5. New Telephone SystemREPORT TO: Honorable Mayor and City Council
FROM: Erika Hess, Information Technology Administrator
James H. Patrick, City Manager
SUBJECT: IP Telephony
MEETING DATE: November 29, 2007
BACKGROUND:
An IP Telephone system is being presented to Council for approval. The current Centrex
system has been in use for the past 13 years. All management and functionality is handed by the
telephone company, with no additional equipment other than Centrex phones at the City. The
telephone company charges a fee for any adds, moves, and changes made to the Centrex system.
Management of the Centrex system is performed by the telephone company for a fee. The City
currently pays approximately $8,200 a month on basic phone service. The overall goal is to
update our phone system, reduce monthly costs, and move towards a converged data, voice
network.
The City has an opportunity to take advantage of a technology called Internet Protocol
Telephony to replace the existing Centrex phones and lines. As discussed in Council work
session, phone system and computer networks are converging using the same technology. Our
current Centrex system is not able to tape advantage of this technology. with an IP phone
system the City can move towards converging the data and phone systems using much of the
same network structure, centralizing management, troubleshooting, maintenance, leveraging IT
staff knowledge and time while maintaining consistency, stability, and reliability.
An IP telephone system will provide a system capable of expanding with relative ease to
City locations not included in the first two phases. Expanding to new sites will require adding
service and equipment to support extending the City's network to the new site and adding phone
equipment. The IP telephone system will provide networking equipment that meets today's
technology standards and a solid foundation for the future. New features will be gained like
paging across the all phones to supply the City a new communication technique, which may
benefit the City in the event of an emergency. In looking at the ease of managing the entire
system, Staff placed high value on centralized management and fast troubleshooting capabilities
from a single system.
The City could have purchased Cisco from the State of Montana contract. However, the
City wanted to evaluate all possible vendors and ensure that the best solution was selected. The
City contracted Access Consulting as an impartial consultant to assist in writing the Request for
Proposals, evaluating the proposals and assisting in the selection process. After review of the
Proposals the shared decision was to recommend the purchase of the Cisco IP Telephone system.
Century Tel proposed a Nortel solution but provided a product that did not meet the minimum
specifications of the RFP. Cerium Networks proposed a Cisco solution. Both solution,-, use
circuits that will use CenturyTel services. Buying local is important to the City when equal
products may cost a bit more to purchase from a local vendor. However, the local proposal did
not meet the RFP specifications and was a higher extended cost solution.
Cerium Networks Inc. with Cisco Systems Inc. equipment was the selected proposal by
the City's RFP and selection process. The Cisco IP Telephony solution presented allows the
City to manage the single phone system from a central location, while providing redundancy and
site survivability built into the design architecture. The Cisco IP phone can be moved to a new
site and no changes have to be made. The Cisco solution allows the IP phone to be managed
with the redundant Call Managers and license cost is included. The Cisco solution is scalable
and will allow changes to the phone system to be managed internally by the IT department.
After Council requested an "apples to apples" comparison the recommendation of the
Cisco solution was further validated. This comparison is difficult to do since the two systems are
not equal in design architecture and performance. The Nortel equivalent to the Cisco solution
was not included in the proposal and is more expensive. The Nortel solution requires additional
licensing, not included in the proposal, to provide the survivability the Cisco solution offers (the
added cost has not been forwarded by the vendor). Staff requested the Nortel proposal to be
modified after Council requested the "apples to apples" comparison to upgrade switches to
attempt to be equal to the technical functionality the Cisco solution had from the very first
proposal. Staff had to request specific changes to support the redundancy requested in the RFP.
After the comparison, it was determined the Nortel solution did not meet the Eq 11 requirement
stated in the RFP. The Nortel solution is 100% capable of meeting the Eq 11 requirement with
the addition of a third party software application, which was not included in the final pricing. It
appears that the Nortel solution was bid, not on what was best for the City (as Request for
Proposals require), but in an attempt to have the lowest bid.
The current operational cost of the Centrex system provided the motivation behind
reviewing the City's phones with consideration of moving into the new City Hall. The new City
Hall was designed to support the IP telephone system equipment and cabling. The average
monthly cost of the Centrex lines in the 2007 Fiscal year was $8260. The average monthly cost
does not include any charges the City would incur to facilitate moving all the departments to the
new City Hail. Council requested an "apples to apples" comparison (difficult to do since the two
systems are not equal in design architecture and performance), and an extended cost analysis.
The cost analysis is at attachment 1. Note that the Cisco solution is $38,317 less than the Nortel
solution in the first three years and an additional savings of $15,607 for years five and six for a
total cost savings of approximately $53,000. Attachment 2 is a telephone comparison between
the current Centrex system and an IP telephone system.
