IP telephony to explode: study

Nearly 90 per cent of companies with multiple locations will begin switching from their conventional telephone systems to IP telephony over their LANs within the next five years, according to The Phillips Group – InfoTech, a Parsippany, NJ-based research firm.

The Phillips Group is predicting a US$1.9 billion IP telephony industry by the year 2004 and an annual average growth of 138 per cent over the next five years.

The survey, conducted this summer, involved 460 US-based multi-site enterprises that ranged from two or three sites to thousands, said Terry White, senior director of the Phillips Group and lead analyst for the study.

“There seemed to be a high percentage of users that feel that this technology is a natural evolution of the current technology. It’s almost like the changeover from analogue to digital: it’s not if I’m going to do it, it’s when would I be likely to do it,” said White.

He said respondents would replace old PBXs with IP telephony products instead of investing in another PBX, thus creating a gradual crossover in technology.

“What we concluded was that in the next two years, it’s going to be fairly slow. There are a number of constraints, including concerns about the reliability of the systems, concerns about the quality of the voice, concerns about the price. So it’s really going to be in 2002, we think, when those concerns will be largely taken care of by the vendors, and then the market will really take off,” White said.

Elizabeth Herrell, a senior analyst with the Giga Information Group in Santa Clara, Calif., disagreed with the findings of the study.

“I think that’s a very aggressive forecast. I’m sure Cisco will love it,” said Herrell. Her numbers show the current US$45 million IP telephony market growing to approximately US$559 in 2002, with those numbers including only new system shipments and not maintenance or add-on equipment.

Herrell said recent years have seen many PBX sales as companies upgraded to Y2K compliancy.

“Those systems will not have the short four or five year life cycle of most data products. Cisco et al would love for that to happen, for people to throw away their PBX

systems after four or five years,” she said.

“The question is, what is the added value people are going to gain by getting these (IP telephony) systems? What is the specific application that they’re going to be getting? Until that comes out, I can’t see people rushing and discarding a system that’s up and working, people are used to it, no training required to use your phones. Why would they go and change their whole platforms?”

The main reason the Phillips Group found for wanting the switch was to save money, even though respondents weren’t too sure where those savings would arise, said White.

“They (the respondents) are optimistic about the new technology, but they don’t have a good feel for what the economic benefits actually are. There’s this perception that

there’s going to be significant economic benefit, but they don’t know how much it’s going to be.

Herrell said she has not seen evidence of any significant monetary savings with IP telephony over the LAN.

“What may happen is the leading PBX vendors will be offering some type of IP connectivity and hybrid systems and stepping-stone solutions that may give people the appearance of IP connectivity but they’ll still be working on their circuit switching,” she said.

Herrell emphasized that she does see the industry growing and dominating, but not in the short time span predicted by the Phillips Group.

“IP will be the platform of telephony and data in the future, but in the next few years people are saying it’s not mature, the reliability and quality of service is not there, there’s no clear savings that I can see, especially when I add in the maintenance costs, etc.

“I don’t see why anyone would do it. They’re interested in knowing more about it, but they’re not rushing out to do it,” said Herrell.