VoIP market maturing fast, analyst says

Companies should make voice-over-IP technology a part of their strategic LAN and WAN plans, but larger enterprises should probably wait a year or two before eliminating separate voice and data paths to most desktops.

That was among the advice given by Gartner Group Inc. analyst David Neil last month during the consulting firm’s Symposium/ITxpo 2000 event in Lake Buena Vista, Fla.

VoIP, as well as other voice-over-packet network technologies such as those using Frame Relay and ATM, are designed to lower companies’ total cost of ownership for telephony systems and enable new applications for end users. The technology could also result in improved reliability and security, though Neil said PBX reliability is already quite good.

In past months, customers could get IP telephony gear for free from many vendors interested in seeding the market, Neil said. While the freebies have mostly disappeared, he told attendees they can still get “unbelievable deals.”

Neil recommended that small companies or remote offices – those with less than 100 end-user stations – may want to consider tossing out their old key systems or other telephony systems for new VoIP gear. Gartner estimates that by 2003 more than half of the fewer-than-100-desktop PBX shipments will be IP PBXes, which are servers running call management software and connected to a LAN. Neil emphasized that companies going the IP PBX route must insist on solid service-level agreements from the vendors of these newfangled products.

Larger sites are better off waiting till the technology matures, he said. He expects more than 95 per cent of organizations to continue building separate data and voice paths to desktops through the end of 2002.

He also pointed out that installing VoIP gear in an enterprise network will not be straightforward. Router cards may need to be upgraded, gateways may need to be added, bandwidth will have to be increased and staff will need retraining.

Many companies will be able to milk their PBXes for a few more years, though he said doing so may get costly. He said it is getting harder to find parts for older PBXes and that the prices for used equipment are going up.

Choosing vendors will be tricky, too, Neil said. He credited Cisco Systems Inc. with jump-starting the IP PBX market by acquiring a company called Selsius that specialized in packet telephony and then pushing the technology aggressively. He said it is hard to say who is the market leader today, as the market is changing so quickly. But he cited Cisco, 3Com Corp., Nortel Networks Corp. and NEC Corp. as being among the top players, with Siemens AG and Avaya Inc. ready to make their moves.

On the WAN services side, customers can start testing the VoIP waters now and save money, Neil said. Next-generation carriers in particular are investing heavily in IP networks, recognizing that revenue from voice traffic is flat or falling, while revenue from data traffic is booming. These carriers figure it makes sense to throw voice and data traffic on the same net and invest heavily in that combined network.

He noted that Equant NV recently rolled out VoIP services that can cost 15 to 20 per cent less than WAN services from others. Others, such as Cable & Wireless PLC, have also embraced VoIP in a big way, he said.

What customers are likely to see from VoIP service carriers are flat-rate and volume-based pricing schemes, rather than call-based ones, Neil said. However, he said carriers are still working to develop or implement billing systems that can support such pricing schemes. Neil said he even spoke to one carrier recently that was considering offering voice for free because it would be so costly to come up with a new billing system to support packet-based voice.