IP telephony gathers momentum

Internet Protocol (IP) convergence applications will gather steam and post dramatic growth in the next five years. By the end of this decade, IP phones, for example, could become the standard desktop terminal in selected Asia-Pacific countries.

Market researchers say these two trends will emerge as pricing of IP PBX equipment becomes competitive with traditional PBX systems and as more practical applications become available to boost business benefits from converged communications networks.

Today, companies that adopt IP telephony try to make legacy time division multiplexing (TDM) and new IP equipment co-exist. This is not lost on Avaya Inc., a provider of communications networks, which supports a mix of old and new equipment.

In a recent IP telephony roadshow, Avaya officials said most markets in the region still require both traditional and IP telephony to work together, but added that they expect a rapid shift to new technology.

IP telephony began taking root about two years ago, mostly in high-tech industries and among technology-savvy organizations and the academe. Reduced costs and the attraction of being on the leading edge motivated many of these early adopters, which were willing to take some measure of technological risk.

This year, however, banks and financial companies that require reliable, stable and applications-driven solutions are the ones leading the demand for IP telephony, said Ed Doctolero, country manager of Avaya Phils. He declined to identify local banks that have deployed IP solutions.

By next year, large local companies and small and medium enterprises (SMEs) that want to reduce costs would also start adopting IP telephony, he said.

Meanwhile, multinational companies, which already represent a sure market for IP telephony, would continue to deploy the technology as they spend more for data services rather than for voice services.

Life cycle

IP telephony’s life cycle started with PBX trunking, which is still at a high-growth stage, to IP phones and LAN telephony, which are now in their initial to medium adoption stage. The proliferation of endpoints has also started and the explosion of applications would be next.

Mack Leathurby, Avaya director for converged systems and unified communications, said an emerging trend among enterprises in the Asia-Pacific is to focus on deploying strategies and applications that transform business through converged communications networks.

In particular, he singled out what he called "unified communications" to be the killer application that would drive IP telephony adoption to support distributed enterprises and branch offices, integrated messaging and collaboration, and global distributed contact centers.

Market size

At this point, the global IP telephony market is still crossing the chasm to become widespread, said Leathurby. "Last year, we hit this early mature stage when 95 percent of Fortune 500 companies implemented IP telephony for their businesses. We are now in the early phase of the high-growth stage," he added.

Based on market studies, the total global enterprise telephony market for new equipment would be $14 billion by 2005, with IP telephony growing by 62 percent (CAGR) from 2001 to 2005. In the Asia-Pacific, according to the IDC Asia/Pacific VoIP Market Forecast and Analysis, 2000-2005 Report dated February 2002, the enterprise IP telephony market for new equipment would be $880.56 million by 2005, with IP telephony growing by 35 percent (CAGR) from 2001 to 2005.

The Asia-Pacific market was worth $49.9 million in revenues in 2001, a growth of 324 percent from 2000. In 2001, 73,896 IP phones were sold in the region and this number was estimated to have grown to 180,452 in 2002; and projected to hit 4.2 million by 2008. Market researcher Frost & Sullivan pegs the Philippine IP PBX market to be worth $380,000, among the smallest in the Asia-Pacific.

According to Avaya, it ships more than 6.2 million IP phones annually to small, medium and large enterprises.

ROI formula

Despite encouraging user adoption trends, Avaya officials believe that customers would only make the shift based on business benefits and ROI (return on investments). Leathurby said the rapid adoption of IP telephony by organizations is driven by key business imperatives such as cost reduction, revenue growth, customer loyalty, business continuity and employee productivity.

This observation applies to the Philippines where most customers’ concern is how they could optimize their communications networks and maximize their ROI, while minimizing disruptions to their operations, Doctolero said.

In an effort to remove the tedious process and guesswork in computing the ROI, Avaya co-developed with market researcher Gartner an advanced mathematical tool to clarify the business case for IP telephony convergence. The Avaya ROI analysis tool is in easy-to-use interview format that simply requires companies to input their requirements to get ROI figures, TCO (total cost of ownership) results, and breakeven analysis graphs.

The formula, Leathurby explained, usually covers the computation of the initial expenses within the first three to six months. He also reminded companies that it’s not always necessary to deploy IP telephony for all aspects of their businesses.