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Users Can Find Big Bargains in Refurbished Telephone Equipment.

In today's telecommunications marketplace, making the decision to acquire a new telephone system is often complex and sometimes confusing. Mow, there's one more element to add to that confusion: refurbished systems--specifically, PBXs and station equipment.

Used telephone systems, however, unlike used cars, are nothing to be joked about.

In the telephone-equipment market, these "pre-owned" systems are inspected, checked, cleaned and diagnosed. Defective parts are replaced and inferior parts are brought up to standard specifications. They are not, in any way, defective or rejected systems. In fact, their service in the field is a stamp of their reliability. Literally tons of these systems are sitting in waiting for someone to realize their value and buy them.

The reason for newly increased and potentially heavy activity in the used-equipment market is the combination of both a shorter delivery interval and the price-to-performance ratio that these systems can provide, rather than their technology. Most of them have limited mileage accrued from their first owners, and subsequent owners can still realize a significant life expectancy. On the more-reliable systems, their longevity will only be confined by the availability of parts and service, and technological stamina.

The fact that some of these systems may have substantial mileage still shouldn't prevent them from being considered as an alternative for many system independently, with consideration being given to the relevant factors.

One might look at this market and ask why it hasn't been more visible in the past. One of the reasons why this market hasn't progressed more rapidly is the limited number of sources offering used and refurbished equipment. If you combine that factor with the once limited availability of systems, you can understand the slow takeoff.

Obviously, any market is driven by both supply and demand. While customer demand in the past has not been obvious, there has also been a limited supply--and no network or source to provide and market that supply. That is quickly changing. It is anticipated that there will be more than 60 firms offering refurished systems by the end of 1985.

There are 20 Sellers Already

In fact, there are about 20 interconnect companies that are already offering these products and services, and some of them are experiencing a lot of success. This "dealer" concept has been chosen and is being promoted by CMI Corporation for the sale of used telephone equipment. The firm's reasoning is that the best market for these systems is often the smaller businesses. And most times, it's the smaller interconnects that are hungry enough to find that business.

However, the key to dramatic changes in this market are the new players who are entering the arena with great ambition and optimism. AT&T is no new name to the telecom business, but it is new to the refurisbhed market. The company's priming the pump, so to speak, with its extensive inventory of used hybrid and PBX systems.

Meanwhile, Bloomfield Hills, Michigan-based CMI is no new name to the business of selling in the secondary marketplace. And AT&T has selected the firm as a consultant to aid it in the development of financing and distribution of its used products. AT&T is attempting to tap the expertise that CMI has developed in the marketing of refurisbhed computer systems over the course of the last 20 years. CMI is second in sales and leasing of refurisbhed computer equipment only to Comdisco.

AT&T Hopes to Move In Quickly

AT&T is attempting to get the market moving quite quickly, and is hoping that the combination of CMI's understanding of third-party leasing and its own vast inventories will guarantee success. AT&T is banking on the fact that its cooperative entry into this market will help fuel the same kind of energy that now surrounds the sale of refurisbhed IBM computer equipment.

The analog can be seen in the market development for used IBM equipment over the past 20 years. Initially, companies eager to market used IBM computers encountered resistance from "Big Blue" to this basic business idea. But IBM eventually yielded, and what has evolved is the development of an entirely new industry.

From AT&T's perspective, the logic runs something like this: "If the sale of refurished IBM computers can be so successful with that giant dragging its feet, imagine how successful a program of ours could be if we promoted the concept?" While there are strong reasons to answer that rhetorical question with a resounding "Yeah!" there's also cause to doubt the success of such a program.

Since the divesting of AT&T, any customer renting or leasing a system from the company has had the opportunity to buy that same system. In some cases, it makes sense for a user to allow a third-party leasing company to buy that system and then lease it back at a lower rate than that previously paid to AT&T-15.

