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.
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 8×8 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.
Next Page: Dont count out the cable operators.
Cable Operators
In a related release Sept. 29, SBC let it be known that IDCs report found it ranked first among all service providers “for market leadership in terms of revenue and market reach.” SBCs hosted VOIP offering, called Hosted IP Communications Service (HIPCS), was launched in November 2003 and is available in 69 metropolitan areas.
As to the traditional long-distance carriers, MCI has Advantage for SMBs, Sprint has been “doing well” as a wholesaler of IP-based products, and it “wouldnt surprise” Stofega “if AT&T had something in the works” to go alongside its consumer VOIP CallVantage service.
While cable operators are still concentrating on consumer voice services, “dont count them out,” Stofega said. “Weve found a surprisingly high percentage using cable modems for telephony for the lower end of the market.”
Stofega said he arrived at his 282 percent CAGR (compound annual growth rate) after eight months of discussions with end-users and carriers, along with extensive projection modeling. His total growth numbers reflect not just service revenue, but all that goes with it: access hardware, adapters or IP phones, installation, local and long distance, metered minutes, basic package and enhanced services.
The IDC analyst said he doesnt think outsourced VOIP switching contracts quite outnumber CPE installations at present, but that the hosted model is increasingly popular. Many simply dont want to place expensive bets this early in the VOIP development game, he said.
“The comment we get is that a traditional switch goes off warranty, and they look at the upgrade process. The RFP is such a time-consuming hassle; they just dont want to go through with it. They decide to go hosted.”
Technology Editor Ellen Muraskin can be reached at Ellen_Muraskin@ziffdavis.com.
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