Cost Justifying the IPT Upgrade: Point by Point ROI Roadmap

1© 2001, Cisco Systems, Inc. All rights reserved.

Session NumberPresentation_ID

Cost Justifying the IPT Upgrade: Point by Point ROI Roadmap

Jeff Wellen, VTG Systems Marketing

222© 2001, Cisco Systems, Inc. All rights reserved.Presentation_ID

Roadmap

• The context

• The numbers

• A Case Study

• The process

• Q&A


Company Leaders are asking IT departments to find savings


Nortel Study:

• 30% of its enterprise users have converged their voice and data networks

• Another 61% plan to do so in the next five years.

• 60% of users view wireless local area networks (LANs) as "critical" to improving employee productivity.

91 Percent Will Combine Voice/Data In Five Years


City of Mississaugua

• IPT is mainstream

• $3.3 million dollar network with 2,300 Cisco IP phones

• 60 municipal buildings throughout the city.

• $700,000 in annual savings over Centrex

“According to the City, converging its voice and data networks will lower its total cost of ownership by eliminating redundant infrastructure, centralizing administration and simplifying maintenance. It will also enable a series of new services including Enhanced 911 emergency calling, City-wide four-digit dialing and online employee directories. The response time for "adds, moves and changes" has been reduced from a minimum of two weeks to hours. Employees simply unplug their phone and plug it in at a new location. The IP phone reconfigures itself and all calls will be automatically routed to the phone extension, regardless of where it is plugged in on the network. “


City of Greensboro, NC

•Access points throughout the city provide network access to the City’s Inspection Department.•Eliminates time and effort needed to travel to main office for daily assignments and filing of daily reports•Public Safety, Waste Management, Street Maintenance,and other City Departments to be added in near future.

“The wireless network saves everybody a lot of time.We have calculated that it adds two hour per day perinspector, and we have 32 inspectors. That’s like getting eight new people without paying for them!”

Walter Simmons Code Manager City of Greensboro, NC


Data networks have become essential, ubiquitous, robust, multiservice and cost effective

Several $100 Billion have been invested by governments, carriers, and enterprises in their IP networks in the US over the past decade,

Moore’s Law working - Costs for IPT technology dropping rapidly over past 5 years while improving quality and features

55% of American households are on-line, 17% with Broadband

Mobility is expected.

~ 20% is data networking~ $80 Billion/year

Voice is now or will be one more service on your data network


IP PBX diaplacing Traditional PBX’s

• Key drivers for IP Telephony

Lower cost of ownership by reducing expenditures associated with equipment and maintenance, network administration, and network carrier charges

Improved communications capabilities by facilitating employee mobility and providing a solid foundation for the deployment of advanced, feature-rich services and solutions

Converged IP networks reduce the expense of maintaining separate voice and data networks and support models

0%

20%

40%

60%

80%

100%

2001 2002 2003 2004 2005

IP PBX Traditional PBX

IP telephony market is now moving to mainstream from the early adopters stage

US Enterprise Telephony Shipments


$0

$1

$2

$3

$4

$5

$6

1997 1998 1999 2000 2001E 2002E 2003E 2004E 2005E00.511.522.533.544.5

1,000+ lines, Lost Revenues 1,000+ lines, Lost Lines

Source: RHK$Bil Mil

IP PBXs displacing Centrex

• 1.8 mil lines and over $1Bil in service revenue lost to IP PBXs

• IP Centrex is response

Centrex Revenue lost to IP PBX


Roadmap

• The context

• The numbers

• A Case Study

• The process

• Q&A


Your IPC Savings and ROI will depend on real current spend…

• CentrexLine charges

Internal Support

Voice mail

Feature Packages

Phone cost

Usage charges

Local Administration

MACs

• PBXsDepreciation

Internal Support

Equipment Repair

Hardware Upgrades

Annual Maintenance

Software upgrades

Local Administration

MACs

???Professional assistance often needed


Convergence impacts cost assignment, budgets, and organizations.

