There is a recurring apparent contradiction in the U.S. and North American hosted IP telephony business, namely annual high rates of adoption and user or revenue growth, but a relatively low share of market among business voice and unified communications solutions.

In 2011, the North American hosted IP telephony market grew by 42.5 percent in terms of installed users and 35 percent in terms of revenue, according to Frost and Sullivan.

The North American hosted IP Telephony and UC services installed base to grow at a healthy 29.9 percent compound annual growth rate from 2011 to 2018.

The forecast is based on churn rates of 2 to 3 percent per month, with net-new annual additions gradually increasing over the coming years, from about 800,000 in 2011 to more than 3.2 million in 2018.

By 2018, the hosted IP telephony installed base is expected to reach 17.5 million users, representing 15 percent of the total business telephony user base in that year, namely the business-grade, multi-tenant or multi-instance, PBX (News - Alert)-replacement services, says Melanie Tureck, Frost and Sullivan VP.

The market also is highly fragmented, More than 80 providers compete in the hosted IP telephony business, with 8x8 (News - Alert), the largest provider, having 7.9 percent share of installed lines in 2011, according to Frost and Sullivan Program Director Elka Popova.

But the biggest restraint to hosted IP telephony and hosted unified communications services growth is the existing installed base of premises-based solutions, which currently accounts for 88.9 percent of existing user lines.

All of those figures are impressive, at first glance. But consider that hosted IP telephony has been a service offered commercially in the United States since about 2000.

In similar fashion, it is somewhat hard to tell how fast consumer VoIP is growing in the U.S. market. According to the most recent Federal Communications Commission data, there were 32 million VoIP subscriptions in service at the end of 2010, representing a growth rate overall of about 22 percent.

The 149 million wireline retail local telephone service connections in December 2010 included 40 percent residential switched access lines, 38 percent business switched access lines, 18 percent residential VoIP subscriptions, and 3 percent business VoIP subscriptions.

That last figure might be instructive. Only about 3 percent of business lines appear to use VoIP. But there are likely caveats. SIP trunking services and voice over T1 lines are not included in the total, since the use of those access services is not classified as either “switched voice” or a “line” using VoIP.

Company results from wireline voice service providers through the third quarter 2011 might suggest that demand is moderating, since most new VoIP subscriptions are sold by cable operators, and cable sales of VoIP clearly are slowing.

The volume of activity in consumer VoIP has been driven by cable operators, and it now seems as though sluggish economic conditions or wireless substitution might be issues for cable VoIP services.

Wireless substitution is now also a conceivable factor. Wireless substitution continues to slowly grow virtually every year, according to the Centers for Disease Control, which estimated in 2010 that 29.7 of homes had only wireless telephones during the last half of 2010.

Businesses are unlikely to switch completely to mobile voice, though. So the growth rates of hosted IP telephony, though high, are high in part because the installed base is relatively low. 

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