Report: VOIP Phones Wont Gain Lead Until 2009

A study by Insight Research finds that the higher cost of IP phones is slowing their gains, but VOIP's support for integrated vertical telephony applications serves as a potent lure.

In a report issued Thursday, telecommunications market research firm Insight Research found that VOIP phones in the enterprise will not outnumber the installed PBX base until 2009.

The study also found that as of 2003, incumbent PBX vendors such as Nortel Networks Ltd. and Avaya Inc. are shipping more IP PBX phones than rivals Cisco Systems Inc. and 3Com Corp.

"In the enterprise space, a lot of money will be made," said Bob Rosenberg, president of Insight Research Corp.

"But the size of the space isnt going to change drastically over the forecast period because were not seeing new business creation," he said. "Were talking about a replacement market. The number of existing businesses is not going to grow at a torrid rate."

According to the study from Boonton, N.J.-based Insight, the PBX business will ship about $4.3 billion worth of PBX equipment this year. The cost of IP phones, at 25 percent more than that of their digital counterparts, is a factor slowing uptake, Rosenberg said. But VOIPs support for integrated vertical telephony applications is a potent lure.

"In health care, for example, everyone associated with a hospital—staff, suppliers, colleagues at other sites—essentially have a way now to meld their voice and data traffic," he said. "They can have access to diagnostic image information, for example, in the same session as a voice call.

"We can take all of that computer-telephone-integration capability that we knew from the high-cost call center environment and make it available on a very low-cost platform. Even more important, the programming environment will be thrown open," Rosenberg said.

Newer VOIP PBX phones are expected to grow at a compounded rate of more than 20 percent over the forecast period, while the older TDM (time-division multiplexing)-based phone technology declines at roughly the same rate.

A similar replacement process dictates outsourced switching alternatives: Traditional Centrex has declined from a high of 17.3 million lines in 2001 to a predicted 13.3 million at the end of 2004. "Were predicting a 1.5 million-line IP Centrex installed base by the end of the year," Rosenberg said.

/zimages/5/28571.gifClick here for a column by Ellen Muraskin on how the VOIP industry has changed.

According to Rosenberg, the RBOCs (regional Bell operating companies), which are just beginning to install the softswitches that govern IP Centrex service, have so far been at a regulatory disadvantage to upstart VOIP service providers.

Thats because the RBOCs can only offer services within the boundaries of each of the United States 196 LATAs (Local Access and Transport Areas).

MCI Inc., with its SIP-based Advantage IP Centrex offering, has been first among the long-distance carriers to take advantage of its greater range. But as of now, the company "doesnt have the feature richness of even traditional Centrex," according to the report.

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