Total Cost of Ownership (TCO) for On-Premise VoIP: Are you paying too much?

If there were a war between hosted VoIP and on-premise PBX solutions, then historically, there would have been no clear victor. The field was split fairly evenly between SMBs and enterprise, with the majority of large organizations preferring on-premise hardware, small businesses preferring the flexibility of hosted solutions, mid-sized organizations torn between the two. But the tables have turned.

In fact, 2018 data shows that roughly 50% of large organizations have switched to hosted VoIP solutions (Gartner, 2018). The analyst firm predicts that this figure will shift even further, to 90%, by 2021.

To understand exactly what this means in terms of the long-term value of on-premise, consider this scenario applied to your own business. What if 50% of your oldest customers had recently switched to a competitor. What would this mean about the viability of your current offerings?

This report will examine why this trend is happening, and why now. If you currently own an on-premise PBX, then it will also help you start a cost-benefit analysis of switching to hosted VoIP.

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Is Cloud-driven VoIP Merely a Short-term Trend, or Is It a More Efficient Communications Platform?

Technologists know by now that many trends come and go. Just because the numbers are pointing in one direction in 2019 does not mean they won’t completely reverse by 2025. Is hosted VoIP, or as Gartner likes to call it, Unified Communications as a Service (UCaaS), here to stay?

There are a few compelling reasons to think so.

Defining cloud VoIP versus premise VoIP

You will hear a bunch of terms in this report and elsewhere when describing communications services. These terms will refer to one of two different ways to set-up communications that use data over the Internet. Cloud, hosted, or Unified Communications as a Service (UCaaS) VoIP refers to platforms that are operated, updated, and maintained by a third-party provider.

On-premise Public Branch eXchange (PBX), or simply Unified Communications (UC) refers to platforms where businesses operate and maintain a PBX themselves.

The latest motivation for UCaaS is a case in-point for why UC is very likely doomed

The latest reason explaining the migration to UCaaS is mobile. Since hosted VoIP providers have developed mobile apps, enabling employees to use the business network from anywhere, more and more businesses with on-premise solutions have made the decision to switch.

Mobile was only the last straw, however. As-a-service solutions have always benefited from technological advancement of any kind because these solutions are much easier to update than premise PBX. Every time a new capability is unveiled, premise businesses have to take another look at the cost of upgrading and maintaining their system. It just so happens that mobile capability is extremely important to employees, making this latest upgrade more of a nail in the coffin of UC. But more nails could be coming very soon.

Itemizing Total Cost of Ownership (TCO) for on-premise PBX

It can be a shock that renting is less expensive than owning — even in the long-term. We can’t think of a time in history when this has been the case for real estate. However, the backwards economics of IT investments becomes glaringly obvious to owners.

Even within a few years, hidden costs begin to add up. A single upfront investment turns into regular maintenance costs, upgrade costs, and many other adaptations to the original hardware.

Here is an extensive list of on-premise PBX costs that as-a-service solutions do not have to deal with:

  1. Capital Costs: Hardware, software and licenses
  2. Deployment Costs: If provisioning phones, installation, and training costs are not itemized by your vendor, they are still inflating either the upfront cost or the long-term vendor contract
  3. Maintenance Contracts: Maintenance can be steep especially when configuring remote users, whereas hosted solutions do not have this cost
  4. Software Updates: Keeping on-premise phone systems up-to-date requires additional software upgrades, whereas these services are seamless and at no added cost for hosted solutions
  5. Service Orders: Major repairs and maintenance of on-premise equipment incurs additional fees. Hosted solutions might be subject to some of these costs, if you purchase IP phones; however, the amount of service is significantly lower in all cases, and there are IP phone leasing agreements that carry this cost, as well
  6. System Management: Many businesses spend their own IT resources to help manage on-premise phone systems; these might not be recorded on the balance sheet, but they are still a drain on talent
  7. Training & Certification Costs: These include employees who deploy and manage the system, as well as training programs for role-based trainings
  8. Recurring Phone Circuit & Long-Distance: Hosted PBX does not require separate local lines and PRI’s at each location. Dialing inter-office extensions does not trigger long-distance charge across locations.

These added costs of on-premise VoIP make hosted solutions cheaper upfront, and also every year moving forward, while increasing convenience and capability.

The efficiency gained from housing communications in a centralized location, where a dedicated team can continue to develop new features, roll-out updates, and help people learn how to use the system, is recognized across strategic value of the communications solution. Hosted VoIP wins in terms of:

  • Flexibility
  • Scalability
  • Convenience
  • Cost
  • Features
  • Uptime
  • Redundancy
  • Quality

There is just one con for hosted VoIP: control.

With systems located on premise, the PBX is completely customizable to exact specifications. Hosted VoIP does offer a vast market of providers from which to choose, but the ability to customize these options is more limited.

For this reason, there will always be a handful of companies whose communication needs are so unique that control is worth the significant downside, but for almost all businesses small and large, UCaaS is the right choice.

Convergence Solutions was incredibly helpful to me when I joined my firm. Convergence had long managed our Telecomm PBX and handset equipment so I turned to them to help our full office renovations. Once our immediate phone relocation and wiring needs were handled promptly and professionally by the Convergence team, I found we were using a variety of unrelated vendors to manage our voice, conference call, IP Phones, and internet services. It was clear there was a lot to improve upon in terms of service, price and quality with this confederacy of dunces, so I stopped to talk with Steve Solton about our overall communications infrastructure.  After a brief discussion, it was apparent Convergence were experts on more than just the PBX in my back room, they began to identify our network server and port issues, suggested solid state industry enhancements, AV Conferencing solutions and  much more.  We are implementing many of these ‘Convergence’ solutions presently, none of which are minor, but all which are being expertly handled.

Bob Conway
Kaplan Kirsch Rockwell

Why Convergence Cloud

Unlimited Calling

The telecom industry is moving too slowly. Why nickle-and-dime you over minutes when it’s all just data?

Convergence Cloud delivers unlimited local and long-distance calling. There are no additional charges for toll-free. Every one of our plans are inclusive with no additional items costs.

Friendly Customer Support Based in Denver

As a Denver business, we are in the neighborhood to support you as much or as little as you need. If VoIP is new to you, our service representatives can take you through the process, so you know your communications will go uninterrupted.

The Most Cost-Effective Telcom in the Industry