are self contained. No other equipment is needed to liven a jack at your desk from the MDF / PBX .
Voice over IP is not the same. VoiP requires an ethernet cable of 4 pairs, runs less than 100 meters, data grade jacks, patch panels, patch and line cords patched to a compatible power over ethernet switch with layer 3 or 4 or beyond switching with what ever other software / hardware driven requirements that are also needed.
If you hire me to install a voice or data network I charge more money installing dual CAT 6 at each desk. An IP phone requires only about 160 kbs bandwidth with over head to work. If you decide to daisy chain your phone and PC on one cable the maximum band width is that of the slowest device. Most IP phones are 10/100 and going up in price many are now gigabit compliant. Shame that your CAT 6 or CAT 7 10 gig plus network is now limited by the phone. Manufacturing costs increase as you install a faster network chip set. We are a technical society that likes to tout numbers. I had the first 56K dial up modem in my town… So Neeeeuuh!
Side note. In 2002 I attended a convention at the Javitz center in NYC where one of the exhibitors demonstrated 10mbs across 4 lengths of barbed wire secured to cedar posts. It caught my attention. That was a creative way to demonstrate your hardware. 10/100 ethernet needs only a transmit and receive pair. A phone or other powered device needs the same 4 wires plus a pair for power. Gigabit and faster utilizes all 8 wires. It is not possible to split a 4 pair ethernet cable to get two ethernet drops on one cable at faster then 10/100 speed.
If you are an office of ‘slow’ ethernet requirements you really do not need to keep up with the Jones. A post production video editing suite needs fast network access to the project assets when you start approaching terabyte file sizes. Opening a 2 meg spread sheet, running payroll software or surfing the web while reading this is not a taxing network task. But you paid me to install the latest, fastest network in your office to run a phone that needs 160 kbs to call and order lunch.
Sales and Marketing.
That is an area I fail miserably at. You’d think that working at an agency for the past 15 years that was recently bought by < name omitted by author > a firm with offices in every major country and city I’d know how to sell myself. I like to joke that on Monday morning < name omitted by author > knows exactly how hung over you are and what you drank Sunday night and have a special marketing mail in the wings just for you. I only fail at marketing because I am too honest.
Let me share some real world experience. You know AT&T – the phone company that recently got out of supplying phone service. Been to a hospital lately? You probably noticed a Northern Telecom phone. Our friends from the north are also out of the communications arena.
Two decades ago I apprenticed under my friend Joe to obtain an electrical license. Joe had as much experience then as I do now. One of the most easy going, matter of fact don’t talk no ßHˆt in the industry type of guys. Joe attended a sales training class for AT&T systems in the 90’s. He recanted to me how he raised his hand and asked the instructor, ” Why do you charge so much for this equipment?” Response. BECAUSE WE ARE AT&T AND WE CAN! Ohhh – sorry for asking.
Joe went up to bid against several phone system suppliers, dealers and vendors. Routine to shop the competition. We ( and probably all the other vendors) could not compete against the likes of Northern Telecom. Not because of price, features or service. They offered a very attractive sign on bonus to the customer. I’ll charge you double what it is worth and give …… Leave it at that. There was a lot of money to made in communications after the 1980’s.
I have worked on several larger AT&T systems; System 75, Definity, 5e switches. I have worked on several Northern Telecom switches. We had an office in Dallas that had a smaller PBX of about 100 people. The headquarters in CT took over a space with an existing Option 11C of about 200 ports. The Option 11 was a bear of a system to program! Both AT&T and Northern Telecom did make good stuff. Proprietary and expensive . . . but good.
Do you remember in the late 1990’s an idea that seemed to gain popularity; Co Lo cations. Put your computer hardware in a colo. This is before the term cloud. We have emergency generator back up. We have contracts with several fuel oil suppliers and can run off the grid for years! We have the highest of high security. Card access, retina scanner, voice scanners, anal scanners and video access security. Thieves can’t get access to your important web servers in this facility! They will be shot on site. Working for <name omitted by author> had its clout. I’d often get to attend these sales pitches. Wearing my usual non corporate work clothes and long hair I raised my hand in the back of the tour line.
” Yes in the back?”
This is a very impressive facility. I’m sure being in down town Stamford CT caries a prestigious and high square footage rental… but ahhh aren’t 99% of threats from remote hackers… they don’t need to get into the facility?
” NEXT QUESTION PLEASE”
Did I ask the wrong question?
Exposed your bottom line?
The more complex a system the more complex the repair. Keep It Simple Stupid, NFG, better call a pro. There are many sayings. In the 1960’s NASA spent several million dollars to design a pen that could write in zero G. Russia solved the problem for about 5¢. They gave their astronauts a pencil. Do you really think that writing in orbit with a pen comes into play now ?
