
                           Private Branch Exchanges
                         by pbxphreak <chris@lod.com>

I would like to thank Chapters book store for baring with me for all my time
of research at their store, and also thank you to Starbucks coffee for
providing their awesome cocoa! A lot of research was done for this article. I
hope you like it!

Down to Business:

A private branch exchange (PBX) is a typical telephone system for large
organizations. In this environment, an organization that is served by a
central office dial tone from the local exchange company might need the
capacity of high-volume calling and handling services. Clearly, a single-line
telephone set with a dial-tone line for each user will work. But, it will only
just work! It will not satisfy the needs of the organization.

In addition, it will be expensive. Assume that a dial-tone line costs $20 per
month. If the organization has a multitude of users, the cost per month will
be significant. Table A highlights some of the typical costs associated with
basic dial-tone service for various numbers of employees. These numbers are
only representative, but they should get our point across. The table reflects
the basic montly cost and the  annualized cost of renting a dial-tone line
from the local carrier.

Table A:
Number of Users         Monthly Cost @ $20.00         Annualized Cost
100                     $2,000                        $24,000
500                     $10,000                       $120,000
1,000                   $20,000                       $240,000
2,500                   $50,000                       $600,000
10,000                  $200,000                      $2,400,000

You can clearly see from these numbers that the use of a basic dial-tone
service can get quite expensive. As a matter of fact, many organizations now
say that telecommunications is the number-two expense item in their corporate
expense registers, second only to personnel costs. This is both good and bad.
It is good that organizations are depending on telecommunications more, as
opposed to more expensive alternatives (such as travel, personnel, and other
sales and marketing costs). Pound for pound, telecommunications sill produce a
greater return on every dollar spent.

But back to the point. The costs can be staggering to a financial or senior
managerial person in an orgranization. But the dial-tone line costs listed in
table A give the user only dial-tone access. This is a full-time dedicated
access line for two-way service for every single user. If you add just a
single-line telephony set for each of these users, then there are some
capital costs associated with the ownership of these lines. Table B shows the
costs of a single-line set for every user, at a base price of $60 per
single-line telephone set. These are, again, basic assumptions on the
purchase of these sets; one could do better.

Table B:
Number of Users              Cost of Equipment
100                          $6,000
500                          $30,000
1,000                        $60,000
2,500                        $150,000
10,000                       $600,000

Again, you can see that the equipment costs can mount quickly. But what is
wrong with this picture? Well for starters, the single-line set limits what
the user can do with the basic dial-tone service. Also, the single-line set
does not allow for intercommunication between the users within the
organization unless they tie up their dial-tone lines as follows:

 - Grab the dialtone by going off hook.
 - When dial toen is recieved, dial the digits (seven) of the desired internal
   party.
 - When the ring is generated and the party answers, hold a conversation.

But this completely ties up two outside lines for the two parties to converse.
If a customer tries to call either of these two parties, the customer will get
a busy tone. That is, unless the call hunts to some other number. If the call
does hunt, then a third outside line is occupied while a message is taken at
the rollover line. Customers can be denied access, and can get frustrated. All
of this while the two parties could be talking to each other in the next
office. Note that however long the wires are that run back to the central
office where the dial tone is provided, the call uses twice that to get the
two conversationalists together. Clearly, this is not an optimized use of
telecommunications services.

It should be obvious from the preceeding discussion that larger organizations
require the larger capacity and capability of a private branch exchange (PBX).
These systems have names that come in many flavours, such as Private Automated
Branch Exchange (PABX), Computerized Branch Exchange (CBX), Digital Branch
Exchange (DBX), Integrated Branch Exchange (IBX), and Nippon Electric
Automated Exchange (NEAX).

These names basically mean the same thing. They are just different vendors'
acronyms used to differentiate their specific products. The generic term PBX
is a private (customer owned and operated) branch exchange (like a central
office, it switches and routes calls internally or externally and provides a
dial tone to the internal users). The PBX marketplace is inundated with
acronyms and features. However, they all do similiar things: they primarily
process voice calls for the organization. These devices are computer systems
that just happened to do voice. Now they also do other things, such as
provide data communications and data access.

On average the all-digital PBX will cost approximately $750 to $1000 per
station. A station is the end-user device, and the figure includes the cost of
all the associated hardware to support the telephone set. Included in this
generic price is the card inside the computer that provides the dial tone and
the logic, a portion of the common equipment that serves many users, and the
telephone set, the wiring, and the installation.

The Components of the PBX are as follows:

 - The central processor unit (CPU) is the computer inside the system. The
   "brains".
 - The memory-any computer needs some amount of memory.
 - The stations, or telephone sets, are also called lines.
 - The trunks are the telco CO trunks that terminate into a PBX.
 - The network switches calls inside the system.
 - The cabinets house all the components.
 - The information transfer, or bus carries the information to and from the
   computer.
 - The console or switchboard allows the operator to control the flow of
   incoming calls, and so on.
 - The common logic, power cards, and so on facilitate the system's operation.
 - The battery back-up insures against power failures.
 - The wiring infrastructure connects it all.

