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© Copyright 1997-2007. Yankee Group Research, Inc. All rights reserved.

Alcatel-Lucent’s Managed IP PBXEnables KPN to Reposition ItsPortfolio and Grow SMB Business

This Yankee Group Consulting Report is published for the sole use of Yankee Group clients. It may not be duplicated, reproduced or transmitted in whole or in part without the expresspermission of Yankee Group, 31 St. James Avenue, Boston, MA 02116. For more information, contact Yankee Group: info@yankeegroup.com; Phone: 617-956-5005.All rights reserved. All opinions and estimates herein constitute our judgment as of this date and are subject to change without notice.

This custom publication has been funded by Alcatel-Lucent.

The changing expectations and requirements of KPN’s target

customer base drove its decision to offer a managed IP PBX

within its portfolio of services for SMBs. However, the positive

changes resulting from KPN’s development of the pre- and post-

sales processes to support the service launch will also positively

affect KPN’s business sales organization as it rolls out a wider

managed service portfolio.

For business customers in the Netherlands and internationally,

KPN provides services ranging from voice, internet and data

services to fully managed, outsourced information communications

technology (ICT) solutions (see Exhibit 1). In addition, KPN offers

mobile services in the Netherlands, Germany and Belgium.

KPN’s launch of the Alcatel-Lucent-powered managed IP PBX

service has been a key part of the service provider’s strategy to

address demand from SMBs for a managed voice service. It also

aligns with KPN’s wider market strategy to address changing

market conditions, increasing levels of competition and a

subsequent decline in margins in its core markets. KPN’s

overarching business strategy includes defending market share

loss within its traditional portfolio, migrating customers to IP-

based services and developing a managed services portfolio.

KPN identified an opportunity for managed services for SMBs

that have the following demands (see Exhibit 2):

• Capex minimization model: Reducing their capex investment

and migrating to an opex model for IT services

• Flexibility: Require a voice service that could scale as their

business size and conditions changed

• Out-Tasked maintenance: An interest in out-tasking activities

that are not core to the general operations of their business

The group of businesses with these characteristics was KPN’s

initial target accounts, and KPN found success with this sub-

segment. KPN experienced growth in this target account base as it

implemented its integrated sales and marketing campaign, which

KPN developed to support the launch and ongoing sales

development process.

Alcatel-Lucent’s Managed IP PBX Service Delivers 10% to 20% More Profitable Customers to KPN

Exhibit 2The Value Proposition of KPN ’s Managed IP PBXSource: Yankee Group, 2007

End-User Value Proposition

Flexibility

Opex Pricing Model

Out-TaskedMaintenance

Highlights of the KPN Solution

Enables expansion and contraction of users as business conditions change pace

• No upfront investment• Pricing on a per-user basis

Reduces SMB administration and management resource requirements

Caroline Ashley, Enterprise Research Senior Analyst | April 2007

KPN incorporated Alcatel-Lucent’s managed IP PBX into its SMB portfolio to serve new market opportunities and realignits positioning in managed services.

KPN’s flexible, managed IP PBX generated increased SMB market share.

Service provider: Head of strategy, head of marketing, head of product development

Case Study:

The Bottom Line:

Who Should Read:

Exhibit 1Corporate InformationSource: KPN 2006 Annual Report and Yankee Group, 2007

Company Name

Corporate Headquarters

Industry Type

2006 Revenue

2006 Employees

KPN

The Hague, Netherlands

Before deregulation, KPN was the Dutch nationalincumbent. Now it provides telephone, internet and television to personal customers; and voice, data, internet and fully outsourced ICT solutions to business customers. It also provides mobile services in the Netherlands, Germany and Belgium.

12.1 billion (US$15.1 billion)

28,368

KPN integrated Alcatel-Lucent’s managed OmniPCX Office IP

PBX into its service portfolio, branding it FlexiBel. KPN launched

FlexiBel in 2Q06 and subsequently added functionality

encompassing DECT, Softphone and Homeworker features. KPN

has additional functionality enhancements planned during 2007, as

it matches Alcatel-Lucent’s upgrade of the managed IP PBX to

support integration with the public infrastructure.

