Return On Investment (ROI) for IP Communications

1. Return On Investment (ROI)for IP Communications WWIPC Partner Summit 1/28/2002

2. Business Trends Driving the Focus on ROI/TCO • Three years of declining corporate profits and shrinking capital expenditure budgets • Focus on back to basics approach to capex, requiring a solid business case before technology purchase is approved • Greater involvement from business decision makers who are more focused on business impact of technology • Focusing capex on only mission critical projects (“need to have” vs “nice to have”) • Failures of previous IT investments to produce expected returns • IT now accounts for 46% of all capital expenditures

3. The Growing Importance of ROI • The percentage of customers who require ROI justification has doubled in the past 2 years 83% 42% Source: Darwin Magazine

4. ROI Helps Accelerate the Sales Cycle • The ability to help customers determine ROI (55%) is the most often cited means to speed up the adoption of IP Communications What would help speed up the Decision Making Process? Source: Cisco TDM Survey, October 2001

5. Cisco Network Investment Calculator (CNIC) Program

6. What is CNIC? • A web-based ROI/TCO calculator designed to simplify the business case development process • A tool that allows the calculation of ROI for multiple Cisco solutions, including IPT, Contact Center, Unified Messaging and upgrades to the data network • A comprehensive program that provides web-based and instructor led training and user support to increase Cisco sales and partners comfort level with financial analysis • A rich ROI database with thousands of customer data that has been crafted into presentations, case studies and white papers to assist the selling effort

7. Why is ROI/CNIC Important to Selling IP Communications? • ROI can be used to influence which projects customers will dedicate resources against for evaluation • Much of IP Communications value proposition is based upon ROI/cost savings • Customers are prioritizing rapid payback projects that generate cost savings and tangible business benefits • A business case with ROI data can improve the likelihood of a project being approved by 60%* • A business case with ROI data can reduce the sales cycle by 30-40%** *Source: Gartner **Source: IDC

8. CNIC User Support Training Best Practices Holistic Approach to ROI A single ROI calculator for multiple Cisco solutions A central support resource that Cisco sales and partners can depend on for fast answers E-learning and instructor led training on ROI Standardized approach to building ROI models and engaging with customers

9. Mapping ROI to the Sales Cycle Level 1 – ROI White papers Level 2 – ROI Case Studies Level 3 – ROI Snapshots (ROI Lite) Level 4 – Custom Analysis with CNIC

15. The ROI for IP Communications

16. Hard Cost Savings Network Administration Equipment/Maintenance • Improved productivity of network support staff • Elimination of certain PBX related tasks • Consolidation of skill sets • Centralized application and network management • Reduction in the costs of Moves, Adds and Changes (MAC’s) • Reduction in ongoing maintenance costs • Reduction in cabling costs for new facilities • Reduction in infrastructure cost at remote sites • via centralized call processing • Increased utilization of core networking assets • Consolidation of message store/back-up systems • Reduction in PBX upgrade/expansion costs Toll-Bypass/Integrated Access • Toll-Bypass savings for intra-company traffic • Domestic: Material if call volume is substantial to offset declining toll rates in neighborhood of 2-5 cents or if organization lacks size to negotiate prime rates with carriers • International: Still significant with average toll-rates of 12-15cents • Consolidation of voice and data access • -Reduction in number of dedicated voice lines • -More efficient use of existing bandwidth

17. Examples of Business Benefits • Real Estate Savings • Better utilization of real estate by leveraging extension mobility to increase worker to workspace ratio from 1to1 to X to 1 • Significant savings in high-rent areas like NY, London, Chicago • Platform for New Applications • Unified Messaging – Improved productivity per user by 25-40 minutes per day • Audio Conferencing – Ability to offload SP provided minutes (8-12 cents/minute) for smaller conference calls to internal service offering • Ability to standardize infrastructure and extend corporate capabilities to branch offices

18. Summary of Customer Engagements thru Q1 2002 • 2800+ Customer Analysis to date (program started 10/01) • Total # of Partners accessing CNIC: 284 • Incremental revenue impact of $25-35M in FY03 • Strong representation across all major verticals • All types of deployment scenarios (greenfield, centrex, centralized call processing, replacement of new/old PBX, lease/buy) • Different size deployments ranging from a 100 phones to 45,000 phones • Flash cuts to 5 year migrations • Global focus including U.S./ Europe/Asia/Latin America

