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Report Finds IP Telephony Costs are Falling while UC Costs are Going Up – But with Good Reason

Posted by Paul Desmond

Feb 6, 2015

The cost of implementing, owning and operating IP telephony systems fell by 28% last year while the total cost of ownership for unified communications implementations increased dramatically, by 83%. But the news isn’t all bad for UC; much of that increase is attributed to users adding more applications to their implementations than in the past – and presumably getting more value. VoIP costs falling UC costs rising

These are the highlights from a Nemertes Research summary of its IPT/UC TCO study, performed last year. The company surveyed 189 enterprises altogether, a mix of in-person interviews and web-based surveys, a process it’s been going through for 9 years in the IPT/UC space.

First-year Costs for IP Telephony are Falling

In the IPT realm, Nemertes got enough responses to gather meaningful data on seven vendors: Alcatel-Lucent, Avaya, Cisco,  Microsoft, NEC, ShoreTel, and Mitel. It found median first-year costs for IP telephony were $935 per endpoint, down from $1,305 in 2013.

Not surprisingly, those with the biggest rollouts saw the lowest cost per endpoint. For those with fewer than 350 endpoints, the first-year cost was $1,378 per. Above 350 endpoints, the first-year cost drops to $626 each. The report notes that costs dropped for all seven vendors.

That said, the first-year costs differ dramatically among vendors, from a low of $669 for ShoreTel and $750 for Avaya to more than $1,000 each for Mitel, Alcatel-Lucent and Microsoft, which took most-costly honors at $1,354 per endpoint. But the news for Microsoft is actually pretty good, considering last year its first-year cost was $2,482 per endpoint, meaning it had a drop of more than $1,100.

Operational Costs for IP Telephony are Also Declining

While a drop that large that strikes me as a red flag, Nemertes has an explanation. “This drop is driven by a sharp decrease in Microsoft’s operational costs, which Nemertes expected would happen as IT staffs’ learning  curves shortened,” the report says. Indeed, Nemertes found Microsoft’s operational costs fell significantly from $1,912 in 2013 to $805 per endpoint in 2014 – a dramatic drop indeed.  

But the finding may make sense if Nemertes was interviewing much the same group as it did in 2013, folks who had an additional year of Lync experience under their collective belts. Knowing a little something about the Nemertes approach to research, my guess is a good number of respondents were the same in both 2013 and 2014. That means brand-new Lync users may want to plan for the higher end of that cost-per-endpoint curve (or hire some folks with Lync experience).

Not surprisingly, those vendors with the lowest first-year cost per endpoint were also those with the lowest operational costs: Avaya, NEC, and ShoreTel, at $174, $275 and $300 per endpoint, respectively.

Unified Communications Costs are Sharply Rising – With Good Reason

Nemertes also reported on UC cost data for four vendors: Avaya, Cisco,  IBM and Microsoft.

Whether users get all their UC applications from a single vendor or use a best of breed approach, the result is the same: costs are rising dramatically. The median first-year, per-license cost for UC implementations was $954 in 2014, up from $522 in the prior year – an increase of more than 80%.  

Once again the difference between high and low ends of the spectrum are dramatic. Avaya had the lowest total first-year license cost at $817 per along with the lowest capital cost ($167 per license). Microsoft again had the highest price, with a first-year cost of $1,265 per license.   

Operational costs have also increased, from $207 to $577 per license – an increase of more than 175%.  

With such a dramatic increase, one has to wonder, “What’s going on here?” The report offers this explanation:

Based on information from Nemertes interviews with IT executives,  the increase in operational and capital costs is driven by companies adding or integrating new applications into their UC suites, which results in more to buy and manage. This can also create a learning curve that requires third-party assistance,  training, and more internal staff.  

OK, I’ll buy that.

The report ends with some advice on how to keep costs down. The best bit is this:

Consider virtualization – Nemertes estimates that enterprises can save 43% by using virtualization for IPT and UC.  

Indeed, virtualization was one of the reasons cited for Avaya’s relatively low capital costs.

Click here to download the full report from Webtorials (registration required).

Topics: Voice, Business Case, Unified Communications,, Industry News