What costs to assign to IPT?

Phones

PBX Processors

Management System

Annual Maintenance

Day 2 Support

PCs

Servers

Management System

Annual Maintenance

Day 2 Support

Routers

LAN Switching

Telephone cable plant

Ethernet Cable Plant

End Points (phones,softphones, PCs, PDAs)

Servers (Application, Video, XML)

Management Systems

Annual Maintenance

Day 2 support (data and voice service)

Routers (Voice enabled, QoS, VPN)

LAN Switching(Switches, Wireless APs, Line Power)

Ethernet Cable Plant (powered)

1995Distinct Systems and Organizations

2005Substantial shared technology and costs

… and your incremental IPC costs,


Example Savings Areas

MACs3%

Maintenance13%

Other8%

CarrierCosts10%

ConCall24%

SoftwareUpgrades

29%


Productivity Savings are real

• Telecommuting and Office “virtualization” savings

Eliminates commute time (1 hr/day)

Reduces absenteeism (snow days, marginal sick-days)

Corporate LD rates for out-of-office calls vs cell phone

Employee satisfaction

Lower employee turnover

Real Estate savings

• 2% Productivity improvement

0

1%

2%

3%

ProductManagers

CustomerCare

SalesRepresentatives

Executives

Source: The Radicati Group, Inc.

Per

cen t

An n

u al P

rod u

c ti v

i ty Im

p ro v

eme n

t

Productivity Improvement After ImplementingUnified Communications

Soft Savings generate intense reactions and debate. We chose to focus on hard savings, accepted lower ROI.


Lets look at Centrex as example

• Centrex Tariffs are public information and therefore easier to benchmark

• Assumes PBX and Centrex features at rough feature and price parity


Typical Centrex charges

Reference Number Service Units Rates

Analog Business Line per line Monthly Rate $18.00

Analog Business Line w/ EUCL per line Monthly Rate $22.00

Optional Features Call Waiting per feature Monthly Rate $3.89

Selective Call Forwarding per feature Monthly Rate $4.65

Busy Call Forwarding per feature Monthly Rate $3.89

Delayed Call Forwarding per feature Monthly Rate $3.89

Speed Calling per feature Monthly Rate $3.89

Three-way Calling per feature Monthly Rate $3.89

Call Return per feature Monthly Rate $4.65

Call Screen per feature Monthly Rate $4.65

Priority Ringing per feature Monthly Rate $4.65

Repeat Dialing per feature Monthly Rate $4.65

Remote Access to Call Forwarding per feature Monthly Rate $1.38

Call Trace per line Monthly Rate none

Line Hunting per line Monthly Rate $0.47


Centrex and PBX Pricing varies widely customer to customer

Region, line volume, duration, features, distance, usage, etc.

Centrex Example

$28/mo for analog

$38/mo for ISDN


Some customers paying more than $40/station/mo


Basic features are additional charges


PBX and Centrex Endpoints are pricey

• Refurbished, 1 Year Warranty

Nortel M5316 = $329

Nortel M5221 = $169

Definity 6408 = $199

Definity 6424 = $289

Customer current telecom spending is complex, often misunderstood, and requires time and expertise to capture accurately.


Roadmap

• The context

• The numbers

• County of LA

• The process

• Q&A


County of LA

• Largest County in US

• 80,000 employees

• 39 Departments and central telecom group

• 80% Centrex, Many PBX’s

• Centrex Displacement Scope61,000 Centrex Lines and 17,700 Centrex Voicemail boxes

Centrex costs examined include line charges, voice mail, usage, and MACs


Basic Station Line and Features (include all Centrex features) $12.75

Optional Features Call Trace $0.50

Call Screen $0.55

Remote Access to Call Forwarding $0.50

Speed Call 6 $0.25

Speed Call 30 $0.55

Speed Call 50 $0.75

Speed Call 70 $0.85

Speed Call 30 $0.85

Speed Call 50 $0.30

Speed Call 70 $0.50

Auto call Back System $1.00

Auto call back Line $0.35

Ringdown line $0.45

Call Waiting $0.25

Limited call Acceptance $3.00

Best rate we’ve seen- public sector.

