Radicati forecasts 'enormous investment' in VoIP

In four years, nearly half of all corporate phone lines will use VoIP, according to a new forecast from The Radicati Group. As deployment costs drop, worker productivity gains and vendor competition are making the technology too attractive to ignore.

The Internet telephony market is poised for dramatic growth, according to new research by The Radicati Group Inc.

While only 4% of worldwide corporate phone lines use voice over Internet Protocol (VoIP) today, the analysis firm forecasts that percentage will jump to 44% in 2008.

The study, Corporate VoIP Market, 2004-2008, released today, also projects that global revenue generated by the sale of corporate VoIP systems will grow from $1 billion in 2004 to $5.5 billion in 2008.

The remarkable market growth will be fueled by the declining costs of equipment, increased cost savings and rising need for voice systems that integrate with computer applications.

"There are cost benefits," said Teney Takahashi, the report's author and an analyst with the Palo Alto, Calif.-based Radicati Group, "but on the productivity side, with VoIP, workers are able to be more effective in less time."

Takahashi said those businesses that have already deployed VoIP are beginning to see great productivity gains from integrating voice with customer relationship management applications and presence-based applications, such as instant messaging, that allow people to find each other quickly.

The market, Takahashi said, will likely see a growth spurt between 2006 and 2008, when many legacy private branch exchanges (PBXs) are ready to be replaced.

Today, most of the "pure" IP deployments are in new office locations and branch offices. Businesses generally deploy hybrid PBXs in their main locations, allowing employees to use their existing phones while the company saves on interoffice calling, Takahashi said.

In addition, declining deployment costs will lure more businesses to VoIP, Takahashi said. Currently, VoIP deployments cost between $375 and $1,000 per user. By 2008, Takahashi projects that such systems will range between $75 and $600 per user.

That decline will be fueled largely by competition between dominant VoIP vendors, including Avaya Inc., Cisco Systems Inc., Nortel Networks Ltd. and Siemens Information and Communication Networks Inc.

For more information

Read our exclusive with Avaya's CEO: 'We have to win' VoIP.

Learn how Siemens is rolling out mega-sized VoIP.

Some businesses may also find that many of their employees can simply use soft phones -- software installed on computers that allows users to make and receive calls -- thereby avoiding the cost of a desk phone altogether.

Though VoIP technology is gaining momentum, it still faces hurdles, Takahashi said. Many businesses remain concerned about voice call quality and the reliability of voice service when it is mixed with data traffic on a company's network.

And many networks can require significant upgrades to accommodate the needs of voice traffic.

"It is an enormous investment," Takahashi said.

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