The proposed Cisco phone system will be contracted under a 4-year lease with recurring
monthly cost of $q 188 for the first three years and $8200 for the fourth year. This cost includes
the on going, but . reduced, service costs of approximately $4,763 and the monthly lease cost of
$4,425 for the first three years and $3,437 each month during the fourth year. The fourth year
pricing is reduced because the warranty is for three years, therefore we would pay separately for
an extended warranty, but not pay financing charges on it. The 4-year lease includes equipment,
warranty, service costs to connect the four City locations, and recurring charges from the
telephone lines that would not yet move to the new phone system.
After the lease is paid off in 4 years time, we would purchase the equipment with a $1
buy out option. When the City owns the Cisco proposed system the recurring monthly charges
would be reduced to $4,352, saving the City almost $4,000 a month from our current monthly
phone costs.
Currently the City Shops, waste water Treatment Plant, and all the lift station phone
lines would not be moved to the IP Telephony System. The intention would be to bring the
Waste water Treatment Plant onto the IP Telephony system at a later date. Every location
brought onto the phone system would reduce the monthly charges paid for phones not on the
phone system.
In looking at different vendors for this project, larger markets were analyzed. It should
be noted that 7 5 % of Fortune 500 companies, the United States Government, DOD, NASA,
Boeing, Army, Navy, Air Force, and Marine Corps have chosen the Cisco network solution. The
City of Bozeman moved to a Cisco solution in 2001 and the original equipment is still in use
today. As Bozeman grew over time, additional phones were purchased to support the new
locations and services were added to support the growth. The City of Missoula implemented the
Cisco system in 2006. The City of Helena just purchased the equipment for the first phase of a
new Cisco phone system. Cerium Networks has experience with other municipalities and setup
Cisco solutions for the cities of walla walla and Richland, Washington.
RECONL%4ENDATION: There have been many different explanations as to why Staff is
recommending the Cisco solution. Staff could have selected Cisco from the State Contract.
However, Staff hired an independent company to assist with the RFP and selection process.
There have been allegations that Access Consulting favored Cisco, however, this is the first
Cisco system they have recommended a client purchase. The "buy local" argument has been
used. However, in my past career and while I have been here, the local preference is used by
Council when equally qualified equipment is offered at a slightly higher price from a local
vendor. To my knowledge, Council has not used local preference to justify purchasing a system
that does not meet bid specifications regardless of price. In this instance, CenturyTel,
headquarters in Louisiana, and Nortel, are not any more local than Cerium. CenturyTel will still
be the City's service provider, no one will be laid off as a result of Council accepting the Cerium
proposal, and no tax revenue will be lost. The taxpayers get improved communications service
with the City and tax expenditures for that service are reduced.
The Staff has shown a degree of preferential treatment to CenturyTel by allowing them to
clarify their bid proposal numerous times and yet the proposal still does not meet bid
specifications. The extended cost analysis shows significant savings from the Cisco system and
it is Staff s further belief that for the Nortel system to meet bid specifications would require
additional licensing and third party software that would raise the price of the Nortel system by at
least $15,000. Since the CenturyTel proposal does not meet bid specifications, Staff
recommends the City Council contract with Cerium Networks, Inc. using Cisco Systems Inc.
products to implement an IP Telephony System since it is the only viable, lowest and best
proposal the City received. If Council does not award the contract to Cerium, Council would
need to reject all bids and direct Staff to start the RFP process again.
FISCAL EFFECTS: The extended phones cost for the City of Kalispell will far off set the
current monthly fees of approximately $8,200 per month the City currently pays. Long term
fiscal benefits show savings of over 50% in phone service charges.
Respectively submitted,
Erika Hess
Information Technology Administrator
James H. Patrick -
City Manager
Attachment 1
Total Cost of Ownership: 6 Years
Basic 1-4 Year Cost Comparison
(B)
Monthly
Monthly cost of
(A + B)
((A + B) * 12 *4)
IT Hours Per Week
Payment: 4
(A)
phones not
Monthly cost of
Year Total Cost of
Extended
(CenturyTel assessed a
Year Lease (E)
Monthly
Yearly included in
services and
(E + A + B) Phones not in
Warranty Cost:
20% time increase added
w/financing Lease
Costs:
Services system (83 phone
phone lines not in
Monthly system (expansion
After Proposed
for multiple system 4 Year
charges Totals
Services
Costs: lines)
