PBX Sales Drop Hides IP Success Story

News Analysis: In an otherwise down market for enterprise telephony, both pure and hybrid IP systems are growing as enterprise buyers embrace VOIP.

The worldwide PBX market dropped dramatically between the end of 2004 and the end of the first quarter of 2005, according to a report by Infonetics Research. The 12 percent drop in sales from one quarter to the next looks pretty shocking, but in reality, PBX sales grew about 2 percent last year, if you compare the first quarter 2005 against the same quarter a year earlier.

So, despite the headlines, telephony sales are growing.

But whats really important in the Infonetics report is that the overall growth is being driven by a huge growth in IP telephony. Sales of pure IP PBX systems grew 36 percent over last year. Meanwhile, hybrid telephony systems—which consist of both IP and traditional POTS (plain old telephone service) systems—are expected to show growth similar to that of pure IP systems over the next year.

At first, this doesnt sound like very good news for companies that make phone systems, but in fact its just the opposite: this is very good news indeed. It means that enterprise buyers have overcome their doubts and are moving to VOIP in droves.

Joan Vandermate, Vice President for product line management for Siemens Enterprise, part of the global behemoth Siemens AG, isnt surprised at the numbers. According to Vandermate, the old TDM (time-division multiplexing) phone systems of years past are really falling out of favor.

"We dont even offer them anymore," Vandermate said. "You cant buy them from anybody," she added, pointing out that the only way to buy a TDM phone system is on the used equipment market.

/zimages/4/28571.gifClick here to read about VOIP networking technology on display at Supercomm.

The lack of availability of the old TDM systems would explain a lot about why their numbers are shrinking. After all, enterprises cant buy what isnt offered. She also noted that while the number of pure IP phone systems is going to grow, theyll never work for all companies. The reason, she said, is that there are always some phones somewhere that wont do IP.

"There are fax machines, the phones in the elevators or out in the guard shack," Vandermate pointed out, naming locations where IP phones are unlikely. In fact, she said, in most installations, about 5 to 10 percent of the phones cant be IP phones.

Those lingering non-IP phone uses explain the Infonetics prediction that hybrid phone systems will reach 67 percent of all phone systems by 2008.

With the prediction that pure IP phones will reach 23 percent of sales in that year, its obvious that TDM phone systems are already history, and are only around through inertia.

/zimages/4/28571.gifRead details here about the recent E911 ruling and the questions it raises about the classification of VOIP.

The cause of all that inertia? Telephones. Even where companies are putting in new IP PBX equipment, theyre trying to find ways to keep their old telephone sets.

"Not many customers have the luxury of building out new," Vandermate said. "In the last year and a half, weve been selling a lot more lines than phones. What that tells us is that a lot of our customers are keeping old phones."

Vandermate said that in the past, companies would buy new phones when they bought their new PBX systems. But now, she said, theyre buying adapters and line cards for their IP PBXs so they can keep using the old stuff.

She added that she expects to see sales of IP phones grow as companies start adding new phones and replacing old ones as needs change. She said that Siemens is already looking at inexpensive IP phones so that they can meet the demand for new phones when it materializes.

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Wayne Rash

Wayne Rash

Wayne Rash is a freelance writer and editor with a 35 year history covering technology. He’s a frequent speaker on business, technology issues and enterprise computing. He covers Washington and...