When Internet Protocol-based phone systems became a viable option for businesses upgrading their voice networks, the systems were initially marketed as more cost-effective than their digital cousins. After all, what could be more cost-effective than running voice traffic over an existing local-area network (LAN), avoiding long-distance and international toll charges by routing calls over the wide-area network (WAN), and running one's voice system on off-the-shelf servers and operating systems instead of megalithic and proprietary PBXs? But then the reality inevitably set in: IP-based voice systems have the potential to be just as expensive, if not even more so, than digital platforms.
One reason for this was the cost of the handsets. Unlike digital phones, whose years on the market and mass production had driven costs down, IP phones were considerably more expensive. The race was soon on for vendors like Avaya, Cisco and Nortel to develop affordable IP end stations. The price started at $250 but eventually broke the $100 barrier.
It's widely understood that companies can lower manufacturing costs by outsourcing their products, but how razor-thin must margins be for manufacturers to stay competitive in today's IP phone market?
ShoreTel Inc.'s IP 110 is an entry-level IP phone that includes an Ethernet switch with power-over-Ethernet support and one-way intercom. Its low cost and compact form factor make it suitable for break rooms, hallways, dorm rooms, classrooms and other open areas. The IP 110 has a single-line LCD screen and six function keys for easy access to voicemail, hold, redial, intercom, transfer and conference calls.
Current Analysis Labs analyzed production cost, assuming an 80,000-unit volume produced in Mexico. We estimated the purchase costs of commodity components, manufacturing costs of fabricated components and location labor rates.
The study produced a production cost of $57.60 per unit. The materials and components in the machine account for $47.38 of the cost of manufacturing.
The IP 110 handset was ShoreTel's response to the emerging, low-cost handset trend. Rather than require businesses to spend $300, $500 or more for an IP handset with more-advanced features than the average end user actually needs, the IP 110 offers ShoreTel customers an alternative: Spend less and extend only the most typically required set of basic communications capabilities to some of your end users. So rather than getting a device with a full-duplex speaker phone, a headset jack, programmable feature buttons, a large display with context-sensitive soft keys and the ability to display Web-based applications, the ShoreTel IP 110 presents a more-modest set of features at a price more attractive than other, more-advanced IP handsets in its product portfolio.
The ShoreTel IP 110 has a number of target markets. Cost-conscious companies will deploy it to keep the total cost indicator to a minimum. In this scenario, the handset would be deployed to provide end users with immediate access to a minimum set of calling features.
Over time, as additional investments into the IP telephony platform are made and more-advanced features and applications are extended to users, the devices would be replaced with higher-end units with more feature keys, larger displays, context-sensitive soft keys and built-in Web browsers. The phone might also be deployed to places like office or hotel lobbies, retailers, manufacturing floors and college dorms that do not and may never need advanced calling features.
Comparable devices from ShoreTel's competitors include the Cisco 7902G, Nortel IP Phone 2001 and Avaya 5602. The phones' list prices and feature sets are more or less the same as those of the ShoreTel. They're priced around $125 and have support for power-over-Ethernet as well as a small one- to two-line display.
The IP 110 helps to make ShoreTel's line of IP end stations comparable to those of its many competitors in the IP PBX market. Aside from its main North American rivals, ShoreTel faces competition from makers of low-end (about $150) IP handsets.
Offering a range of IP phones is necessary to win in enterprises and organizations with diverse user groups. Knowledge workers, sales staff and contact center operators will need relatively advanced features while others need only the basics. By offering a low-end IP handset, ShoreTel can avoid the "one model fits all" approach to IP phones that characterized the early years of the IP PBX market.
The IP 110 improves ShoreTel's ability to compete with rivals that offer business customers a considerable choice in the IP end stations. But it was not the first to Introduce such a low-end IP phone. Indeed, the company trails many competitors, which responded to the need for $100 to $150 IP phones long before ShoreTel and a number of other IP PBX suppliers did so. And while the IP 110 is comparable to devices in the product lineups of ShoreTel's competitors in terms of price and capability, there is nothing that sets the device apart.
By Brian Riggs (briggs@currentanalysis.com), senior analyst of enterprise tele-phony at Current Analysis Inc.
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