IP TELEPHONY 5-YR GROWTH FORECAST SEEN AT 138%
AVERAGE ANNUALLY
(The following is a reformatted version of a press release issued by The Phillips Group-InfoTech.) IP
TELEPHONY OVER LAN MARKET FORECASTED TO GROW 138% AVERAGE ANNUALLY OVER
NEXT 5 YEARS
PARSIPPANY, NJ, September 22, 1999 -- With the increasing convergence of voice and data, nearly
90 percent of companies with multiple locations will begin switching from their conventional phone
systems to IP Telephony over their LANs within the next five years. This crossover, according to a
study from The Phillips Group-InfoTech, will spawn a $1.9 billion industry by the year 2004 with an
average annual industry growth of 138 percent over the next 5 years.
The study also foreshadows an all-out battle between incumbent customer premises equipment (CPE)
leaders, including Lucent Technologies (NYSE: LU), Nortel Networks (NYSE: NT), and Siemens; data
networking leaders Cisco Systems (NASDAQ: CSCO) and 3Com (NASDAQ: COMS); and a bevy of
start-ups, such as Vertical Networks, Shoreline Teleworks, and Merlot Communications.
Research of nearly 500 multi-site enterprises revealed that Internet Protocol (IP) Telephony is the
technology that will finally bring about the ubiquitous convergence of voice and data in the enterprise
environment," according to Terry White, a Senior Director of The Phillips Group-InfoTech and lead
analyst for the study. "Decision-makers tend to see the solutions emerging from this technology as the
natural evolution of the existing PBX and smaller Key/Hybrid telephone systems markets," White said,
"and most are convinced that current obstacles surrounding reliability, quality of service, and scalability
will evaporate over the next 18-24 months."
The research found that 10 percent of enterprises have already begun trials of IP Telephony over the
LAN, and that this penetration will increase to 44 percent of enterprises by the end of 2000. Actual
implementation will begin slowly, with 13 percent of enterprises indicating "very high likelihood" of
implementations beginning in 2000, but increase sharply to where 60 percent of enterprises will have
begun replacing their private branch exchange (PBX) or Key systems with IP Telephony solutions by
2002. Only 7 percent of enterprises researched indicated that they were unlikely to install this new
technology before 2004.
Several key factors will fuel IP Telephony adoption across all enterprise customer segments. Customers
perceive real cost savings will result from the integrated management of one premises network, based
on IP Telephony over the LAN, rather than two separate premises networks, a PBX and a LAN, said
White. Although average price per line for IP Telephony solutions have started out higher than
traditional PBX systems ($821 vs. $498 per line), these prices will drop to parity levels in 2002 and
continue to drop steadily, forcing traditional systems to keep pace. As a result of this crossover, sales
of IP Telephony solutions are forecasted to lift-off in 2002. Enterprise users also feel that IP Telephony
will enable them to more quickly and easily introduce and empower future e-business applications. But
perhaps the most significant driving force will be IP Telephony's ability to bridge the comfort zone gap
between voice and data distribution channels. Value added resellers (VAR) and other data channels
are able to position this technology as an upgrade to the LAN, adding servers to support voice and
traditional telephony applications. PBX distributors can position these systems as an evolution of the
PBX architecture, enabling the PBX to support IP and operate as a LAN. Meanwhile, this technology
introduces the opportunity for competitive local exchange carriers (CLEC), Internet service providers
(ISP) and other service providers to configure integrated premises equipment as an extension of the
service provider network, thus making it easier to provide better network maintenance, support, and
premium services to their customers.
At stake is the installed base of over 86 million PBX and Key Telephone lines, with an embedded value
of approximately $100 billion. The surprisingly positive customer attitude towards this new IP
technology indicates that this installed base is at risk, according to Eric Schmiedeke, the Phillips
Group-InfoTech vice president who led the study. The impact of this transformation from proprietary
voice systems to open converged networks will be to force every manufacturer, applications provider,
and distribution channel currently playing in the $16 billion voice customer premises equipment (CPE)
market to re-evaluate their business and marketing strategies in response. By 2004, nearly half the
shipments of traditional CPE lines will have shifted to this new technology.
The research further revealed that enterprise decision-makers were split as to their channel
preferences for future IP Telephony purchases; 48 percent indicating strong preferences for their
traditional CPE vendor, 40 percent referring their data vendor or VAR. This split portends hefty
competition between incumbent CPE vendors, leading data networking vendors, and a variety of
start-up companies.
The Phillips Group-InfoTech is a division of The Phillips Group with over 100 professionals at offices in
Parsippany, NJ and in London, specializing in strategic solutions for corporate clients in the
telecommunications and information technologies industries. The Phillips Group is a division of Phillips
International Inc. of Potomac, MD. Phillips International has over 1,250 employees and annual
revenues exceeding $350 million. Further information about The Phillips Group-InfoTech can be
obtained at the company's web site at www.phillips-infotech.com. The Cherenson Group (for The
Phillips Group -- InfoTech) 3 Regent Street Livingston, NJ 07039 973-992-7800 x. 104 973-992-6020
(fax) mcherenson@cherenson.com -0- (CRL) Sep/22/1999 9:17 o
Got filled in NSATF @ 3, will buy dips |
