Hosted VoIP/SIP Versus PBX

Steve, I'll answer the question for you. I'll use your numbers, and I'll take the average. let's look at $20 phones, 40 DID's and an A/A that is $850 per month, add and Internet connection T-1 $400 per month, your total expense is $1,250. 5 year cost is $75,000
CPE top of the line ShoreTel with 20 phones $12,000 monthly lease is for the first 5 years - $269, system management $95, Voice and data T-1 with 6,000 minutes $564. Total is $928 per month, more bells and whistles too. so that is $54,540 when you take out the 1st year free management and service. That is $20,460 less over five years, after which the eq. lease is paid and drops out making the monthly $659 versus $1250, this brings the 10 year savings to $55,920.
Now lets talk reliability. VoIP must have QOS protocol at every router or switch that the packets pass through. Since noone can control the Internet and there is no QOS on the public Internet, every call a hosted customer makes is risking loss packets and congestion and bad quality. Your hosted example uses IP over the Internet, An improovement would be a point to point connection or a private MPLS, and that will add $400 to $600 assumming your switch site is nearby, and on net for whatever carrier you use. There goes another $48,000 over 5 years. Perhaps customers that know this will keep the 48000 and suffer through ocaisional bad calls. WHen there is a problem with a call you can call your hosted provider, cause they manage everything right? wrong they tell you to use your own internet connection and that the reason you have a bad call is because of the Internet. In fact look at Ring Central's website under support. They tell you not to download big files while on a call!
OK so now we can see how CPE has management and price advantages. What about redundancy? Hosted connects through a single Internet connection, Can we get a second backup conenction to the customer site? not without CPE you can't some hosted providers will rent you the CPE, then you can pay for a few backup pots lines also at about $25 per line, hmmm, starting to look like a CPE solution now, why rent it from them? With hosted I have to buy 2 expensive Cisco roruters running BGP and pay for two monthly Internet connections, who manages that, what happens when those routers need a looking at, who manages that, the hosted provider, (doubt it) MY CPE solution is cheaper, easier to manage, and I can take the extra money that I save and buy a redundent off site switch for about $1500 ($33 lease), there are many other redundent conenctions and configurations that I can use, none of which are available with hosted telephony. The other worry is that most hosted providers, (all of them that are not carriers) are not regulated by FCC or state serivice commissions. As they are not carriers you don't own your phone numbers, the hosted provider does. so they have all your eggs in one basket, and you aren't free to shop for your voice carrier and data carrier and management company the way you are with CPE.
More resilliency, better uptime, more choise of management, and between 55k and 103k in your pocket over 10 years. Shall we do the math for 50 phones, 100 phones?

Mark, using your figures It's $1250 per month, not 1022, if you are using point to point or MPLS private connection, you need to add, $400, $600 or more depending on the distance from customer to the pop or MPLS CO.
Why don't you post a full accounting of your costs for my example above.
Also you need to answer why you beleive that a customer who buys CPE is "obsolete" in 5 years, but the same CPE your hosted provider gets upgrades every three years?
ShoreTel provieds 2-3 new releases per year to allow new features, and there is no charge, , same is true for Avaya ($99) and you don't have to wait three years for new features. The lastest release was on Monday. I would rather be stuck paying off a system with more frequent upgrades, than being more stuck paying more with hosted with less frequent upgrades.

Five years? Mark, can you seriously come up with showstopper features that have been introduced since 2005 that would be so compelling as to drive a firm to replace their gear? PBX's are replaced every 15 to 20 years, not every 5 to ten years, and in most firms, the replacement is because they can't get parts or service any longer, not because the features are lacking.

Dave:

As I stated, taking an average of the numbers I gave you have :

-$12-20 per line, plus $12-20 per phone. That's an AVERAGE of $16 x 40 = $640
-DID's for probably another $10 for a block of 20 = $10 x 2 = $20 (Total so far = $660)
-auto-attendant for maybe $10-15 is an average of $12.50 (say 13) (Total = $679) PLUS a T1 at $350 (which I can get all day long) = a total of $1029 (ok so I was off by $7)

I can add MPLS (depending on company) at $150-200 max on a local POP for a total of $1,229 max. There are providers that offer free tech upgrades every three years, upon renewal of contract.

As far as features are concerned, there are multimedia softswitch solutions offering voice services, audio and video conferencing, collaboration tools, mobility applications and other productivity-enhancing services that lay the foundation for IMS-based multimedia services bringing unheard of levels of personalization, security and mobility. Products with a wide range of national signaling variants, making an ideal solution in voice transit applications where specific country fit is required. SIP services that are fully integrated into Microsoft and IBM UC solutions.

In my market, companies that want to stay up with the latest technical advances and features are replacing phone systems by the 10th year of use at max. Of course this depends solely on the market you serve and the class of clientele in that market. Smaller companies will always hold out til they can't stand it any more...but larger, enterprise companies that are driven by cutting edge technology are constantly upgrading in every area of communications.

Dave I could not agree with you more. I agree hosted might be ok for a single sight location with 5-10 phones. The numbers just do not make sense for larger multi-site locations on a hosted solution. Most all of these multi site companies already have resources in place to make this work they just need the equipment to connect it.I just recently won a deal over a hosted provider. The customer had 11 locations with about 70 phones. The hosted provider wanted $1700 per month plus another 10k just for the handsets. That amounts to about 112k over 5 years with equipment. I sold them Shoretel(which by the way is the bomb in the IP PBX world) for 75k. This included all the equipment and mainetance and upgrades for 5 years. You do the math. This does not even take into consideration the lines reduction and least cost routing to reduce long distance costs.