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Centrex to CPE to Hosted: Full Circle Deja Vu

thumbnail-1-3I was asked to write a quick paper on hosted phone systems versus traditional CPE systems and it turns out that CPE replaced the original hosted systems from back in the day. For those of us old enough to remember, businesses in the USA, up until the late 70’s, bought their telecom from the only game in town, the monopoly telco, then known as the Bell System.

The Bell System was comprised on a national level by the ultimate monopoly, the telephone company known as AT&T which had the mandate from the US federal government to get all business, government and consumers hooked up to the telephone system.  It did this through local Bell Operating Companies known as “Baby Bells” (Mountain Bell here in Colorado) and with equipment provided through its hardware and engineering division known as Western Electric.

In those days, the entire telephone system was maintained and marketed by this monopoly which provided both business and consumers with the original “hosted” phone system.  Consumers would rent (lease) a telephone that was determined by the phone company to be compatible with the phone system.  Folks purchased or leased the actual telephone and paid a monthly bill for local service (usually metered for both local and long distance calls whereas each call was charged a specific minute rate).  Business did the same thing on a larger scale, the local Bell operating company provided the telephone equipment and the service, and the business paid with no questions asked, because there really was no choice.  Compared to the market today, this is the original “hosted system” where all services are paid for on a monthly basis including the instrument used to access the network.

Competition soon caught up with the monopoly and off-shore equipment producers began to sell phone equipment directly to businesses and eventually consumers.  AT&T fought this by forcing non-Bell equipment to certify with Western Electric to prove the equipment would not “damage” its network.  Momentum turned in favor of these manufacturers as it became apparent that their equipment would not only work, but work in many ways much better and for a cost of the promised ROI in a very short time.  Thus began the era of Customer Premise Equipment or CPE in Telco parlance.   

Add to this the upstart MCI, which sued and won to compete with AT&T for the long distance market, and the floodgates opened to complete deregulation of the mammoth AT&T and the Bell operating companies.  

So now in the age of deregulation, business could choose their phone system and their carrier for long distance; only the local phone call market remained regulated.  Most businesses were happy with the choices provided and manufacturers flourished in a race to provide the best feature/function cost mix for a huge and hungry market.  

With the evolution of the Internet, new choices in Telecom became increasingly available. Upstarts like Skype and Vonage led the way by appealing to consumers with extremely cheap monthly service for both long distance and local calls alike by bypassing the local telco and instead sending voice calls over the Internet. Thus began the VoIP revolution and it has expanded exponentially since with all kinds of new opportunities for businesses to choose systems that live on the Internet or in the cloud, thus reducing or eliminating the need for onsite telephone systems and instead relying on the Internet connectivity for voice calls along with data needs. 

This, then, is the modern definition of Hosted Systems. As Internet connectivity continued to improve and become cheaper, Internet Phone providers rapidly became more sophisticated.  Any business now could use a hosted system instead of relying on the CPE “box” in the phone room and the telco to provide outside access.  The systems were appealing, especially to small and geographically separated businesses that could now be linked together via the Internet and a cloud-based PBX such that it appeared as they were all in the same office. Hosted also offered another important choice, the lack of a large upfront CapEx investment to purchase and install a phone system on site. They needed Internet anyway and if voice could ride along effectively, then why not?  After a lot of growing pains in the industry, hosted systems continue to grow in the marketplace from SMB systems all the way up to replacing medium-sized business and even enterprise systems. 

Modern Hosted systems were sold on a “per seat charge/month” model which makes proposing the system a simple thing for the business to understand.  X amount of people needing a phone times the monthly cost per seat.  

Hosted Systems for the hospitality industry pose a very different scenario.  The main difference is that while the front office of a hotel looks a lot like a normal office, the rest of the building does not.  Guest room phones are typically analog and must be dealt with differently than SIP office phones which can directly connect to the cloud through the Internet connection.  Some device has to remain on-site to drive the analog stack, a problem small business hosted systems did not have.  Also, as a hotel serving guests, being out of service for whatever reason is simply not an option, so again on-site equipment is necessary to manage business interruption and immediately provide alternate services to overcome any failure. Finally, security in a hotel is a huge concern as the privacy of the guest room communications must be ensured.  

So a ‘hosted system” for a hotel is a different animal than a hosted system for a small business. It will require some type of hybrid model to get enough equipment on-site to keep the analog stack working and to provide failover in the case of network failures. This means up front cost of acquiring the equipment and getting it installed as well as maintained which takes away some of the “hosted” value seen in SMB installs where the upfront costs are very small. Still for a fraction of the cost of outright system purchase and installation, a hotel can get the PBX services it needs.

Hosted systems can now also include the complete service, the PBX, the trunks and the service/maintenance costs, all rolled into a single monthly payment. This is the Hosted view I believe hotel management groups have told us they want. As the voice part of their system is a pure expense, then driving that service down to the simplest and easiest method to understand and pay for is very appealing to the modern hotelier.


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