My friend Mike is the eternal college student. He has a qwest for knowledge. In his 40’s he decided to go for a masters in nursing… just because. He just got back from touring Asia, Washington, Oregon and lives in smokey Colorado. He works in finance; loans, mortgages investments, licensed in 13 states. Probably more now.
Mike worked in sales one summer for a hosted VoiP provider. A lot of monthly recurring money to be made! Little to none cash outlay. Pretty much instant profit. He learned the lingo. That was an area that I didn’t feel dumb when he asked me a question. Clients calling him from their cell phone screaming! His sales managers saying don’t worry just keep selling and making money. He does not work in hosted VoiP sales any more.
I asked those who I mentioned to proof this to make sure I was not embellishing any points. Mike replied the following:
Date: January 12, 2015 1:38:29 AM EST
Yes, VoIP was a nightmare.. Sales people lied to providers that needed a certain Codex for 911 calls. This actually had ethical implications as the phone numbers did not show to emergency responders.. We were not equipped.. The system had a very narrow market place for those that had offices in a few countries that wanted to deceive clients into thinking they were a large outfit when in fact had only 5 or less employees.. The system had continual problems as the tech support people were let go and the sales people covered questions beyond their scope of expertise.. I can see a small window of practicality for VoIP.. However it is marketed to most that would be far better off with their own internal system.. Not VoIP !
Sent from my iPhone
On to some details
I have installed the network cabling for the very hosted VoiP suppliers describe above. Another friend of mine, also named Joe sells both in house systems and hosted VoiP solutions. Why does a phone vendor also sell a hosted solution? Because, marketing lies and it is more profitable to provide than educate.
So what is the cost of ownership of your own in house PBX and voice mail?
Typically a new system will run you about $700 per phone; installed, tested, cabled, labeled and a day of training and first day in service. The price will go up if you want all 32 button executive display phones or down if you have existing cable in place, only need 6 button non display phones and are not an idiot. New equipment has a one year warranty. Many systems I sell I extend that to two years. You can buy a maintenance contract. Why? I’d love to sell you a maintenance contract at $3.80 a port. As I said I suck in sales. Too honest.
Even the 20 year old Executone IDS 648 has remote programming access. Your vendor does not need to be on site to address moves, adds and changes. By the way MAC work is not part of a maintenance contract.
Here is another point that I disagree with when bombarded with this web BS of hosted verses owned verses IP verses TDM verses … You can easily move your phone to another desk if you move offices. Heck the decade old hybrid NEC’s that <name omitted by author> has in their field offices, the user can simply enter a three digit code and their extension and now the phone is swapped. The IP phones will follow the phones extension. That can be a time saver having the extension follow the phone but I know of two instances where it created quite the headache.
The president of a company was expecting a conference call in his office with several officers from his firm. His phone was acting up and died. His secretary was out so he grabbed her phone from her desk and plugged it in in his office. That phone was no longer his extension or direct dial.
An office move of 122 employees was scheduled for the weekend. Employees packed their pens and notes and laptops and phones into moving boxes and affixed a sticker. Movers moved these boxes to the new locations. IT, over the weekend went around and set up their computers and phones and…. where are the moving boxes for this office? Where is phone extension 3122? That’s not the correct phone extension for this office! Oh crap… IT wants to test the voice and correct extension but some place in this 120,000 sqft multi campus office is a missing box and phone!
I’d rather use any phone, confirm the jack is live and the correct extension and note that this office is out on maternity leave and never got moved.
You can’t do that as easily with an IP phone or hosted VoiP phone. Depending on the hosting software and what level of access you have this may be a bit more time consuming than a simple user port swap at the phone.
While I’m on the can’t do that wagon. VoiP whether in house or hosted has caught up to TDM PBX’s.. or is catching up. Voice paging, multiple page zones, ACD Groups, DID’s to single line ports for a fax and having your equipment at an off site location in a cloud greatly limits a hosted VoiP solution. When your hosted service or internet service goes down the entire campus can not even make interoffice calls.††
It’s not if it will go down but when. Sure there is redundancy. I’ve installed that. I have set up offices with multiple carriers. I have installed systems with redundancy, off site fail over, carrier fail over . . . what ever you want. If your business loses billions per minute each time you have a technical snafu, perhaps you should think about restructuring your business model. It’s not if it will go down but when it goes down.
Phone manufacturers manufacture what sells and makes them money. Software features can be ported onto a TDM, hybrid or VoiP platform. If the features you need are not available from a TDM or hybrid platform look elsewhere. If the one feature you positively must have to stay in business is only available from a manufacturer that only makes IP systems then install that. I have to wonder how you stayed in business for the past 10 years when that platform and feature did not even exist?
Historical thought – after Bell made his first phone call how long after that until the first crank phone call was made? It probably sounded like this. ” Alex, I know its you. There are only 5 phones in town and we do not have refrigerators yet.”
Back to present day. Many of these hosted verses owned blogs make mention of the idea that:
“. . . Owning your own TDM PBX again brings the responsibility of management, maintenance, and configuration in-house. That means some percentage of your IT staff budget is getting allocated . . .”
