Report: Hosted IP Voice Will Storm the Enterprise

An IDC study predicts that the IP Centrex market will grow at a compound annual rate of 282 percent, as businesses increasingly hook their desktop IP phones to a centrally located, off-premise switch.

Market research firm International Data Corp. says in a new report that VOIP adoption is growing fastest among U.S. businesses opting to outsource the switch. IDC pegs the size of a market called "hosted IP voice" or "IP Centrex" at $7.6 billion by 2008–representing a compound annual growth rate of 282 percent. The study finds the market at $60 million by the end of 2004.

For enterprises, hooking desktop IP phones to a centrally located, off-premise switch does away with the risk and trouble of picking a CPE hardware vendor, says the report, released Sept. 27. Such a move realizes the mobility and cost-savings benefits of IP telephony without the capital expense of an IP PBX and its ancillary power backups, or the need to train or recruit VOIP-savvy maintenance staff.

To carriers, it represents a way to stem losses to IP PBX and data network vendors, and a way to keep their own Centrex (traditional hosted switch) customers, if at a smaller revenue per user.

The IP Centrex offering typically includes the PBX-like, four-digit dial and transfer features known to Centrex users, plus enhanced features made configurable through Web GUIs. These can include personal call-routing policies, conferencing, Web-retrievable voice mail, contact-center call routing, presence/availability information and instant messaging.

The report, titled "U.S. Hosted IP Voice Services 2004-2008 Forecast: VOIP Invades the Enterprise," is available for purchase from IDC.

/zimages/4/28571.gifClick here to read about IP Centrex trials that BellSouth is running.

William Stofega, senior research analyst at IDC and author of the report, said the sweet spot for hosted IP telephony begins with an enterprise of more than 30 employees and stops just short of the Fortune 500, where in-house budgets and expertise are typically sufficient to maintain a companys own IP voice switch. "Weve seen the middle-sized company, at around 1,000 employees, being especially targeted for this service so far," Stofega said.

The report includes VOIP service providers up and down the scale, from relative newcomers such as 8x8 Inc. and M5 Networks Inc. to facilities-based, competitive carriers such as Level3 Communications Inc. and the Bell companies, which have the advantage of large installation staffs.

"The difference between what Level 3 can provide and someone like SBC or Qwest is that Level 3 has to use a VAR [value-added-reseller]," Stofega said.

"Level 3s primary target right now is wholesale to the second-tier CLEC [Competitive Local Exchange Carrier] or a cable company, for whom they private-label their service. RBOCs [regional Bell operating companies] are also better-positioned than the VOIP upstarts to offer service-level agreements in terms of packet loss and jitter," he said, naming two determinants of voice quality.

"But RBOCs have not done a good job at the lower end of the business market, and they know it," he added.

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