Initially, KPN launched FlexiBel with a conventional pricing model.

It based the initial cost on the price for the IP PBX, implementation

costs for the IP PBX and monthly communication charges. As part

of the ongoing support provided to its clients, Alcatel-Lucent was

willing to work with KPN to develop a more adapted user-based

pricing model. The new pricing model suggested by Alcatel-Lucent

afforded KPN direct benefits (see Exhibit 3).

Any consulting associated with the solution can now be conducted

after, instead of before, the order is confirmed, which reduces

overall consulting costs. KPN uses in-house consultants to support

its account teams during the sales process. Now that consultancy

services are only necessary post-sale, the consultancy services add

higher value and are more effective, focusing less on sales and

more on flawless implementations.

In addition, by removing the need for consultants to be involved in

the sales bid process, KPN has significantly shortened its sales

cycle. Pricing has become more lucid for the SMB and easier for

KPN to compile within its proposals.

An important element for KPN in the selection of a supplier was

the effective integration of the managed IP PBX’s management

platforms with its existing product and service platforms, which

the Alcatel-Lucent solution provided. KPN manages customer

support through its Central Remote Resources Centre, which

services moves, adds and changes, fault management, backup and

restore, and reporting.

In implementing a new business model for SMB clients, KPN

recognized that its internal pre- and post-sales support model

would require change. Therefore, it formed a cross-functional

group to develop and roll out the managed IP PBX offering. This

group included a dedicated product manager as well as marketing

and sales functions. The essential elements in the success of the

rollout were:

• Sales and marketing refocus: With ongoing marketing

support from Alcatel-Lucent, KPN enhanced the capabilities of

its SMB account managers and telesales teams to

communicate the new proposition. It hired an external sales

training organization to develop solution-centric market

messaging for the managed OmniPCX Office service to

replace its legacy product-focused messaging. A marketing

campaign supported sales training. KPN believes that together

the two programs enhanced the general awareness of managed

services within its target market and created a virtuous circle

of positive market information about managed services.

• Back-office support systems: With technical systems support

from Alcatel-Lucent, KPN revised its back-office and support

systems to better enable the processing of managed services

orders. It also further developed the processes used in its

Central Remote Resources Centre to better handle ongoing

support requirements from SMBs. The changes that KPN has

set in place will now be utilized by other product groups

throughout KPN’s business organization as it rolls out a wider

managed services portfolio.

• Service specification: One of the reasons why KPN selected

Alcatel-Lucent’s managed OmniPCX Office solution was

because it offers a hybrid platform; it is able to work with

analog and IP ports and is IP-ready for outbound voice instead

of PSTN/ISDN. In addition, KPN identified that its customer

base preferred the handset functionality and the user interface

over the user interfaces of competing vendors. Specifically,

customers perceived the Alcatel-Lucent handsets as “more

European” in design.

2 © Copyright 1997-2007. Yankee Group Research, Inc. All rights reserved.

April 2007

The Solution

Critical Success Factors

Exhibit 3Realized Business Benefits of Alcatel-Lucent’s OmniPCX OfficeManaged IP PBX SolutionSource: Yankee Group, 2007

Soft Benefits Hard BenefitsIncreased contract

length more than 50%

Enabled market share in new SMB

segment

Stronger customer

relationships

Internal process change to support the

managed IP PBX, will support

additional managed services

Reversed decline in traditional

PBX sales

10% to 20% increase in profitablity

Realignmentof market

positioning

KeyBenefits

3© Copyright 1997-2007. Yankee Group Research, Inc. All rights reserved.

April 2007

By implementing the Alcatel-Lucent managed OmniPCX

Office solution, KPN achieved strategic benefits in

positioning, opening new markets and developing deeper

relationships with its existing customer bases (see Exhibit 4):

• Market repositioning: The Alcatel-Lucent managed

OmniPCX Office solution is one of the core solutions enabling

KPN to realign its market positioning significantly. This

realignment is the key to KPN’s future direction because it will

enable KPN to offer the initial customer base enhanced unified

communications services within the managed IP PBX service

in the future.

