It seems that we are all becoming that little bit wiser, especially when it comes to telecoms. We are opening our minds and pockets to new technologies and trends along the way. One such technology creating somewhat of a seismic shift in the telecoms industry over the past few years is voice over IP (VoIP).
According to IDC, the corporate access connection market is growing at a compound annual growth rate (CAGR) of 54 per cent over the next four years, representing a revenue opportunity of $10.5bn in call charges by 2010. The total minutes of use also looks set to grow from 49 billion off-net minutes back in 2005 to 201 billion minutes in 2010, representing a CAGR of 32 per cent. At the same time, on-net calling will have a CAGR of 75 per cent.
This is one reason the analyst sees operators looking towards VoIP to make up for the shortcomings in business revenues.
Consumers are making this shift too. Continental Research’s Autumn 2006 Internet Report has just revealed that it expects the number of consumers using VoIP to exceed four million during the next 12 months.
Furthermore, VAR Logicalis estimates the business case for VoIP is so compelling that approximately 40 per cent of mid- to large-scale enterprises are in the process of implementing a voice and data convergence strategy.
Tom Kelly, managing director of Logicalis UK, said: “In addition to making obvious commercial sense, VoIP is also the next most logical step on the road to achieving busi-ness agility.”
However, the problems faced by Zultys Technologies, which filed for Chapter 11 bankruptcy back in September, show that it is not all plain sailing for vendors in this crowded space (CRN, 23 October). The company, some $45m in debt, was sold to Pivot VoIP for $2.65m in cash when founder, Iain Milnes, failed to get the necessary backing to retain control (CRN, 6 November).
Sandra O’Boyle, Senior Analystat Current Analysis, believes that vendors face a real challenge in making their products stand out.
“The reseller channel is flooded with SME telephony systems from dozens of domestic and international vendors, as well as traditional and new suppliers, and it is continuing to expand,” she said.
Interestingly, it is the pure-play VoIP providers such as Vonage that O’Boyle thinks will struggle in the coming months, as telcos and ISPs take a more active role by bundling free VoIP calls with broadband.
On the enterprise solution side telecoms operators are fine-tuning their VoIP portfolios and offering something for everyone, she said. These offerings include managed IP PBX, IP Centrex and IP trunking, depending where particular companies are in their journey to VoIP.
“Local resellers and integrators also have a valuable role to play in terms of advising customers on the right IP telephony solution, helping with LAN upgrades and integrating the solution with the option of managing that on an ongoing basis,” she added.
“Managed IP telephony services can bring in nice recurring revenue for resellers and integrators.”
Rajesh Sinha, technical director at telecoms provider Bailey Teswaine, said: “The VoIP marketplace is ripe for takeovers, mergers, and unfortunately the de-mise of some of those who are behind the curve, or ahead of it. Hundreds of players with differing solutions, ambitious growth plans and a marketplace eager for the benefits of VoIP is a recipe for fragmentation and its offspring, consolidation.”
With many viable offerings available and customers hungry for the benefits of VoIP, Sinha believes that choices made by early adopters are diverse. However, further down the line, solutions offered with greater flexibility, features, resilience and pricing will see some of these early selections questioned and discarded.
He reasons that right now, voice, softswitch vendors and developers are all sustaining an immense industry of hundreds of multi-tiered VARs competing for the ‘juicy’ business of IP minutes and telephony services.
“Many of these too will be displaced or taken over, with the potential for fallout for customers wanting to make calls,” he added.
But, Falk Bleyl, senior product manager, VoIP at Thus, suggested that with one of the key buying factors being price, products and services need to be within a ‘ballpark’ price range to even be considered.
This is because larger VoIP players are able to reduce manufacturing and distribution costs, often leveraging existing operations.
“In order to compete on price an organisation needs scale and many of the new start-ups simply don’t have enough scale and resources to build a sustainable business,” Bleyl said. “It is likely that there will be more casualties and consolidation in the future.”
And this, it seems, is the key. Investors want returns, competition is intense, prices are falling and maturing open source systems and peer-to-peer services mean that the big challenge is building something that is truly sustainable.
Maria Googin, head of marketing at voice over IP specialist Voice4IP, believes that customer demand is driving the channel, and resellers are now actively asking how they can meet this demand and try to understand what the different service options are.
While the VoIP market is over crowded, according to Rob Mackinnon, VoIP product manager at ZyXEL, there is still money to be had by VARs who get smart quickly.
“However, it is no longer enough for resellers to tout the cost savings benefits of VoIP,” he said.
“With businesses demanding more for their investment, resellers have to understand the product and associated issues such as security.”
Mackinnon is just one of a number who talk of a state of confusion as to the business benefits of VoIP in some quarters and of the need to make it a secure means of communication, something he feels needs to change before we see mass market adoption.