The PBX is a stored-program, common-controlled device. As a telephone system,
it is a resource-sharing system that provides the ability to access a dial
tone and outside trunks to the end user. This stored-program controlled system
today is an all-digital architecture. In older versions, the PBX could be an
analog system, but newer systems are all digital. It would not make sense to
produce an older technology for a modern-day telephony system.

Analog Systems
--------------
The analog system used analog components to handle to handle the call setup
and tear-down for the entire system. A voice call is introduced into the
system in much the same way that a business or residential user's input is
introduced to the telephone company network. As the user generates a call, the
telephone handset is picked up from the cradle. At this point, an input/output
(I/O) request signal is sent to the main architecture of the PBX, which is
usually a computer. Once the signal is sent to the common control, the system
then returns a dial tone. The user then dials the digits for the party
desired. This dialing sequence is done in-band on the wires the talk path of
the caller. The digits, either rotary (pulse) or tone (DTMF), are sent down
the wires to the telephone system.

From there, the telephone system kicks in and generates a request through the
architecture to a trunk card. The trunk card serves as the interface to the
central office (CO) to request an outside dialtone. The PBX, upon recieving
dial tone at the trunk card interface, then generates the pulses or the tones
across the line to the central office. Then CO processes these digits in the
same manner that is processes individual line requests from a residential
user. From the telephone company's perspective, this is the easiest way to
process the information.

Digital PBX
-----------
All newer systems are basically digital. As a computer architecture, the
system processes the information in its digital format. A digital
coder/decoder (codec) in the telephone set converts the analog voice
conversation into a digital format. The digital signals are then carried down
the wires to the PBX heart (the CPU) for processing. If a call must go outside
to the world, the PBX has to determine the best route to process the call
onto. In the case where the call will be traversing the telephone company's
central office links on an analog circuit, the PBX must format the information
for the outside link. In this case, a digital-analog conversion will take
place. Even if the call is to traverse a digital link to the world, the PBX
might have to go through a digital-digital conversion. This is because the
digital signal at the PBX interface is a unipolar signal, whereas the signal
to the telephone company is bipolar signal.

The list of vendors selling and supporting PBX systems is quite lengthy. The
manufacturers offer them to the customer directly or through a distributor.
The options are many. The two largest suppliers of systems in the United
States are Lucent Technologies and Northern Telecomm Inc. (NORTEL). This
ranking is based on number of systems sold, rather than a qualification of
"best", although tiy nught establish that the quantity sold is a reflection of
some qualitative measure. Table C. shows the top players in the United States,
based of sales volumes. It is interesting to note that the top 2 command
better than 50 percent of the U.S. market.

Table C: Top Players in the U.S. PBX Market
-------------------------------------------
Northern Telecomm (NORTEL)
Lucent Technologies
ROLM
NEC
GTE
Intecom
Fujitsu
Hitachi
Mitel

The PBX market has recently been plagued by soft sales. This is a function of
the recession, the rightsizing and downsizing of corporate America, and the
overall unsettled market from a technological standpoint. End users are
uncertain of what to buy and when on the market curve they should buy.
Therefore, the vendors have had to resort to major markdowns, and they often
throw in several other goodies. The buyer's market prevails in the PBX
industry. As a result, significant discounts can be obtained if you work with
the vendor and understand the product being offered. Many vendors will also
compete severly with their distributors. Remember, this is a buyer's market.
In Table D. is a summary of how the costs would look for the acquisition of a
digital PBX, the basic telephone system for an organization. This table
reflects three important pieces of the billing arrangements. It would not be
unethical to see how the vendors price out their systems against this model.
In table D. we use an average price per port of $1000. The costs associated
with a 1000-user system would, therefore, be as they appear in table D.

Table D: Summary of Costs for a 1000-Line Digital PBX
-----------------------------------------------------
- Cost of hardware, software, training, all telephone sets, and interfaces
  with installation of the hardware - $350,000
- Cost of wiring and installation for the building infrastructure - $350,000
- Markup and Profit - $300,000
- Total - $1,000,000

