The Lowdown on Enterprise Telephony

The lowdown on enterprise telephony is more of a low-up, with pure IP PBX systems sales growth of 3 percent in the first quarter of 2007, up 76 percent from last quarter, according to Infonetics Research. In the meantime, traditional TDM PBX system sales feebly lifted its head, after five quarters running of losses, showing a flash of life in a declining picture, marked by a sorry medical chart at the foot of its bed — negative 45 percent over the last five years.

You can see which way the wind is blowing, but where exactly is the take-off for IP PBX? The launch of Microsoft’s unified communications product — Office Communicator 2007 — a spate of vendor consolidation with Inter-Tel and Mitel and Avaya as the players, and ShoreTel’s imminent IPO are the focus of current interest in the industry’s upswing.

I asked Infonetics Research Analyst Mathias Machowinski to expand on the report’s findings. Why aren’t buyers abandoning their PBX’s for a pure unified system?

Machowinski: Just inertia. Change takes time. I think if companies will adopt OCS, they’ll keep their PBX system in place and layer OCS on top of that. It’s not like they are perfect matches for each other’s features. If a company needs some of the nice features OCS offers like presence, messaging, collaboration tools, then they’ll go there. What kind of impact will vendor consolidation and the Avaya acquisition have?

Machowinski: Well, first with consolidation, like with Mitel and Inter-Tel, there will be fewer competitors in a very crowded market. Then, the acquisition of a public company like Avaya by a couple of private equity firms changes the landscape. Too much cutthroat competition isn’t good, because the market is at the end of the competition picture where having so many companies isn’t good for the customers and isn’t too great for the companies either. In this crowded a field, mergers like this will produce stronger more efficient companies. We’re far far from the point where you have to worry about companies becoming monopolistic behemoths. What does ShoreTel’s IPO mean in terms of IP PBX sales?

Machowinski: This is the reverse dynamic, where ShoreTel, a private company, will be going public. Being private in its early days let Shoretel focus on developing its product without a lot of interference, and develop a strong product which was good for them. But now they’re ready to go public. The access to capital will let them expand more. So far, they’ve focused on the North American market, but this move will let them grow their distribution overseas. In the mass of information your report gives, what most interests or surprises you?

Machowinski: That the TDM market grew at all. And that the IP phone market is growing so slowly, especially on the softphone side. I expected that to sell more strongly, especially because manufacturers can sell additional phones, almost double, for every desk phone. Not all employees need that softphone, but still many could use it. That’s where I expected more action.

Highlights from Infonetics PBX Report:

  • Overall enterprise telephony revenue is on track for another year of double-digit growth.
  • In 1Q07, worldwide total PBX/KTS system sales inched up 1% sequentially, and are up 8% from a year ago in 1Q06.
  • The overall market will total $11.9 billion in 2010.
  • Hybrid PBX systems represent 63% of all PBX/KTS system line shipments worldwide in 1Q07, and will increase to 72% by 2010.
  • The enterprise telephony market was flat in North America in 1Q07, weak in Europe, and strong in Asia Pacific.
  • Avaya is the market share leader for worldwide IP PBX revenue in 1Q07, followed closely by Cisco and Siemens.
  • Cisco maintains a strong lead in IP deskphone and IP softphone sales, accounting for almost half the units shipped worldwide in 1Q07.

Find more data and a .jpg chart at the Infonetics Research press portal in the Enterprise Voice & Data section at