“Those resellers with in-depth market and technical knowledge will be those that win out,” he said.
According to MacKinnon, it is consumers who are helping to drive business adoption of VoIP right now, as businesses begin to recognise the technology as a means for giving their employees a more flexible approach to work.
“Remote workers can connect to the office voice network from home by using any wireless VoIP phone or by simply plugging their laptop into their broadband connection and using a softphone, while still being contactable on the same number,” he said.
From a sales point of view, resellers from a data background have learnt that they need to sell voice applications and networks, and the same applies for VARs with a telecoms heritage selling data systems. Chris Harris, managing director EMEA at Inter-Tel, said this has led to huge ‘up-skilling’ in the channel, which has created a better quality of solution using converged communications.
“In the coming year we will see a greater demand for VoIP in medium-sized businesses, where the focus will be on improving customer service to create a competitive edge,” he said.
VoIP also provides resellers with the opportunity to a complete business solution to the desk-top that will enhance and benefit a customer’s
business just as much as their own. In addition, talking to customers about their business rather than technology will allow many to develop closer bonds at senior levels, enabling far more in the way of up-selling and cross-selling integration and consultancy opportunities across an entire organisation.
“By diversifying away from voice, resellers will be able to offer margin rich customised services to their client base that reach far beyond a simple voice telephony system,” said Harris.
Dave Smith, senior vice-president of marketing at VoIP software vendor Swyx, claimed that 2006 has been a turning point in the history of VoIP. Some vendors, typically ones offering ‘pure’ software-based IP-PBX solutions have done well, while others have struggled.
“VoIP is now a software application that is part of a unified communications structure that is centred on the desktop,” he said.
This trend is supported by analysts at MZA, who expect that the market adoption for pure software-based IP-PBX systems will increase dramatically over the next two-three years, altering the trend for SMEs and larger enterprises that previously have invested in IP-enabled PBXs and traditional TDM systems.
In reality though, the VoIP market is still very young, with only certain segments of the market, such as the consumer and enterprise markets for example, being that little bit more mature and showing greater customer adoption.
Bleyl believes that we have now reached a stage within the enterprise space where there are no conversations about voice services that do not consider some form of VoIP deployment.
“However, in the SME space there are still issues of awareness and inertia to overcome,” he said. “Our experience suggests that organisations in sectors that do not specialise in technology either do not understand the benefits of VoIP or do not know how to implement it.”
And of course, even among companies that operate in the technology space, there may still be a reluctance to move from something that they trust and have used for years.
“For businesses with a fixed workforce, the benefits of moving to VoIP may be marginal at best, as call costs on Carrier Pre Select are very competitive today,” Bleyl said. “Pure VoIP players may be adding to their subscriber base, but the challenge today is to build a profitable and sustainable business. That may be easier for organisations that provide other voice and data services for scale benefits and risk diversification.”
Some resellers, having made their choices earlier, are attracting new customers with varying degrees of success, while others are looking to their traditional partners and voice ven-dors for their solutions, marketing and strategy. But Sinha believes the smart ones are transitioning customers to VoIP gradually, hedging their bets with both traditional voice partners and newcomers in the VoIP space. This is why, he said, that it is important to understand that whatever happens, a customer expects their phones to work, meaning that companies need to focus on making the technical and commercial decisions to ensure that happens.
“Resellers offering the same services they did five years ago will begin to see revenues and customers drift,” he said. “Today’s software integration with the kitbag of convergence applications is an important differentiator: unified communications, collaborative working, and increased mobility are no longer ‘nice to haves’.”
Clive Longbottom, service director at analyst Quocirca, also feels that some companies are wasting their time going to the telecoms channel, with many of these departments in companies having since disappeared. However, he believes finding a data channel that understands telephony and the specific issues around VoIP is still not easy.
“Those who do get it will come on site and do a network audit,” he said. “They will configure the solution for the end-user, ensure that existing landline numbers can be transferred and that contracts are put in place with reliable service providers for the bandwidth and for the VoIP-to-landline handovers and so on.”
Of course, this and consultancy pushes up costs. With SMEs being so money conscious, it can become a problem. Longbottom said that it is here where some form of VoIP channel consortium, backed by vendors in the space, that can accredit firms in VoIP and provide education on the consequences of going to a non-accredited supplier might be needed – something like the Corgi standard for plumbers.
Currently the focus of competition in the market is on price and this makes it very difficult for some involved to have sustainable and profitable businesses.
According to Bleyl: “It is absolu-tely critical to have a value proposition that is built on more than ‘less cost.’ This should, therefore, include a channel partner’s unique value add to their chosen market segment.”
Kelly said: “For smart channel players and the customers they work with, the migration to a converged voice and data network will act as the catalyst for the implementation of other enabling voice and data services. Ultimately, it will form the bedrock of the agile organisation of the future.”
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