Replacing Centric Voice Services with Hosted VoIP Services: An Application of Real Options Approach

The objective of this paper is to apply real options techniques to justify the replacements of a Centrex PBX telephony solution for a new Voice over IP (VoIP) based solution. In this proposal we are looking at replacing the hardware components of managing a PSTN service with one which is hosted and managed from remote facility. We apply the real options approach to compare the Centrex based solution currently deployed by the traditional voice carriers like the RBOCs and IXC’s using the hardware from Nortel, Avaya, and Siemens with one currently being developed and deployed by the VoIP providers like Vonage, 8 by 8, Deltathree, Net2Phone. We investigate the potential savings in hardware cost, provisioning, billing, maintenance and service with new features sets created as a result of converging voice on a data platform using the Internet Protocol (IP). Another important factor we consider is our evaluation is the drastic reduction in costs for providing VoIP. The analysis shows that a hosted managed solution is the most effective solution for a company engaged in acquiring a new telecommunications solution. Furthermore we predict early adapters would be small business units particularly with less than 100 employees.