Results of our Global ICT assistance and consulting programme Version 1.0 Seite 0
INTRODUCTION... 2 Main objectives of the Global ICT assistance and consulting programme... 3 RESULT SUMMARY... 4 Taxes/duties involved and how applied to pricing quotes... 5 Market positioning of IP solutions... 6 Use/presentation of List pricing... 7 Use/presentation of List pricing (Continued)... 8 Use/presentation of List pricing (Continued)... 9 Summary of typical and high Street discounts observed... 10 How software upgrades are provided (i.e. major releases)... 11 Seite 1
Introduction Seite 2
Introduction Main objectives of the Global ICT assistance and consulting programme Earlier this year you had taken part in our global ICT assistance and consulting programme. We would like to thank you very much indeed for your support: it was very much appreciated and helpful. As you may remember, within this programme, we assist some large multinational groups that have already subsidiaries around the world and that may open new subsidiaries or extend their existing subsidiaries at any time. We have developed for these customers a service to monitor the real street pricing for PBX systems in a number of key countries and cities around the world. This service has two main objectives:! To help their financial departments in their budget planning by feeding them fast, up-to-date and realistic pricing information regarding PBX systems.! To help their purchasing and ICT departments make a first selection in terms of PBX manufacturers and resellers in order to accelerate the selection and tender process. Please take a look at these slides of the consultancy work that our customers have received from us Seite 3
Result Summary Seite 4
Taxes/duties involved and how applied to pricing quotes Result Summary Country Policy How Quoted Germany UK Russia India China Japan VAT only 19% (increased from 16% on 1/1/07) VAT only 17.5% VAT only 18% VAT 4% on all goods Customs duties via formula typically 25% for Enterprise Comm. Solution; 7%-10% if software only -- Reviewed annually; on declining trend Custom duties avoided if company has high share of exports (can then pay in USD), but still subject to 4% CIF (Cost of Insurance and Freight) Services Tax on man-powered services: 12.36% on top of value of services, such as Installation or maintenance; excluding pure IT services, such as consulting/professional services VAT only 17% on all goods (system and services) VAT only 5% on all goods Without VAT Without VAT Without VAT Quoted with all duties, but without VAT Both with and without VAT Without VAT Argentina Brazil Mexico VAT (IVA) only Hardware: 10.5%; Services: 21% Two types of Consumption Taxes Federal Tax (PIS/Cofins) on all purchases: 9.25% State Tax (ICMS) varies by Brazilian State and product type e.g. Sao Paulo 0% on SW/licenses; 18% on HW only; 12% on HW/SW products VAT (IVA) only 15% on all goods Without VAT Normally quoted with these taxes included, since not subject to refunds But not included in ICT global monitoring Without VAT Seite 5
Result Summary Market positioning of IP solutions Research Findings Germany UK Russia India China Japan Argentina Brazil Mexico Nearly all systems sold are IP-PBX/converged solutions In most cases a mix of digital and IP stations are used, except for greenfield sites where majority of Installations are 100% IP Nearly all systems sold are IP-PBX/converged solutions, especially involving greenfield sites Even for replacement of legacy systems, pure IP or at least Hybrid IP with high concentration of IP endpoints are becoming common; about 30% of all shipped lines were IP in 2006, one of the highest concentrations in Europe Sale of IPT solutions tends to vary by channel partner, with some selling significant numbers of pure IPT, while many others still favor Hybrid IP and/or TDM system sales TDM systems are sold to companies with limited budgets Pure IPT systems are sold and getting more common, but tend to be limited to smaller greenfield remote sites Larger greenfield sites, especially when the main office, still tend to be sold as Hybrid IP due to higher cost of pure IP Pure IP sales are increasing, however, TDM and Hybrid systems are also still commonly sold for greenfield sites Avaya China is recommending IP Phones for investment protection in China IPT sales are growing, but not mainstream in Japan; pure IPT sales are mainly for large companies (both Japanese and international), and in particular involving greenfield sites Hybrid and TDM systems are still more generally sold, especially involving smaller system replacements Pure IP solutions are getting more and more common in Argentina, but there are still also hybrid and TDM systems sold 100% IPT solutions are becoming more common in Brazil, particularly involving multinational companies and greenfield sites TDM systems are more rarely replaced by IPT, unless an upgrade is not feasible Pure IPT systems are becoming more common in Mexico, but mainly for greenfield sites; more rarely for legacy replacements Hybrid IP systems are favored due to price advantage; channels often recommend Hybrid solution to start and then upgrading to pure IP later Seite 6
