April 2001

BY MARC ROBINS

Depending on what article you read or who you talk to, we're either heading into a recession, or we're entering a period of slower but steady growth. Uncertainty about the future is running rampant. This psychological condition is certainly putting a major damper on the economy.

Amidst all this sturm and drang, many new and emerging communications companies are finding the financial climate increasingly hostile, no thanks to the current state of the communications industry bellwethers. Carriers like AT&T, Worldcom, and Qwest are putting the brakes on new equipment spending, which is starting to have a serious impact on the health of leading technology vendors. Recently, Nortel Networks, Cisco Systems and JDS Uniphase all hit new 52-week lows on the heels of this spreading slowdown.

Thankfully, all is not lost -- not by a long shot. While sales of big-ticket telecom switches and other network gear are taking big hits as buyers adopt more "prudent" spending plans, the opportunities for technology that promises to help carriers create and deploy new services in a cost-effective manner are still enormous. Softswitches, IP telephony gateways and gatekeepers, and other cost-saving, service-enabling technologies stand to gain from this shift in spending. One key factor supports this vision: The market is no longer waiting patiently for payback on the infrastructure build-out that's occurred over the last several years. The sooner service providers can deploy new services to "fill the pipes," the sooner new sources of revenues will be generated.

Following the same logic, enterprise IP telephony solutions also stand to benefit from more cost-conscious spending. A recent study from The Phillips Group InfoTech (www.phillips-infotech.com) on the IP LAN telephony market is bearing this out. The study is showing faster than expected growth as U.S. companies begin to convert their corporate phone systems from the traditional PBX model to one based on IP telephony. According to the study, IP LAN Telephony: Market Demand and Implementation Strategies, 17 percent of U.S. business began the implementation of IP LAN telephony in 2000, which is 30 percent more than previously anticipated. Furthermore, the study predicts that within four years, the percentage of enterprises that are likely to adopt this new technology will increase to more than 80 percent.

Cost savings and remote networking headed the list of reasons why businesses plan to purchase IP LAN telephony systems. Among the 500 enterprise and small business decision-makers polled in the study, most believed that one system that can handle both voice and data will cost less than separate systems. Even more attractive is the fact that a single IP LAN telephony system can handle the communications requirements of multiple sites.

Also telling were the supplier preferences the study uncovered -- the study revealed that enterprise decision-makers were split regarding their supplier preferences for these integrated voice and data systems. 37 percent indicated a strong preference for their traditional PBX vendor, while 26 percent preferred their current data network supplier or value-added reseller (VAR). More than a third of these enterprises, however, would rather work with a new supplier.

Revenue-wise, the study pegs the market for IP LAN telephony systems at $138 million in U.S. sales in 2000, and projects sales for these next-generation systems to exceed $3.2 billion by 2005. Not surprisingly, this tremendous growth opportunity is attracting the attention of a wide range of equipment makers. The leading data networking equipment vendors are moving aggressively into this new market. Based upon The Phillips Group InfoTech's analysis of market share for the first nine months of 2000, 3Com and Cisco Systems were the leaders in this emerging market segment. Avaya Communication, Nortel Networks, Siemens, and Alcatel -- companies who are the leading manufacturers of traditional PBXs -- have all introduced robust IP LAN telephony product lines during the past year to combat this competitive threat. 

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TMC's ConvergeNET, the industry's largest and longest-running IP telephony interoperability showcase, is a fixture at our Internet Telephony Conference and EXPO events. Lesser known but still vitally important are the interoperability efforts undertaken by vendors exhibiting their equipment at TMC's Communications Solutions EXPO. At the last Communications Solutions EXPO in Las Vegas (December 2000), AG Communications Systems successfully demonstrated interoperability between their iMerge Centrex Feature Gateway and four vendors' CPE products in a live, real-world setting. In part due to this activity, the editors of TMC awarded the iMerge CFG with "Best of Show" honors at this event. For those of you who missed the action in Vegas, AG will once again conduct interoperability demonstrations at the upcoming Communications Solutions EXPO Spring, coming to the Washington, D.C. Convention Center, May 23-25, 2001. 

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