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  1. Technology
June 9, 1987


By CBR Staff Writer

There are a number of reports circulating at the moment from market research companies, some of which herald the decline of the European market for private switches by 1991 as a result of the increasing expansion of the data communications market, such as Dataquest. Others, such as Logica, reckon the PABX market is set to grow by as much as 40% to $3,050m over the next four years.


One area of technology that which has been widely heralded as a big threat to the PABX market is Centrex. This is a means of offering many or all the features of a PABX but remotely from a central public exchange. It is claimed to save companies money and space as well as the bother and the cost of maintenance of their own switch. Norton Telecommunications Ltd, one of the leading UK marketers of PABXs, now controlled by Siemens AG, thinks the service has been hyped and is not too concerned about it. It is facile to say that Centrex will not take a market share in the UK, says group product marketing manager, Andrew Knott. The important question is how big a market share will the new service take and from whom. The first point is that the service to be offered in the UK is not the same beast as the Centrex that developed in the US. It has evolved successfully in the US from the 1960s, but in an analogue environment, and has had the endorsment of AT&T. It was offered in the US at a flat cost per extension – in other words it would cost a public telephone company about the same price per line for one extension as for 100 extensions and the subscriber had no equipment installed on his or her site. It did well there on that basis. At that time the PABX was still in its evolutionary phase and the sophisticated features now offered on digital PABXs, such as simultaneous voice and data transmission and user integrated digital feature phones for facilities such as manager-secretary communications, were not available. Advances in PABX technology are moving faster than they are in main exchange equipment because the cost-reward benefit to the PABX manufacturer is much higher than for the public switch operator. In the UK, on the other hand, Centrex will be offered in the form of a digital link to the public network, such as a Megastream line, connected to a demultiplexer device about the same size as a 100-extension PABX on the customer’s premises. The provision costs are not flat and the public telephone company will probably have to supply a minimum of 100 extensions to get its money back. Mercury, for example, quotes UKP18 per Centrex line for installation, and UKP18 per line per month for rental. So 200 lines of Centrex will cost UKP3,600 to install, amounting to UKP43,200 over the course of a year including installation. A 200-line PABX costs around UKP750 per month to rent or UKP50,000 to buy outright and about UKP2,800 per year to maintain. In addition, when Centrex was introduced in the US, PABX equipment did not offer the advanced features that are now available such as the ability to handle voice and data. A 200-extension PABX would have filled an entire room then, where it would now come in the size of a small fridge. Oftel, the UK Office of Telecommunications has said that the Centrex lines will not be permitted to be significantly cheaper than the cost of an equivalent PABX. It is, after all, not in the operators’ interests to do too well on Centrex, says Norton’s Knott, given that both British Telecom and Mercury are fairly interested in selling PABXs, where they can maximise revenue for a minimum of effort. Mercury recently bought ECL, one of Mitel’s distributors based in Aberdeen, and British Telecom’s interest in the PABX market is clear enough now that it owns 51% of Mitel. Centrex will not get the 20% market share in the UK that it made in the big US conurbations like New York, which is considered the Centre of Centrex. If it gets 10% of the market, 50% of that share will come from British Telecom’s own PABX base.


To be worthwhile for the operators, it has to be targetted at large companies and not at comp

anies wanting fewer than 100 extensions. Some large companies swung heavily towards Centrex when it was first introduced, then installed PABX equipment as well and the trend now is that some of the larger companies are moving away from Centrex. The sort of customers who will be attracted to the service are those that have a preference for buying from a public telephone authority anyway because it is close, easy and secure. If it impacts anywhere on the PABX market, it will be on the mid-range 100-200 extension products, such as the Ferranti-GTE Omni range, which Norton distributes. Why does it not represent a real threat to PABX companies such as Telephone Rentals and Norton that sell systems of this ilk? Centrex is good for linking 10 sites in one town, for example. But if you look at where companies like Telephone Rentals or Norton make their money, it’s in key-systems and 80-extension and up systems, sold as network sales. Frank Chorley, ex-deputy chief executive of Plessey and chairman of its Telecoms and Office Systems Ltd division thinks the service is likely to appeal to smaller users which would not have stretched to a PABX before and agrees that it will not represent a big threat to the PABX market. So how long is it going to be before the service becomes available in the UK outside the City of London? A Centrex exchange is still expensive at this stage and the operator has to be sure the business is there.

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