Result Summary Use/presentation of List pricing Avaya Cisco Other Germany Avaya Germany is not using the same List prices as in U.S.! Depending on the components, List prices are the same or up to 25% less expensive; but typically 10%-15% on average! Same as in UK Cisco Germany List pricing is the same as Cisco Global List prices used in U.S.! BPs internally use these prices in USD and then apply an average recent exchange rate to quote Euros to end customers Siemens: Siemens does not publish any List pricing; channel partner themselves quote list prices which should be regarded as first level street prices and tend to vary by certification level and whether partner is buying directly from Siemens or a distributor UK Avaya UK is not using the same List prices as in U.S.! Depending on the components, List prices are the same or up to 25% less expensive; but typically 10%-15% on average! Same as in Germany BPs usually present the bill of material in USD, using Cisco Global List prices in USD! BPs internally use these prices in USD and then apply an average recent exchange rate to quote Euros to end customers Nortel: Nortel does not publish any List prices in the UK! Channel partners do not give quotes with any Nortel List prices either; they only show a first level street price, which may be discounted further! One channel partner active in several European countries indicated that Nortel pricing policy does not vary between European countries, but that its street level pricing, as defined by Nortel s configurator tool, does vary somewhat Russia Avaya Russia is not using the same List prices as in U.S.! Depending on the components, List prices are the same or up to 30% less expensive; but typically 10% on average Cisco Russia s List pricing is the same as Cisco Global List prices used in U.S. Alcatel: List prices bid by Alcatel Russia are very similar to other countries There exists an Alcatel global price list which contains Alcatel s suggested retail prices for end customers, but every country has its own List prices that are presented in bids, which might differentiate for some components from country to country List prices for Genesys components are very similar to prices found in Latin America (although Russian channel partner indicated no global price list exists) Seite 7
Result Summary Use/presentation of List pricing (Continued) Avaya Cisco Other India List prices used are the same as the US prices; with only minor fluctuations for certain components Cisco List pricing in India is the same as Cisco Global List prices used in U.S., except for hardware support packs which are about 5%-50% higher in India Nortel: Nortel BPs do not present any Nortel List prices in India, but rather only their first level street prices! Street prices are determined based on their costs of transfer from Nortel China Avaya China is not using the same List prices as in U.S.! Component List prices are about 1.7 times higher than U.S.! But these are already including 17% VAT and 4% carriage and insurance costs! Once VAT, carriage and insurance is taken out, Chinese List prices are around 40%-50% more expensive on average than U.S. List Cisco China s List prices are about 50% higher than Cisco s Global List prices on average believed (but not confirmed) to be result of embedded customs duties and taxes Varies by element; for example IP Phones 28%, device licenses 79%, some messaging and CC components up to 80% more expensive; but others, such as voice bundles are 15% cheaper as well as by region (higher for Mainland China than Hong Kong, for example) Alcatel: Alcatel China s List prices for hardware are about 30% more expensive than other countries, and varies by component On the other hand, List prices for software licenses are about the same as found elsewhere (software licenses do not include customs duties) Japan List prices used are the same as the US prices; with only minor fluctuations for certain components List prices quoted in Japan are on average 15% higher than reflected in US global list prices; due to logistics costs, low volumes of certain components, and currency rate fluctuations Most components, including terminals, servers, licenses, solution bundles are ~13% more Voice bundles are ~40% more expensive Catalyst (e.g. 6500) components ~50% more Trunking components are 70% more expensive NEC: Channel partners indicated that NEC List prices vary by regions/countries across the world U.S. prices for NEC hardware are higher than in Japan Channel partner quoted both List and discounted street prices Seite 8