Plus $7 for voicemail

Rates above $20-$30 common

County of LA Centrex pricing

Checkout the feature charges


More costs, and usage may be charged as well

Basic rate ISDN Analog Business Line with service packageper line Monthly Rate+EUCL $32.47

Basic Rate Centrex ISDN Monthly Rate+EUCL $30.85

Primary Rate - ISDN Monthly Rate $176.00

HICAP - T1 per T-1 monthly rate * $195.00

Dialing Plan - Option Monthly Rate $71.24

Alternate Routing -Option Monthly Rate $9.50

Calling Name Display-Option Monthly Rate $9.50

Message Waiting Indication -Option Monthly Rate $9.50

Network Ring Again Monthly Rate $9.50

PRI Subgroup Monthly Rate $9.50

Private Facility Connection Monthly Rate $94.99

User to User Information Monthly Rate $9.50

Caller ID- All line types Monthly Rate $3.00

Local Calls minutes of use Per Minute $0.009

Zone Calls minutes of use Per Minute $0.009

Intra-LATA Calls minutes of use Per Minute $0.0288

Voice Mail Box per box Monthly Rate $6.75

CostPer Add Installation/One-time $67.21

labor-per lineInstallation/One-time $95.00

per jack Unit Rate $3.00

$165.21


Used IPT benchmark for 10 year analysis

• 5000 stations, 50% 7940 and 7905 IP Phones

• Upgrading of CAT5500s to CAT 4500s

• Call Manager 3.3 with dual MCS 7845 and ER

• PRI Gateways with dual 6509s with 4 6xT1 modules

• Mix of new powered line cards and power cubes

• CiscoWorks ITEM for NMS/EMS, PC is CFE

• Unity 4.0 on 2 Compaq ML570 platforms

• Partner implementation services

• Power and HVAC upgrades, (UPS, vents)

• SMARTnet and SAS/U across the board

• 5 Year Lease Terms and average credit score (4)

• Customer data/voice group to manage


Benchmark IPC System Pricing-5000System Annual Maintenance Total

Cost Element Description $/Station $/Station/mo $/station $/station/mo $/station/ mo

Switch replacement/upgrade New 4500s net of tradein 120.00$ $2.04 40.00$ $3.33 $5.37Line Power 50/50 Cubes and POE $60.00 $1.02 1.00$ $0.08 $1.10Phones 50/50 High and low end $250.00 $4.25 -$ $0.00 $4.25Call Manager SW and Servers CM Redundancy, E911,TFTP $25.00 $0.43 2.00$ $0.17 $0.59PRI Voice gateway dedicated Catalyst 6k pair $30.00 $0.51 6.00$ $0.50 $1.01Voicemail(100% penetration) $65.00 $1.11 $12.00 $1.00 $2.11NMS $3.00 $0.05 $1.00 $0.08 $0.05Partner Implementation (PDI) PDI and training $90.00 $1.53 - - $1.53

All Costs (w/data network upgrade) $ per station $643.00 22.00$ $ per station per month $10.93 $1.83 $12.76

IPT w/ VM (no data network) $ per station $523.00 $22.00$ per station per month $8.89 $1.83 $10.72

IPT only (no VM, no data network) $ per station $458.00 $10.00$ per station per month $7.79 $0.83 $8.62

Other Recurring CostsPSTN Interconnect (PRI) per phone 12:1 ratio, $325/month per T1 $1.13Day 2 Support per station Internal or External $5.00Ongoing OP Ex $ per station per month $6.13