• New SMB markets: The Alcatel-Lucent-powered managed IP

PBX service has enabled KPN to develop business within a

new market segment. This segment is characterized by its

propensity to out-task key functions and its general attitude to

innovative business models. This segment is leading KPN’s

penetration of the managed IP PBX into the SMB segment.

• Customer relationship development: The sales approach is

bringing benefits across the entire SMB segment as sales

messaging moves from a product and technology debate to a

business benefits discussion. The ability of the KPN account

team to discuss the impact of a managed service and its ability

to free internal management and administration time is bearing

fruit. Many of the companies opting not to migrate to a

managed service immediately have expressed interest in

migrating in the future. In addition, the confidence gained by

the SMBs because of their account managers' demonstration of

an understanding of business issues is opening opportunities

for additional service and product sales.

In introducing the Alcatel-Lucent-powered managed IP PBX

service, KPN has increased its profitability per sale, grown its

total market share of managed and non-managed solutions and

increased its typical annuity period for maintenance contracts:

• Increased profitability: According to KPN, the managed IP

PBX powered by Alcatel-Lucent is 10% to 20% more

profitable than alternative non-managed product sales.

• Exceeded business planning targets in the first year: In the

first year of service availability, KPN exceeded its target for

sales of the managed IP PBX and is forecasting a growth of

400% to 500% in seats during 2007.

• Increased contract length and value: The managed IP PBX

pricing becomes more attractive as the contract length extends.

KPN typically sells its managed IP PBX service as a 5-year

contract, whereas maintenance contracts associated with a

PBX equipment sale are typically only 3 years. In addition,

KPN has found that it is able to grow its average contract

value further by bundling more services into the contract such

as additional moves, adds, changes (MACs), software release

management and monitoring.

• Grew sales of non-managed IP PBX: Although KPN met a

new market opportunity for managed IP PBXs, it also found

that sales in non-managed IP PBXs started to grow, reversing a

recent trend. The reason for this was that the revitalized sales

approach was providing the framework for more effective

customer discussions. In addition, customers that may have

previously been lost to alternative competitors were buying

PBXs from KPN because they liked the managed IP PBX

approach, but perhaps weren’t quite ready to migrate.

Nevertheless, these customers wanted to stay in touch with

KPN and its developments in this space, with the intention of

migrating at a later date.

• Accept SMB migration to managed services as a long-term

strategy. Do not underestimate the importance of educating

and supporting SMBs through the decision-making process of

migrating to a managed service. The process requires

investment in internal processes, sales training and strong

market messaging to help SMBs make the eventual switch.

• Don’t expect SMBs to compromise on functionality. A

launch of a managed service will be most effective if the

service has features that are at least equivalent to non-

managed alternatives.

• Recognize customer service as a crucial differentiator. As

one of the key benefits associated with managed services,

back-office support should be aligned with the managed

services offering. KPN finds it beneficial to have an engineer

visit the customer location during installation to develop the

relationship, even though subsequent maintenance can be

conducted remotely.

• Adopt simple pricing to drive SMB managed services

adoption. A simple, standardized pricing model such as a per-

user, per-month fee will make it easier for small- and medium-

sized businesses to assess the relative value of using a

managed service. This lowers the purchasing barriers, while

enabling easy scaling and accommodating the up-selling of

other value-added services and features.

The Value

Exhibit 4Challenge, Solution and Value Source: Yankee Group, 2007

Challenge Solution Value

Meet demand from innovative SMBs that wish to outsource noncore functions

Alcatel-Lucent’s OmniPCX Office managed IP PBX solution, with all pre- and post-sales support provided by KPN's service center

Grow market share in new SMB segment and reverse market share decline in traditional PBX sales

Recommendations for Service Providers

© Copyright 1997-2007. Yankee Group Research, Inc. All rights reserved.

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