Result Summary Use/presentation of List pricing (Continued) Avaya Cisco Other Argentina Avaya Argentina is using the global price list Generally using Global List Pricing, as some Argentinean BPs purchase directly from Cisco US Often in such cases, BPs add shipping, duties, and some margin to these prices as they are then reflected as List Pricing in Argentina (typically resulting in systems uplifts of 1%-3%) Alcatel: Consistent with List prices in other countries If BPs purchased through Cisco Argentina, List Prices would be about 10% higher, but not include additional costs Brazil Avaya Brazil is not using the same list prices as the U.S. Total solution prices are 23% to 40% cheaper List prices are normally quoted with all taxes (which vary by component type) and logistical costs (most items are imported from U.S.) included After taking out taxes, Cisco BP prices are generally between 5%- 15% more expensive than U.S. Taxes were removed so as to ensure like-for-like comparison cross-country Siemens: Siemens does not publish any List pricing; channel partner themselves quote list prices which should be regarded as first level street prices Siemens reduced List pricing on its HiPath 4000 by 20% at the end of 2006 List prices used are not the same as the US prices; around 30% lower on average List prices used by Cisco BPs in Mexico are the same as Cisco Global List prices used in U.S. Alcatel: Generally the List price in Mexico is consistent with List prices in other countries Mexico There is a Mexican price list about 30% lower than U.S. Channel partners indicated that Genesys List pricing can be 4 to 8 times more expensive than intensive CC configurations from other suppliers, depending on applications/integration of solution Seite 9
Management Summary Summary of typical and high Street discounts observed List price values against which these Street discounts are applied vary significantly Competitive intensity (i.e. number of competitors bidding; willingness to win deal) is by far most influential factor on discount levels Overall value of solution also has some influence, (i.e. higher the value, higher the discount)! However, competitive intensity can easily override this such that a lower-cost solution may attract a higher discount than a larger one Whether customer is local domestic company or subsidiary of a multinational generally has no impact! Although global agreements with large multinationals often set fixed discounts for all solutions and components everywhere in the world; not necessarily meaning highest discounts but rather guaranteeing reasonable prices everywhere and simplifying bidding processes and administration All other factors have little/no influence, e.g.:! Type/complexity of solution - impact is more on services such as installation and maintenance! Green field site or replacement site or location of site - impact more on installation but not on price of system! Type of customer and industry sector have basically no influence whatsoever. Seite 10
How software upgrades are provided (i.e. major releases) Management Summary Avaya Cisco Other Germany Siemens: Must be purchased individually from Siemens; Siemens does not have a software upgrade program similar to Cisco s Software Subscription UK Russia India China Japan Argentina Brazil Requires optional purchase of Software Support+Upgrades service - Attachment of SS or SS+U is required for Hardware Maintenance - Pricing is 21% (15% for SS + additional 6% for Upgrade) of full List value of software product (license)/year (net any promotional discounts) - Same street discount applies as that is used for software license Purchase of optional Software Subscription Service (UCSS)! Requires attachment of Essential Operate/Select Service! UCSS must be purchased from Cisco directly, via resale by BP, and is not modified by BPs - Pricing example on UCM 6.0 Solution Bundle A (List= $1,650 for 50 Users pack) would require combination of ESS SW Only at List=$347/year, which is 21% of software license List, plus attachment of Software Subscription (UCSS) for entire UCM platform at $750 per 100 Users pack Nortel: Nortel s Software Release Service (SRS); although optional, this service is normally found listed (and discounted) as a system element (as opposed to reflected as optional maintenance feature) Alcatel: Available as Software Evolution Service (SES) software subscription package (auto renewable); attached only to OmniTouch UC (messaging) app Nortel: Nortel s SRS is available in India but not commonly bid, unless customers specifically request it; most commonly it is then SRS Basic SL811 Alcatel: Available as Software Evolution Service (SES) software subscription package (auto renew); attached to UC (messaging) and CC applications NEC: NEC offers standard software subscription packages which channel partners resell (SKU-based element like any other hardware/software component) Alcatel: Available as Software Evolution Service (SES) software subscription package; attached to all System, UC (messaging) and CC applications Siemens: Must be purchased individually from Siemens; Siemens does not have a software upgrade program similar to Cisco s Software Subscription Mexico Alcatel: Available as Software Evolution Service (SES) software subscription package; generally attached to System, UC (messaging) and CC Outbound applications Seite 11
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