Modeled for benchmark configuration $/Station and $/Station/Month

$12.76/mo

$10.72/mo

$8.62/mo


Projected System cost using benchmark

Cap Ex Estimate

Average Price per station after discounts

Annual Maintenance %, net of discounts

and trade-inPlant Improvements ( closet vents/conditioning) 6 0

Switch replacement/upgrade net of trade in $55 35%UPS for closets $28 10%Line Powered Modules (50%) $48 1%Phones (50/50 7940, 7905;50% cubes, with licenses) $229 2.5%Call Manager $21 20%PRI Voice gateway $29 20%NMS $3PDIO services(est, partner, w/training) $84

IPC price per station $503

Voicemail System $60 25%$563

W/ data Network Exc. Data NetworkTotal voicemail boxes replaced 17,763 17,763Total stations replaced 61,000 61,000Voicemail system cost 1,065,780$ $1,065,780IPC system cost 30,683,000$ $25,254,000

Total System (est.) 31,827,543$ $26,319,780


Calculated Net OPEX Savings?Net Savings

Cost ReductionsCentrex Line charges 8,784,000$ Centrex Feature Charges -$

Centrex voicemail 1,438,803$ Usage Charges 1,055,221$ MAC Cost 494,460$ Network Operations Efficiency -$

Annual Op Ex Savings 11,772,484$ Cost IncrementsDID line charges 109,800$ Supertrunks for voice IPC solution gateways 212 SBC charges per SuperTrunk 401$

New Annual Line Charges 1,129,008$ New Annual Maintenance and warranty-Voicemail 310,853$ New Annual Maintenance and warranty-IPC 1,145,580$ New CoLA PM and Technical Support 1,000,000$

New Annual Op Ex Costs 3,585,441$

Net Annual Op Ex Savings (Years 1-5) 8,187,043$

Net Annual Op Ex Savings (Years 6 on) 9,187,043$

Simple model

No subjective savings

On investment of $26 million

Before lease payment


What was the ROI?

ROI Estimate w/ Data Network Exc. Data Network

Total System (est.) 31,827,543$ $26,319,780

Annual Net Savings (Years 1-5) 8,217,726$ $9,388,526ROI (Years 1-5) 26% 36%

Annual Net Savings (Years 6 on) 9,217,726$ 10,388,526$ ROI (Years 6 on) 29% 39%

Optimized case, ignores financing choice

Savings w/ Financing Estimate6 year Lease w/ Data Network Exc. Data Network

Annual Payments $7,428,201 $5,907,075Annual Savings (Year 1-6) $758,842 $2,279,969

Annual Savings (Year 7 on) $8,187,043 $9,357,843

10 Year Cumulative Savings $37,301,226 $51,111,185

What were the savings under a lease?


Upgrade needed anywaySavings fund priority projects

Route IP-TV video streams from building entrances, sensitive locations, high crime areas to central security

Provide guards with ability to lookup employee and contractor photo for added security

Emergency Notification

Use new IVR contact center products to improve service levels for courts, housing, unemployment office, etc.

Disaster recovery; remote operations and management connectivity


Lessons Learned

• Biggest challenge is to determine current spend, PBX or Centrex, not IPC spend

• $$$ not enough for most customers. Need agreement that IPC is part of strategic direction.

• Support for IPC constituencies can be built by earmarking savings to important internal projects (Surveillance, Emergency Notification, Business Continuity, Mobility, etc.)

• IPC evaluation should use same planning horizon as legacy PBX, 10+ years.

• Think leasing early. Very attractive rates and delivers cash savings sooner

• Data network upgrades will be driven by application growth, security, traffic, and other non-voice data network requirements. IPC financial justification should not be burdened with expected data network upgrades.

• Look for optimizations early (phone mix, network state, SmartNet)

• Think carefully about partnering for Day 2 support. ILEC can be ally or foe.


