IP PBX: The Future of Enterprise Telecommunications?

The Internet protocol private branch exchange (IP PBX) market offers a ray of hope in the otherwise depressed European telecommunications industry. Encouraging developments in this market have seen enterprises beginning to replace their time division multiplexing (TDM) voice networks with IP enabled/converged voice data networks.

New analysis from Frost & Sullivan (http://www.telecom. frost.com) reveals that the total enterprise IP PBX market (including IP enabled PBX) demonstrated strong growth in 2003, generating a total revenue of EUR 589.35 million. It is forecast to continue expanding at a compound annual growth rate (CAGR) of 30.3 per cent to reach EUR 1.78 billion in 2008.

“The adoption of IP PBX is largely being driven by its advantages such as cheaper inter-office and branch office connectivity and the resulting enhanced productivity,” remarks Frost & Sullivan Telecom Analyst Shomik Banerjee.

Some of the verticals leading the way in adoption are finance, government and retail. Contact centres and medical centres are also expressing great interest in IP telephony.

Marketing efforts are shifting its focus away from cost advantages to productivity benefits. Future applications are likely to focus on business process productivity with unified communications being touted as the ‘killer application’ expected to drive adoption.

The adoption of open standards in IP goes a long way in promoting interoperability. This, in turn, benefits the customer through the availability of wider choice and variety. The increasing move to promote universal standards such as session initiation protocol (SIP) that facilitate interoperability, application development and implementation spells good news for IP PBX adoption.

In fact, SIP holds great potential to materialise into a better version of Q.SIG. Application development is easier using SIP and it could well become the de-facto signalling protocol of voice over Internet protocol (VoIP) communications.

Between IP enabled PBX and IP PBX, the former is likely to evolve as a short-term solution. In 2003, IP enabled PBX line shipments accounted for EUR 177.62 million in Europe. This figure is likely to increase at a CAGR of 19.23 per cent to EUR 428 million in 2008. IP enabled PBX line shipments are likely to increase to 2.34 million lines in 2008.

This growth is likely to be driven by the short-term capital expenditure constraints of enterprises to migrate to converged solutions. Growth of IP enabled line shipments is expected to be particularly high in 2004 and 2005 due to higher adoption in France and Germany. However, it is expected to reduce from 2006 onward due to the increased adoption of converged solutions and hosted IP telephony.

IP PBX is being viewed as the future of enterprise telecommunications. IP PBX line shipments in Europe are likely to increase from 2.96 million in 2003 to 11.96 million in 2008 mainly due to the promising growth in converged systems. Enterprises are likely to use their existing end points until they have a strong business case to migrate to the IP phones.

“Frost & Sullivan estimates that IP PBX line shipments alone accounted for EUR 411 million in Europe during 2003, which is likely to increase at a CAGR of 26.73 per cent to EUR 1.34 billion in 2008,” says Mr. Banerjee. “Legacy participants are aggressively promoting converged solutions through buy-back programmes in an effort to hold their existing accounts.”

By mid-2006, 50 per cent of all PBX sales in Europe are likely to be IP PBX. However, the technology is expected to face stiff competition from hosted IP telephony from 2006 onward.

The challenges facing the IP PBX market are many and varied. Technically, SIP is yet to mature and interoperability tests are still being carried out in labs. Security is likely to emerge as a challenge since the transport of voice through IP will increase the vulnerability of voice services to spamming and other attacks.

Financially, the cost of IP end points is still high while on the business front, IP PBX faces increasing competition from hosted IP solutions.

Among the European countries, the United Kingdom has expressed strong interest in IP telephony adoption. The techno savvy Scandinavian market is also emerging as a potential adopter. Equipment vendors are relying on the lower cost of bandwidth and public switched telephone network (PSTN) call rate to spur sales and compete against hosted solution providers in this region.

Germany has shown low adoption rates because of the huge investments made by Deutsche Telekom in laying ISDN infrastructure. France has also been cautious in its attitude toward IP telephony migration and seems to favour a system of phased migration.

If you are interested in a summary of this research service providing an introduction to the European IP PBX Equipment market, please send an email to Kristina Menzefricke, Corporate Communications at kristina.menzefricke@frost.com with the following information: full name, company name, title, contact telephone number, email. Upon receipt of the above information, the summary will be emailed to you.

Title: European IP PBX Equipment Market – Moving toward Converged Networks
Code: B465

Background
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For further information, please contact:

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Kristina Menzefricke
P: +44 (0) 20 7343 8376
E: kristina.menzefricke@frost.com

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Dustin McVey
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E: dmcvey@frost.com