I want to share what I have seen as a shift in tasks over the years. Google knows more than any IT guru in your office. The only way to learn how to fix something is to break it. I work with IT engineers who dwarf my knowledge of Microsoft, Sunn, Cisco, and many other software and hardware manufactures. I’ll call them when I have a question. I search the web when I have a question. I’m amazed how hesitant some techs are of phone equipment.
One of the first PBX’s I installed, on the CPU, there was a series of 16 LEDs with an on/off dip switch under each ‘bit’, a two digit numerical program number display and a paper program guide of what each 16 bit address field represented. Those systems had one thing in common. They were rock solid and software incompatibilities did not come into play every time there was an update to windows. They were their own hardware running their own software and they did not crash when you added a printer that was broadcasting apple talk.
Now phone systems have web page administration. Are you really that afraid to do a simple phone program or does your vendor say it will void your warranty? I hate using a web browser to set up a system. Browsers are slower compared to the manufactures admin software.
Who remembers when AT&T released a fix up on the central office level that caused many of their switches to no longer route long distance voice traffic between CO’s? Who remembers an instance in the Milwaukee area that caused all your phone service to reset and calls dropped? Wether from your home line to the police, hospital, the air traffic control center and any other business served from that central office, it all dropped!
My friend Steve, who is Joe’s brother – I told you I have contacts – recanted me this story. The local bell installed a Seimens ISDN switch in the central office in the Milwaukee area. This Seimons switch was the central office for subscribers in Milwaukee and it was also the ISDN phones for the central office business and sales office. If a phone on an employee’s desk was in the idle condition and they hit the release button it would reset the entire central office switch. The next day 3 engineers from Germany were on site.
Putting voice traffic on a shared network is complex. It’s old hat now and most of the gnomes are worked out but occasionally… It’s one thing to download a you tube file and have a split second hiccup and quite another to be on a voice call over an internal IP office network utilizing a SIP provider running over your internet provider pipe talking to a client about ” ho.. the… ost much to… r…urn on inves… W…t are ..ur thoughts?”
Another pro argument for a hosted solution I have read is long distance charges are free (included – less tax and tariffs.) Carriers are now giving away local and (some) long distance. Gone are the days of least cost routing and FX circuits. Maybe your import business calls are to your manufacturer in China and that country code is not a free call. Be sure to check the fine print.
If you had your own system you could configure it to place free calls. Apps for smart phones can emulate the phone on your desk and place a call with just an internet connection from the local coffee shop. Voice mail messages can appear in your inbox. I don’t think a hosted provider is going to hurt their bottom line and tell you how to make calls for free. Just use a pencil.
This is a real world pro TDM example. A freight company in New Jersey had a warehouse in the back and the sales office in the front. It was a sizable warehouse and trucking company. They had perhaps 60 or 70 bays per side going to the back of the warehouse that was probably over a fifteen hundred feet long. They needed a phone at one of the furthest bays that drivers could intercom call the front office to alert they were on site. It was a hack of a cabling job. 30 foot ceilings from the MDF to a 25 pair feed to I am not sure what, to a speaker wire hanging by the garage bay door. Wall mount the phone, jack and tone it back, plenty of open spares and cross connect. BINGO! Works.
Oh wait you want to sell them an IP phone 1500 feet away? What, are you going to run fiber? Convert it to copper and put in a powered switch? And where are you going to get the AC power to power your media converter and switch from? Your going to call an electrician, too?
My last argument for a hosted solution that sadly I can not get a definitive understanding on is the idea that you know exactly what it costs per employee per phone per minute to provide them with a phone. There is no unknown capital or operational expense. CAPEX/OPEX I think is the acronym that when I asked my CPA he had never heard that. Is that something that is needed when going for an IPO? What’s wrong with knowing your costs for the past years on the average are substantially less?
Oh, and lastly to answer the opening question:
Answer: the hosting company wins.
† At distances over 17,000ft an end of line power supply was required at the phone. Steve was an ITT / eOn vendor.
†† You can install a hosted hybrid system where most of the brains are in a cloud… a nice fluffy cloud . . . but have a basic controller in house that will keep interoffice calls and the phones working. Doesn’t that go against the idea that “… hosted VoIP is a managed service entirely in the cloud.”?
††† Tuesday, Jan 13, 2015 I had to swing by <name omitted by author> as one of the reception consoles had no audio. You could hear Helen but reception could not hear you. Luckily I installed two reception consoles so it was not a dire emergency. The Executone base unit had a sticker on it. I would label hardware when I deployed it. It read:
Tech GL Date March 5, 1999 / Warranty Expires March 5 2000
It was a simple fix. One of the pins the handset plugged into was bent. So after 16 years that console had its first failure. I’m going to take my wife out for dinner and drinks tonight.
Google with the search term ‘advantages of hosted VoiP’