Roadmap

• The context

• The numbers

• County of LA

• The process

• Q&A


Cisco Piloting ROI Consulting program

Web Based Tools

• CNIC•www.cisco.com/partner/cnic/

• IPT TCO Tool •wwwin-tools.cisco.com/ sales/servlet/

•Cisco Services ROI Tool •http://tools.cisco.com/CAIT/ASTOOL/

Prepackaged Engagement

• 3 partners

•Pre-negotiated scope and price

•Account teams lead customer coordination, network design, reviews

Custom Engagement

• Negotiated deal by deal


Engagement Methodology

•Joint AT Project Planning

•Account History•Politics, Technology•Sales Objectives•Methodology, Expectations•Schedule, Deliverables

•Discuss oppty and •partner options with CMO,VTG

•Interview Partners

Step 1. Qualify Step 3. Plan

•Customer Kickoff

•Methodology•Expectations•Schedule •Deliverables

Step 4. Engage

•Interviews•Focus Groups•Interviews•Budgets•Contracts/Bills *•Cap Ex•Op Ex

Step 5. Collect

•Model•Business case•Exec Preso

Step 8. Deliver

•5 year proforma•IPT scenarios•Lease vs buy•ROI/NPV/IRR•Cashflow•Savings

Step 6. Analyze

•Customer•Account Team•IPT Specialist•VTG/CMO/CA

Step 7. Validate

•Secure funding•Secure Customer support•Select partner•Schedule

Step 2. Commit

2 weeks 2 weeks 2 weeks 1 week


Engagement detail

Step 5aInformation CollectionCentrex pricing scheduleBilling- Customer record of Service and Equ.Traffic ReportsMAC statsNetwork readiness (no survey)Data Upgrade projects underwayVoicemail penetrationFeature penetrationEssential services and needed new services ++Planning Horizon (10 years)Pilot candidates

Step 6bFinancial AnalysisROICashflow ImpactAnnual SavingsAnnual Savings per Line

Step 6aSystem Savings EstimateLine charges, Voice mail, conference CallingToll bypass, MACsProductivity enhancements - Relo downtime - Directory lookup - New Apps (police call outs)Personnel savingCable Plant maintenance

Step 5bSystem Cost EstimateHardware and SoftwareMaintenanceProfessional ServicesNew switching Routing/Switching/GatewaysIncremental Telco costsLease ratesValidate benchmark against pilot candidateSupport Model-Internal Voice and Data group vs 3rd party


Example Engagements

Multiple Departments

Funded with FY03 Market development funds

Salire/TBD/VTGNew York City

Customer needs to justify $1 million investment to date in IPT to expand.

Signature Group/VTGMiami-Dade County

Multiple Departments. Employment Development Dept, 4000 line Centrex displacement

55% ROI

BearingPoint/VTGState of CA EED

10,000 line Nortel PBX and Core displacement. Complete network rebuild needed but must lower costs as well. $300k per year to being spent just to replace broken phones

65% ROI.

Salire/VTGCounty of Ventura

61,000 line Centrex displacement using leasing.

ISD ordered IP PBX for central service dep’t. Sent 11 to training, now engaged as IPT advocate.

26/36% ROI and ~$50 Million saved over10 years

VTGCounty of LA

NotesConsultantCustomer


Recap - Questions to consider…

How much are you nowspending per station?

Line ChargesConference Bridges

Voice mailUsage

FeaturesMACsOther

How much of a costreduction would make

change attractive?

Can Cisco help work though a business case?

What new IP enabled services would add value

to your organization?Emergency Broadcast Notification

Unified Communications802.11 phones= campus mobility

IP SurveillanceSecurity Applications

Mobility/Relocation/TeleworkersBusiness Continuity

User initiated provisioningDirectory Services

Video Conferencing

What is value of new applications/productivity

Improvements?

What are your current data network upgrade plans?

Switching (Edge)RoutingWAN connectivityQoSApplication driven upgradesTelecommutingRedundancySecurity

What incremental data network upgrades are due

to IPC?


Roadmap

• The context

• The numbers

• County of LA

• The process

• Q&A

Documents

Cost Justifying the IPT Upgrade: Point by Point ROI Roadmap