After a miserable 2002, the voice-over-packet market should experience steady recovery through 2007, according to research company Frost & Sullivan.

The company’s voice-over-packet lead program analyst says the stars are aligned

for continued growth. “”(This year) is certainly going in the right direction,”” said Jon Arnold, speaking from Frost & Sullivan’s Toronto office. “”Optimism has returned to this space.””

In his annual update on the VoP market, Arnold predicted 64 per cent annual growth in the worldwide market to U.S.$8.5 billion by 2007, led by maturing offerings, falling hardware costs and end user demand — consumer and corporate– that is finally beginning to materialize.

But IDC Canada analyst Dan McLean doesn’t concur. “”That seems pretty tremendous to me,”” McLean said.

Aside from IP-based private branch exchanges and unified messaging, there isn’t much in the way of compelling applications to drive adoption.

“”Beyond that, it gets a little thin,”” McLean said.

But Arnold said there are several reasons to believe in continuing market growth. Early adopters have realized most of the cost benefits of VoP and have begun to focus on customers and revenue growth. Large service providers have more faith in the technology, and enterprises are clearly moving toward replacing ageing PBXs with new technology. And in the U.S., service providers face the need to compete in a commoditized market. “”It can’t just be big dumb pipes,”” he said.

In Canada, competition among telcos isn’t as fierce. “”Competitive local exchange carriers (CLECs) in the U.S. still hold about 20 per cent of the business phone lines in the country, while their influence here is virtually nil. With that little competitve pressure, there’d be no reason for carriers to roll out IP-based networks — if Telus Corp. hadn’t already done so.

“”Telus is miles ahead of of any RBOC (regional Bell operating company) in the U.S.,”” Arnold said. “”They’re betting the farm on this stuff.””

Not only is a potential Telus success forcing incumbent Bell’s hand, there’s what Arnold calls “”the X-factor”” — companies with entirely different models for delivering telephony. U.S.-based Vonage, for example, offers voice service for broadband users at considerably lower rates. With a recent CRTC decision forcing the unbundling of Sympatico high-speed service from Bell’s local telephone service, there’s an opportunity for Vonage to enter the Canadian market.

“”That really changes the economics of telephony,”” Arnold said. Vonage is gaining traction in the U.S. and looking seriously at the Canadian market, said Arnold, but it isn’t clear whether they intend to enter it through a partnership with a cable company or take another route.

McLean noted that the adoption of emerging technology in Canada is more cautious, lagging that of the U.S. by six to 18 months. But he agreed that the technology is now too mature to call “”emerging.””

Arnold calls the technology “”pretty darn near prime time ready.””

With the technology still largely supply-side-driven, Arnold recommended that VoP vendors better align themselves with the way the large carriers do business. With the technology “”90 to 95 per cent carrier grade,”” there isn’t much upside to marginal improvements. Vendors should focus on honing their marketing savvy, he said.


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