19. Summary of ROI Findings • Positive Net Present Value 68% of the time • Average payback of 16-18 months • Average annual savings per user of $334 • Average # of phones in analysis = 600 phones Avg. % Contribution to Cost Savings Toll-Bypass/Voice/Data Access Equipment & Maintenance 20% 32% 48% Network Administration Source: Converged Network Investment Calculator 7/02

20. Key Drivers of Positive ROI • A compelling event is driving the decision • New facility • End of useful life of PBX/Expiration of lease • Planned upgrade of data infrastructure • Phased approach to deployment starting with the most financially viable sites • Ability to leverage centralized call processing • Deployment has number of remote sites that can leverage CCP • Dynamic organization with substantial employee movement

21. Key Drivers of Negative ROI • In some cases, a significant data network upgrade is necessary to provide the foundation for reliable voice • Difficult to justify on hard cost savings alone the replacement of a relatively new PBX at a single site • Delays in the deployment of the technology delay the realization of benefits • Failure to take advantage of key value producing features of the technology • Aggressive pricing from traditional PBX vendors

22. Summary of ROI Findings - Deployment Scenarios • Paybacks vary based upon deployment scenario, with green fields • producing the most rapid payback (Months) 24 18 12 6 0 Green Field Newer PBX Replacement TDM Centrex Replacement Multi-site CCP Older PBX Replacement Source: Converged Network Investment Calculator 7/02

23. ROI Findings – By Vertical Payback in Months (Months) 28 28 18 18 14 13 14 6 6 0 Government Financial Services Retail Education Healthcare Source: Converged Network Investment Calculator 8/02

24. “If You Build it, They Will Come”… (5 Steps to the CNIC Business Case) • What’s the Value Proposition/What are the Primary Cost-Benefits Drivers • Break the Analysis into Manageable Pieces • Built on Solid, Fundamental Financial Modeling • “What-If” capabilities • Pre and Post Deployment Analyses

25. Cisco Contact Information

26. Cisco Contact Information • Cisco Network Investment Calculator Home Page • http://www.cisco.com/partner/cnic • Cisco Network Investment Calculator Web Training • http://www.cisco.com/partner/cnic/training.shtml • Cisco Network Investment Calculator Instructor Led Training • Contact: Mike Kisch Dave Hume • Phone: 408-902-3112Phone: 919-392-8601 • E-mail: mkisch@cisco.com E-mail: dhume@cisco.com • Cisco ROI White papers/Case Studies/Presentation • http://www.cisco.com/partner/cnic/understand.shtml

27. ROI Case Studies

28. ROI Case Study • National restaurant chain needed to provide a more cost effective voice service to remote sites • Wanted a standard solution that would lower remote site management costs and provide a consistent level of service • Wanted to greater leverage planned data network upgrade • Solution consists of 2500 Cisco IP Phones leveraging centralized call processing • Updated WAN to facilitate integrated access where available • Able to increase productivity of network support staff via centralizing call processing • Payback of 18 Months • Net Present Value of $2.7M • Achieved an annual savings of $361/per user

29. ROI Case Study • Securities firm needed to replace older PBX at central site that was nearing end of useful life • Needed to identify a way to reduce the costs of a constantly moving workforce • Needed to simplify management of the network and improve the productivity of the network support team • Deployed 1500 Cisco IP Phones • Deployed conference connection to offload smaller conference calls • Gave the user the ability to move their phone in an effort to save MAC charges • Leveraged extension mobility to improve utilization of real estate space • Payback of 19 Months • Net Present Value of $1.5M • Achieved an annual savings of $308/per user

30. ROI Case Study • Decided to deploy IP Telephony in place of Centrex service to 500 users across several city facilities as first step towards converging their network • Decided to lease instead of purchase new IP Telephony equipment • Annual lease costs for IPT were less then annual Centrex costs • Medium size east coast city was evaluating their future voice strategy • Had a mix of PBX, key systems and Centrex • Centrex contracts were coming due for renewal • Immediate Payback • Net Present Value of $117K • Annual savings per user of $335

31. ROI Case Study • Extension campus of large state university needed to replace existing end of life PBX • Needed to be able to continue to leverage a percentage of existing handsets • Was faced with an imminent upgrade cost to voicemail system and PBX • Reused 1500 analog phones, while deploying 700 IP phones of various models • Deployed (4) Call Managers and Unity voicemail • Upgraded data infrastructure • Payback of 11 Months • Net Present Value of $253K