[February 18, 2005]

The 2005 PBX Market � Part I

By David Sims, TMCnet CRM Alert Columnist

[Editor's Note: See also Part 2 and Part 3 of this series.]

Business Communications Review’s lengthy overview of the 2005 PBX market, available online at RedNova, begins with the optimistic stance that “IP end station shipments will pass digital this year, and soon will be an outright majority, as IP-telephony continues its march.”

Good news for all of us here, of course – hard luck to you digital folks, but cheer up, we’ll be hiring.

“The U.S. market for enterprise voice systems continued to grow in 2004 as demand for IP-telephony remained strong, and overall PBX station shipments increased for the second straight year,” BCR reports. About 40,000 new PBX systems were shipped in a total station shipments of approximately 7.75 million, all told system and station shipments rose by about 7.5 percent over 2003.

New installations accounted for about 60 percent of total station shipments; the rest were installed system add-ons or dealer inventory.

BCR estimates PBX market revenues at $4.75 billion for core system hardware/software purchases, $2.05 billion for system installation and maintenance services and $2.15 billion for pre- and post-sale vendor services, including systems management and applications consulting.

Revenue growth, approximately 5.3 percent for the year, was affected by declining prices (mainly attributable to increased discounting, BCR thinks) and falling maintenance revenues: “More customers are opting for self-maintenance, and those who do sign up for a vendor maintenance program are receiving lower price quotes than in years past.”

“IP is now mainstream,” BCR concludes, noting that “based on system design and optional capabilities, almost all new PBXs now shipping can be classified as IP telephony systems” – they can support IP endpoints and/or use a LAN/WAN infrastructure for transmission and switching among port carriers or endpoints.

Bear in mind that a mere eight years the first LAN-based PBX was announced by Selsius Systems, a company now lodged somewhere in Cisco’s digestive tract.

Approximately 3 million IP stations shipped last year, a market share of slightly less than 40 percent. Essentially the same number of IP and digital stations shipped; the remainder were analog. “There is little doubt that IP station shipments this year will eclipse digital and continue their upward trend,” BCR predicts. “By decade's end, IP stations will account for about 80 percent of total shipments, with analog at 15 percent and digital at 5 percent.

The study identifies the four most important factors driving IP telephony's growth:

• Falling prices for IP phones and media gateways.
• Increasing number of customer LAN/WANs capable of supporting quality of service (QOS) requirements for real-time voice.
• Improved system design to meet customer needs such as remote location support; improved survivability; and new disaster recovery options.
• General market acceptance of the technology platform as risk- acceptable.

BCR considers that final market driver, general market acceptance, as “perhaps the most important, because poor product quality was a strong inhibitor at the beginning of the decade, when customers first began to seriously consider the new technology.” Most first-generation IP telephones and media gateways required major design fixes, as did the generic software packages. Learning from their mistakes, manufacturers have mostly addressed these problems.

It’s notable that two factors are not included in the above list of drivers: Cost savings and increased user productivity. The reason for the omission is “simple,” BCR says: “When all capital and expense outlays are considered, including network upgrades, no guaranteed cost savings can be attributed to IP-telephony; and gains in knowledge worker productivity – output divided by input – are difficult to assess and quantify.”

So whenever someone claims that IP telephony will cut system administration expenses, reduce carrier costs or cure baldness, ask for s specifics.

David Sims is contributing editor and CRM Alert columnist for TMCnet.