[February 21, 2005]

The 2005 PBX Market � Part III

By David Sims, TMCnet CRM Alert Columnist

[Editor's Note: See also Part 1 and Part 2 of this series.]

Business Communications Review’s lengthy overview of the 2005 PBX market, available online at RedNova, is a great cheat sheet for those wanting to catch up on the industry in a hurry. As the cliché goes, you can’t know the players without a scorecard.

Avaya had a solid 2004, because its domestic market presence remained strong and its finances were in the black for the first time since the company was spun off from Lucent. It may have “the strongest product portfolio,” BCR thinks, the largest applications support services staff, and a deep, very experienced management team, but “it appears to be treading water in contrast to the meteoric rise of Cisco.” Yet it needs to quickly reestablish its leadership credentials to become the IP telephony trendsetter, before Cisco becomes too firmly entrenched..

Just when Nortel Networks appeared to be turning the corner, executive management is caught playing with the books and a new scandal begins. A shell of its former self, Nortel’s had to rely on a third-party network of dealers for almost all sales, and loyalty to the system supplier is not guaranteed. “For all vendors, customer service will be a more important revenue generator in the future,” BCR thinks, “but Nortel is one step removed from the customer base and must be careful not to step on its dealers' toes via competing system integration and applications support offerings.”

As the study notes, “Cisco has done quite well in the market despite a narrowly-focused product portfolio and strong dependence on an indirect sales/service distribution network lacking voice applications experience.” BCR attributes Cisco's success to its dominant position in the data market, marketing skills and a willingness to invest lots of money in what was a high-risk endeavor. Yet Cisco must address several major competitive weaknesses in its AVVID offering, such as networking, systems management and reliance on application servers for many industry- standard features.

The convergence of wired and wireless is the next big industry issue, and according to BCRSiemens has a competitive edge in both areas, being among the leaders in enterprise telephony systems and mobile devices, unlike most PBX vendors. The Siemens Business Services Group has revenues in excess of $5 billion (greater than Avaya's entire corporate revenues), but once customers realize that many PBX system offerings are very much alike, and most performance options are underutilized, the value of vendor service support will become more important.

Last year NEC merged its Corporate Networks Group and Business Network Solutions entities, launched Univerge Services for network, IP-telephony, and security assessment, maintenance and support services. So why didn't their market share increase? NEC's new mantra for success, BCR says, should be more marketing and less technology, because that's the name of the game that competitors like Cisco are playing and winning.

Mitel Networks’ historic strength has been small systems, and it has established a solid position in the medium-line-size market. Next step is big systems, but not until the larger version of the 3300 ICP is available. Mitel must expand its reach to customers with station requirements in the thousands instead of hundreds. Mitel is the only privately-owned supplier among the leaders, but many analysts expect an IPO in the near future.

Inter-Tel has been in enterprise telephony since the dawn of the interconnect era in 1969, and the company currently has more direct sales offices (about 60) than any other domestic vendor. However, its market growth has been limited by an IP-enabled PBX that had to compete in a growing sea of converged and client/server solutions.

Like Cisco, 3Com has managed to survive in a market crowded with manufacturers with decades of experience, but 3Com is at the low end of the market. It recognizes that its future in voice depends on sales of its VCX V7000 softswitch, an IP telephony system that can support the port capacity and networking needs of customers at the highest end of the market.

Alcatel is one the strongest global suppliers for voice, but is finding it difficult to make larger inroads in the U.S. without direct sales presence despite a competitive portfolio: the OmniPCX Enterprise is based on a strong converged design, is fully featured and can satisfy a variety of advanced application requirements.

Aastra Technologies is a Canadian-based company who recently announced it would acquire the EADS enterprise telephony business. It will be quite an adjustment for the EADS team to go from being part of a $30+ billion high-tech giant to a company with sales less than 1 percent of the EADS corporate total.

Ericsson is one of the world's largest suppliers of communications systems, but it has been slow to replace its MD-110 PBX system with a more modern offering and is allergic to marketing and promotion. It’s been shoring up its distribution capabilities through MarketShare Telecom, but must prove to its customers and the market at large that they are committed to the U.S. and to PBX systems.

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