STEM newsletter

Business case for VoIP and hosted services

30 October 2005

The emergence of VoIP has prompted many players to enter the voice market and challenge the traditional telco providers with voice offerings of their own. The primary attraction of VoIP is cost: it is very near to ‘voice for free’. Furthermore, VoIP enables a provider to obtain better purchasing power from traditional suppliers for its customers as a whole, as the provider can aggregate their services into its core operation. Because of these advantages, ISPs, ASPs and small service providers providing regional FWA solutions are all looking at VoIP to maximise their revenue and improve customer loyalty.

Philip Murtagh of Dasein Ltd, an ICT consultancy based in Ireland, has developed a high-level STEM model examining how a small operator might deploy VoIP and integrate it with its existing offerings, which at the moment are assumed to be more typical of the ISP or hosted solution space.

Overview of the model

The elements on the left describe the core or network operations and those on the right describe the customer side. These two parts are examined in more detail below.

Customers and access

The target market is made up of different sized small-to-medium organisations, ranging from 30 to 200 users. We assume a mix of 15% of 30-user companies, 65% of 100-user and 30% of 200-user. The local access and CPE requirements of these different types of customers will vary both in terms of size and sophistication. Small operations may be adequately served via DSL, and can rely 100% on the service provider for numbering services, while larger operations will already have PBXs and primary access connections from the traditional telco which they may want to retain.

The model includes a number of scenarios describing possible growth rates, in terms of seats sold. We assume that the provider is growing from a zero base.

Access network, customers and growth scenarios

Services, core and network

The core and network side has three aspects, corresponding to VoIP, helpdesk and traditional hosting services.

Services, core and network

The VoIP technology includes the access technology, backhaul, and carrier cross-connects using TDM or IP technology. Before deploying services, some prior investment is required in terms of providing nodal, central and external voice capacity according to the three site Locations shown above (End Node Equipment, etc.).

The helpdesk will be a necessary component in running the facility. It has a multi-tiered arrangement, sized depending on the number of seats deployed.

We assume that a proportion of VoIP seats sold will also be paying for higher-order support services, including hosted services. Hosted services are readily provided along with VoIP, and are a combination of traditional web, file and application-focused services.

There is also the added complication that investment will be required in the local access network as congestion management and QoS become necessary. The model assumes a fixed amount of traffic for each seat to ensure an adequate sizing of access links from day one, plus a step increase in core network investment when the number of users exceeds a critical threshold.

Premium services

Although in the short term VoIP will offer some price advantages in the provision of voice services, in the longer term competition will reduce such price differentiation. Dasein believes that operators need to start to look at voice as only one component in wider business applications, and see VoIP more as a mechanism that can dramatically lower the price of sophisticated computer-telephony integration (CTI) and CRM services. With this in mind, the model includes a ‘premium services’ component, which represents a proportion of customers that require security and integration services.

Premium services

Scenarios and results

As stated earlier, the model is very much an overview and can be used to run a number a very quick what-if growth scenarios. It can be adjusted to model specific market structures, and additional detail added to describe the particulars of the technology employed. It would also be easy to include the costs of selling, administration, etc. As it stands, it can produce standard P&L statements and quick revenue forecasts, which can also include hosted and helpdesk components.

Network NPV and revenue with base-case rollout (EUR millions)

Philip Murtagh has 25 years’ experience in the IT and telco sector working as a consultant, network planner and director of IT operations. His work with Dasein Ltd is now focused on VoIP services and associated business applications with specific interest in leveraging ISP & hosted services operations to deliver VoIP applications.

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