Leased networks vs. managed services
Gautam Munish, Country Head, Cisco Capital, talks to Sneha
Khanna about leasing network equipment and services
How does the lease model for network deployment work?
In a lease model, the networking vendor works with a financing company to provide
convenient, flexible financing options for network equipment and services. The
process of network deployment remains the same with the networking vendor working
with its channel partners to deploy the network equipment at the customer site.
The financing company works with the prospective customer in designing a leasing
option that best suits the requirements of the particular company. They work
with the vendors product development, sales, services and support teams
to enable the deployment.
What are the benefits of this model?
Leasing programmes enable customers to implement a solution quickly and easily,
while protecting the network from technological obsolescence. The key benefits
of the lease model include:
Leasing entails the provider taking a residual
position in the equipment. This shifts the risk of technology obsolescence
and the burden of end-of-life equipment disposal away from the customer
to the financing company, thus minimising the customers total cost
of keeping up with technology
Mitigating the risk of technology obsolescence. The
network is a strategic business asset for companies
to help them stay competitive. With the dynamic technology
landscape and new ways of doing business, corporations
run the risk of making huge technology investments expecting
them to last, despite the rate of the technological
innovation. The lease model takes a residual
position in the equipment. This shifts the risk of technology
obsolescence and the burden of end-of-life equipment
disposal away from the customer to the financing company,
thus minimising the customers total cost of keeping
up with the technology.
Option to renew, buy or return. Customers have the
option to buy at the end of lease, as per the changed
business and network needs. Customers therefore could
renew the lease if the current equipment is still fulfilling
their business needs; buy the equipment at its fair
market value or return the equipment with no further
Planned and timely migration onto new technology. If
customers find the equipment obsolete, they can plan
and take timely decisions to migrate to new technology.
With increased awareness among corporations on the importance
of their IT equipment as a productivity tool, more corporations
are using leasing as an integral part in their IT system
Expensing versus capitalising IT
investment. Since networking investments are considerable,
they are considered as capital expenditure. By opting
for a leasing program, customers may account for their
lease payments as operating expense rather than capitalising
the equipment depending on the local accounting standards.
Smoothen technology investments. Since the financing
company helps customers migrate onto new technology
by returning the obsolete equipment, leasing avoids
large up-front out-of-pocket expenditures as investments
are spread in the form of rentals over the period of
What is the cost saving in deploying the networking lease
model as compared to an outright purchase?
The cost savings vary depending on the programme opted for and the customers
network equipment needs. Also, the lease is strictly seen as an operating expense
and not capital expenditure so it is not included as an item on the balance
How are things like SLAs and QoS taken care of in the networking
lease model? What is the average lifecycle of each component before replacement?
SLAs, QoS and lifecycle are parts of the technology strategic planning, which
customers need to discuss and agree on with equipment/solution vendors. Leasing
simply offers an alternative source of funding that enables purchase of products
Are there any drawbacks of this model because of being
managed by an external entity?
The financing company gives facilities in a lease model to its customers for
network equipment. The customer can opt to manage and maintain the network equipment
in-house or outsource the services to an external provider. The leasing model
therefore differs from the managed service model.
There are therefore no drawbacks as such in a lease model. The leasing model
differs and is independent from the managed service model as it relates to the
financing of the solution being deployed while the latter relates to the management
All other aspects and issues related to network deployment remain the same.
Todays businesses rely on network technology more than ever before. However,
network equipment does not have to be a drain for an organisations financial
resources. Leasing is a valuable tool for financing network investments by spreading
the cost of new technology over time, allowing organisations to better manage
cash flow and conserve capital budgets. Because of the benefits, a large majority
of enterprises worldwide now use leasing as an integral part of their business
The leased model has been in existence for a while in the
case of end user clients and servers. Can you detail how this scheme has evolved
to the present stage where network equipment is also being leased out?
The leased model for network equipment and the lease model for IT equipment
are quite similar in structure. The financing company offers a combination of
financing options for organisations of all sizes, allowing implementation of
technologies needed to compete and thrive without a large capital investment.
For example, Cisco Capitals leasing programmes offer leases for each
aspect of the network: foundation technologiesrouting and switching which
form the core of any network; advanced technologiessecurity, voice, IP-based
communications and wireless, and services offered by Cisco Systems. In addition,
the organisations can lease through Cisco Capital the entire networking solution,
including installation, services and all technology components of network deployment.
How does an organisation select a vendor for the leased
model? What are the parameters to consider?
While choosing the vendor of a lease model, companies should take care of the
- Look carefully at the terms and conditions and check
if there are hidden fees.
- Look at the offers made by the company about flexibility
during and at end of term.
What are the enclosures required, when applying for the
While applying for financing options, companies generally need to furnish the
- Credit application and legal name of the company
- Location of company headquarters
- Complete bill of material for equipment to be financed
- Prior years financial statements (audited
- Any interim financial statements for the current