Will 2005 be the Year of the IP PBX?

The IP PBX trend probably won’t be that noticeable of an event, but that important segment of the VoIP market will continue strong over the next few years, analysts predict.

“VoIP is a whole trend that is happening,” says Robert Messer, president of ABP Technology, which recently signed a master distribution agreement with NetFabric Corp. for its Cashmere line of VoIP call routers and IP service adapters. “The ideological war has been won,” Messer says. “Now it’s basically an implementation phase we are in.”

Analyst firms, such as In-Stat MDR, report IP PBXs are proving to be a strong growth opportunity. The PBX market generally is considered to be mature, but the move to IP is creating some growth. According to the In-Stat MDR study, “the replacement market comprising IPbased systems is expected to grow much faster.”

In-Stat MDR estimates the overall PBX market will grow at a 4.2 percent compounded annual growth rate from 2003 to 2008.

Traditional PBX line shipments will decline by 15.4 percent CAGR, but converged PBX line shipments should grow at 11.2 percent CAGR. Pure IP PBX line shipments are expected to grow even more, at 28.9 percent CAGR.

Likewise, Infonetics Research reports IP PBX revenue grew 33 percent between 2002 and 2003, and further growth is expected through 2007.

“When the capex becomes lower than the cost of maintenance of the old system, people will mass migrate,” Messer says. “And because of fears of Y2K bugs, a massive number of PBXs were purchased in about 1999 when people may not have needed them.” The leases on those systems are coming due, he continues, and some are finding that an IP PBX will be the way to go.

Of course, all of this is great news for the manufacturers of IP PBX systems. Cisco Systems, not surprisingly, leads revenue market share as well as lines shipped, according to Infonetics. Other key players include Alcatel, Avaya, Mitel, Nortel, Siemens and Toshiba. Options for IP PBXs range from pure plays to hybrid systems, which let the end customer ease into an IP solution.

“Cisco’s IP PBX has had tremendous success in the enterprise space, says Kevin Mitchell, directing analyst for service provider networks and next-generation voice at Infonetics. “Enterprises are very aware of the Cisco brand,” he says.

Avaya, which saw 29 percent growth in total IP PBX line shipments in the first quarter of 2004, according to Dell’Oro Group, credits its success to its commitment to the enterprise market.

“We don’t have a lot of other business to distract us, and customers like that,” says Saied Seghatoleslami, vice president of the product division for small and medium-sized businesses for Avaya. “We are focused on serving the channel.” Avaya’s customers include Jenny Craig, Kenneth Cole, East Texas Medical Center and even rocker Rod Stewart.

Seghatoleslami says Avaya is seeing 20 percent to 25 percent of its customer base buying IP PBX equipment. “In 2007 and 2008, we’ll see a whole different set of numbers,” he says, noting the predicted increase in growth and greater acceptance of IP overall.

Avaya offers what it calls a total solution, which includes not only the gear but training and support. “Also, some value-added resellers sell Avaya-branded products, while others brand them completely as their own,” Seghatoleslami says. “We like to provide that flexibility.”

Alcatel also is seeing its IP PBX market share growing, while TDM PBXs are starting to fall off, says Rudy Mazza, senior marketing manager at Alcatel.

Alcatel, like Avaya, works within the enterprise market, and especially is seeing growth in the small and medium-sized business arena, Mazza says. Mazza says the traditional carrier market will be important in the world of IP PBXs.

An interesting trend in the IP PBX arena is traditional telecom service providers getting back into the business of supplying PBX systems. “The carrier space is beginning to look at this as an opportunity for a bundled offer,” Mazza says. “I’m an old Bellhead, and back in the days before divestiture, we never sold a single PBX; it was always in a bundle. I think we’re going back to the days of added monthly revenue for telcos by them throwing in the gear and taking care of it,” he says.

Along that line, Alcatel is in lab tests with several carriers, following up with requests from the big carriers to see how feasible a bundled offer would be. “Of course, we want to help the carriers make money.” And, he adds, the small and medium business market is ripe for carrier intervention. “They don’t want responsibility for managing that gear,” he says. Carriers, he said, are a natural because they are already using IP PBX systems internally.

However, as with anything, this option is not without its obstacles. “A lot of carriers are starting to come into this area. But the problem is that carriers never were that successful selling PBX systems,” says Dale Stein, cofounder of Technology Assurance Group, a national organization of independently owned telecom providers. “It’s just never been their strong suit. Moreover, there is a huge lack of training in the industry because IP is a fairly new technology.”

Source: Infonetics Research

So the next step to make sure this market doesn’t tank is training and expertise. Traditional telecom carriers still are tied to legacy ideas, so the shift to IP is occurring, but not without a learning curve. “Traditional telecom technicians don’t necessarily have the skills for the LAN and WAN for IP PBX,” Infonetics’ Mitchell says. “So there definitely is training involved,” and that’s the main reason it might take at least a year for the full set of services to be rolled out, he says.

Moreover, Stein says the industry should demand certification. “The data side, such as Cisco, is not requiring any certification (of technicians). They assume their technicians already understand. But they don’t understand the telephony side, so they absolutely need training and they will get it.”

Stein agrees expertise is the biggest challenge. “They need to be able to get the product up and running and then maintain it. We have to get people trained not only to sell but also to install it. But that is how any particular product evolves.”

Toshiba prides itself on not only training its own staff but training the staffs of its channel partners. “We introduced IP capabilities on our current product almost two years ago, and some time before that, we started the training,” says Larry Meyer, vice president of sales and marketing for Toshiba America Information Systems, Digital Solutions Division.

One of Toshiba’s value-added resellers, smplsolutions, agrees the vendor’s training program is up to par. When smplsolutions began, it focused on the data side, but has become adept in both data and telephony.

“Most of our technicians are Microsoft-certified and/or Toshibacertified,” says David Case, president of smplsolutions. “Toshiba doesn’t charge for training, so we send techs through their training classes as much as possible.” In addition smplssolutions makes sure it uses Toshiba IP gear in-house, and, sometimes, in sales and technical employees’ homes, to make sure the product works and company representatives know the ins and outs.

Indeed, it seems the IP PBX market is coming of age. Training is happening and the technology is proven. Worldwide, IP PBX annual revenue reached $256 million in 2003 and is predicted rise to $830 million in 2007, according to Infonetics.

“For a new technology to survive, it needs to do two things, increase profitability and create a competitive advantage,” TAG National’s Stein says. IP can do this, he says.


ABP Technology
Infonetics Research
In-Stat MDR
NetFabric Corp.
Nortel Networks
Technology Assurance Group

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