phone system
Total sites)
Warranty Expired
management) 1 Week IT costs 1 Year IT Costs IT Cost 4 Year total
Years 1 - 4
Cerium Years 1-3
$ 4,425
$ 159,318
$ 2,147
$ 77,292
$ 2,616
$ 4,763
$ 9,188
$ 94,176
$0
8
$ 338
$ 17,555
$ 52,666
$ 383,466
Cerium Year 4
$ 3,437
$ 41,247
$ 2,147
$ 25,764
$ 2,616
$ 4,763
$ 8,200
$ 31,392
$ 9,000
8
$ 338
$ 17,555
$17,555
$ 124,958
Cerium ears
1 - 4 (4.41%financing)
TOTAL
see above
totals
$ 200,565
$ 2,147
$ 103,056
$ 2,616
$ 4,763
see above
totals
$ 125,568
$ 9,000
8
$ 338
$ 17,555
$ 70,221
$ 508,424
CenturyTel Years 1 - 4
5.25% financing) $ 3,980 1 $ 191,062 1 $ 2,965 1 $ 142,320 $ 2,616 $ 5,581 $ 9,561 1 $ 125,568 1 $0
10 $ 422 $ 21,944 1 $ 87,776 1 $ 546,726
Expansion of Phone System & Years 5 & 6
(D)
Monthly cost of (C + D) (((C + D) * 12) * 2)
IT Hours Per Week
(C) (C * 12) phones not Monthly cost of Yearly Cost of Expansion Cost: 2 Extended
(CenturyTel assessed a
Monthly Yearly included in services and Phones not in Expansion new sites added Warranty Cost:
20% time increase added
Lease Paid in Costs: Services system (68 phone lines not system (expansion Cost (per (WWTP& City After Proposed
for multiple system 2 Year
Years 5 - 6 Full Services Costs: phone lines) in phone system sites) site) Shops) Warranty Expired
management) 1 Week IT costs 1 Year IT Costs IT Cost
2 Year total
Cerium Years 5 - 6 1 $0 $ 2,147 $ 51,528 $ 2,205 1 $ 4,352 $ 52,920 1 $ 13,705 1 $ 27,410 $ 18,000
8 $ 33-8-1 $ 17,555 $ 35,110 $ 184,968
CenturyTel Year 5
$0 $ 2,965
$ 35,580
$ 2,205 $ 5,170
$ 26,460
1 $ 14,109
1 $ 28,218
$0
10 $ 422 $ 21,944
$ 112,202
CenturyTel Year 6
$0 $ 2,965
$ 35,580
$ 2,205 $ 5,170
$ 26,460.1
1
$ 4,389
10 Is 422 $ 21,944
$ 88,373
CenturyTel Years Total
after 6 years
$ 71,160
$ 52,920
1 $ 28,218
$4,389
$ 43,888
$ 200.575
Centrex System Payment History
2006 - 2007 Fiscal Year Average Monthly Payment $ 8,200 Year Total: $ 98,400
2005 - 2006 Fiscal Year Average Monthly $ 7,600 Year Total: $ 91,200
2004 - 2005 Fiscal Year Average Monthly $ 6,240 Year Total: $ 74,880
Cost Of System Cost includes: lease paid in full, yearly service costs, extended warranty costs, IT hours, and expansion sites. Sites that don't exist today are not included. Remember lines would be added onto the existing Centrex system if a phone system
is not
After 6 Years implemented. The cost of the Centrex system would increase to add the new lines, taxes and telephone company fees.
Cerium Total $ 693,393
CenturyTel Total $ 747,301
FUTURE - Add lift stations to phones stem
ICenturyTel 1 0 0 $ 2,965 1 $ 35,580 $ 1,0431 1 1 $ 12,516
Cerium 1 0 0 $ 2,1471 $ 25,764 $ 1,0431 1 1 $ 12,516
Notes:
1. 6 year cost of system includes lease paid in full, yearly service costs, extended warranty costs, IT hours, and expansion sites. Sites that don't exist today are not included. Remember lines would be added onto the existing Centrex system if a phone system is not
implemented. The cost of the Centrex system would increase to add the new lines, taxes and telephone company fees.
2. Request for Proposals were evaluated for lowest cost and best solution. Not solely for the lowest cost solution. All decision points used are not referenced here or on the scoring sheet.
3. CenturyTel failed to meet bid specifications, Therefore, CenturyTel is not considered a viable candidate.
4. Additional information available upon request.
Attachment 2
City of Kalispell Telephone Comparison
Centrex Phones
IP Phone Svstem
Century Tel manages all phones, lines, and
IT Department manages all phones, lines, adds
problems
new telephone lines, and resolves problems
Century Tel accesses fees for each feature on
All phones have voicemail, speaker phone,
hones (ex. Voice mail, caller id)
caller id
Telephone directory is not available on the
Any phone can lookup the telephone directory
Centrex phones
from the display on the phone and see name
and extension of any entry in the director
No paging options available
Paging is available on of the IP phones,
specific paging groups can be assigned, page
across any of the City sites with IP phones
Centrex supports 4 digit dialing
IP phone system supports 4 digit dialing to any
hone on phones stem
Limited phones support conference calling
All IP phones su ort conference calling
Nothing is required from the City to handle
The IT department is responsible for updating
911 routing
the PSALI database (Private Switch Automatic
Location Identifier) for 911 routing.
Phone system equipment will route and track
IP phone locations and supports dynamic
updating of the PSALI database.
Added emergency management and security
enhancement, the City hasn't had before.
Currently the City has no cordless phones on
IP Phone system will support wireless access
the Centrex system
points and wireless phones for a limited
number of people who require the wireless
phones.
No benefit to the network
Emergency backup network for data network
for critical machines only (PD and Fire) when
data and voice networks are separate.
New network equipment will be the foundation
for converged voice and data network. Current
data network equipment will be outdated soon,