Another item of note is the third line item, that being profit. We always want
out vendors to survive for another day , no two ways about that. However, we
do not want to pay a 30 percent total markup on a system for profit. In
actuality, the margin is 37 percent, and we will see why later. This is
unheard of. So, the discounts that might be passed along from the vendor might
well be from the profit picture. Suppose that the vendor offers a discount of
20 percent off the top of the price. The total price is $1,000,000 and the
discount is 20 percent, so you can expect to pay $800,000. That should make
you feel pretty good, to get a $200,000 discount off the top of your system.
But, wait! What if the vendor cam back and said that the total discount is
only $70,000? Where did we go wrong? Well, the issue is where the numbers are
being calculated. The vendor discounted the 20 percent from the top of the
system cost ($350,000 X 0.2 = $70,000). Now, you are paying around $930,000
total for the system, installed. That is not exactly what you thought you were
getting a discount on! The vendor will explain that the cost of the wiring
cannot be discounted because they use a subcontractor and have to pay this
third party for the installation. True, but the vendor also marks up the cost
of the wiring and installation. That $350,000 fee to install and wire the
system is probably only a $280,000 to $300,000 charge from the subcontractor.
So, the manufacturer or distributor is getting a piece of the pie for the
installation too!

Yes, this is true. Regardless of how we slice and dice the numbers, this is
still a very lucrative sale for the vendor. With a $50,000 to $70,000 markup
on the wiring, a $300,000 profit margin, and the remaining cost of the system
($280,000), you can imagine just how much the vendor is making on this system.
Well now look at the margins based on this new evidence.

Table E:
 Item                     Original Cost  New Cost   Profit   Percent Margin
 ----                     -------------  --------   ------   --------------
 PBX System               $350,000       $280,000   
 Wiring and Installation  $350,000       $350,000   $70,000      20
 Margin and Profit        $300,000       $300,000   $300,000     30
 Total                    $1,000,000     $930,000   $370,000     37

Can you see anything wrong with this picture? Even though the vendor has given
a 20 percent discount to you, and you feel so special for negotiating such a
difficult deal for the vendor, and a great one for the organization, the
overall margin of profit that the vendor has achieved is still 37 percent.
This still leaves a lot of room for negotiation before the deal is done. If
you consider that there is still room to cut the cost in the profit margin,
the profits on the subcontracted piece of wiring, and the overall system cost,
then the dealing has only begun. In many cases, the ability to subcontract the
wiring (for example) might produce more productive and competitive results. In
this case, many organizations will act as the general contractor for the
overall telephone system and then contract for the wiring separately from the
telephones. An example of the wiring costs might look like the numbers shown
in Table F, where a seperate contract is issued for the installation of a
four-pair cable installed at 1000 user locations, the horizontal wiring
between the telephone closets and the main distribution frame, and any
ancillary cabling needed to implement the system.

Table F:
Cost Per Location                                  Extended Price
-----------------                                  --------------
Cost of wiring a 1000-user system @$250-$280       $250,000-$280,000
Cost of PBX manufacturer @$350                     $350,000
Difference                                         $70,000-$100,000

Keep in mind that these figures are generic, and will require seperate bids
from various installation companies. If, however you now consider this figure,
and recognize that the wiring contractor has already built the necessary
profit margins to make money on the installation, then the PBX price now has a
different perspective. The margin for the hardware, installation, and
warrantee on the PBX is now subject to serious negotiation. See table G.

Table G:
Item                  Cost           Percent Margin
----                  ----           --------------
PBX                   $280,000
Markup                $300,000
Subtotal              $580,000       115
Wiring                $280,000       15
Total                 $860,000

As you can now imagine, the cost for the telephone system is $280,000 with a
profit margin of $300,000 (over 100 percent markup). No vendor will ever
approach this structure; these are comparative pricing scenarios. However, if
you consider that a 30 percent markup is what the vendor is entitled to, the
following summary gives us a whole new structure to deal from. The intent is
not to jeopardize the stability and profitability of the supplier, but to
maximize the comfort between the two parties. This case will obviously consume
a lot of time and effort. But, the overall results are significant. See
table H.

Table H:
Item           Original Pricing     Revised Pricing     Difference
----           ----------------     ---------------     ----------
PBX            $350,000             $280,000            $70,000
PBX Markup     $300,000             $84,000             $216,000
Wiring         $350,000             $280,000            $70,000
Totals         $1,000,000           $644,000            $356,000
Percentage                                              35.6%

Clearly the price has changed significantly! The system is now being
considered at approximately $644 per user instead of $1000. This accounts for
a $356,000 discount overall. This is the way  you can look at using the system
pricing, rahter than just accepting standard pricing. The pricing can vary
quit a bit from the original proposal.

Peripheral Devices
------------------
And finally, the list of peripheral devices for PBX markets is virtually
unlimited. The devies range from items as simple as an external bell to very
sophisticated management systems. The pieces are too numerous to list herein
but there is still a lot of negotiating room for any component you might need.
Here are some devices that might appear in the picture:

 Automatic call distribution
 Voicemail
 Automated attendant
 Call detail recording
 Modem pools
 Multiplexers
 Head serts
 Display sets (telephones)
 Paging systems
 Least cost call routing
 Network management systems
 Design tools
 Answering machines