There Are Also Veteran Players

As previously mentioned, there are a good number of players in the used-equipment game. The refurished market is not a new concept to the people at Source Incorporated in Dallas or Consolidated Communications out of Harrison, New York. They've been marketing refurbished systems for some time. Their offerings include American Telecom, Northern Telecom, Rolm and other PBXs. In the past, their success was limited by a lack of publicity in the marketplace and the relatively low supply of acceptable systems in the pre-divestiture world.

There's some misunderstanding about what a refurbished system really is. By Webster's definition, refurish is defined as "to brighten, freshen, or polish up again; renovate." But that surface explanation doesn't fully describe refurisbhed equipment. Is it used? Yes. Is it old and antiquated? Probably not. Is it state of the art? not really. Is it beat up? No. From the standpoint of technology, it's probably not an electromechanical system either, which would not even be price competitive today given its lack of features and reliability.

So, you're most likely talking about a respectable system that a firm simply has outgrown or replaced with a newer technology. And while there are a number of businesses that require sophisticated telephone equipment, there are an even greater number that really don't need capabilities such as integrated voice and data. In fact, a recent survey we conducted revealed that no more than 20 percent of the digital systems in the field are actually being used for the application of integrated voice and data.

An Analog System May Suffice

Given, the low-level use of integration capability at this point, an analog system could make real sense. In addition, it's possible to acquire a refurbished system that does handle data and is close to state of the art, such as the Northern Telecom SL-IA systems, which do offer integrated data communications.

The firms that are reconditioning this hardware are taking great care to make sure that the equipment not only looks new, but functions like new. Before the equipment is sold, it's inspected. All parts that are defective or overused are replaced, and the systems are brought up to current specifications.

The CPUs are checked out, memory is tested, programs and diagnostics are run, and the overall state of the common and peripheral equipment is certified as field maintainable. Firms such as CMI, which already have reconditioning centers for computer equipment, are creating the staff and parts availability needed to do this reconditioning.

Because these systems are normally built well, under high quality-control standards, their life is determined by technology, not by age. Moreover, there are so few moving parts that there's very little to wear out. Practically any of the new electronic systems that were installed in the last five to seven years should last at least 10 to 15 years total.

Systems Are Service-Certified

In addition, whenever a system is removed from a site, it is certified as maintainable by the servicing vendor, be it AT&T--IS, Rolm or another. After the system is installed, service can be secured either through a warranty arrangement or by a maintenance contract. The customer is usually free to choose whether it's full-service agreement or time and materials.

The greatest attraction of refurbished equipment is the price--a strong motivator for customers to consider it as a viable option to a new digital PBX. So, the rationale for making a purchase of refurbished equipment might be as simple as this: If you can buy the same thing, with the same features and reliability, supported by the same well-established company, at a savings of nearly 40 percent, would it really make sense to buy new? The savings can be that much, depending on the configuration of the system required and its availability.

The best price is usually obtained by matching a system that's already been bought by a refurbisher to your particular needs. That way, very little modification is required to the existing system. Subsequently, minimal additional costs for parts and labor keep the total cost of the systrem at an attractive and affordable price.

For reference purposes, the ballpark figure we have been using for the purchase of a reconditioned system is an average of $300 to $400 per installed line. Compared with a low-ball cost of $700 per line for any new system, this is quite attractive to most buyers.

Although the concept of refurbished systems is quite sound, it's going to take some time for the user community to become comfortable with the possibility of buying a system that's been used by someone else. However, we have always felt that this market will have great appeal to a broad category of buyers.

This Is A Developing Market

It's a developing market that will be either distinctly helped or hurt by AT&T's intervention. We happen to feel the company's slow response speed is too cumbersome for direct attention, hence the dealer concept is more practical.

The refurbished telephone equipment business is gaining greater interest and attention. We don't believe it's a fad or passing trend, but a valid market niche, which will only expand.
COPYRIGHT 1985 Nelson Publishing
No portion of this article can be reproduced without the express written permission from the copyright holder.
Copyright 1985 Gale, Cengage Learning. All rights reserved.

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Author:Moskoff, G.
Publication:Communications News
Date:Mar 1, 1985
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