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Voice over Internet Protocol (VoIP) OVERVIEW

More Businesses Investing in VoIP Technology Bank of America and Ford Motor Co. made the switch. So have Parish National Bank and the city of New Orleans.

 

Voice over Internet Protocol is still in its office technology infancy, but some CEOs already swear by it. VoIP cuts costs by running telephone and data service over one centralized network, which allows employees to take their telephone numbers with them and do business on the road via laptop computer or handheld device.

 

Companies investing in new upgrades are buying VoIP, and if they're not, then they're wasting money, said Stuart Palermo, account manager with Lafayette-based Global Data Systems, which has more than 50 VoIP customers, including the city of New Orleans.

 

VoIP has become the de facto or the standard. If you don't invest in it when you upgrade, it's like buying a phone without the caller ID application.  VoIP allows users to make telephone calls through a broadband Internet connection or data network by converting the voice signal from the telephone into a digital signal, which are converted into data packets sent from one online address to another.

 

According to the ITFacts.biz Web site, 10 percent of U.S. business lines are already using VoIP. After generating $1.3 billion in 2004, the VoIP industry projects to be a $20 billion industry by 2009.

 

In-Stat, a Scottsdale, Ariz.-based provider of communications equipment and services research, surveyed more than 300 businesses about VoIP service. Twenty-three percent had already deployed wireless VoIP in some manner, and another 30 percent are evaluating using the technology within a year.

 

Key reasons businesses cite for the conversion is the ability to make telephone calls from laptop computers, personal digital assistants and access to e-mail messages from voice mailboxes. Last fall, San Jose, Calif.-based Cisco Systems signed a contract with Bank of America to deploy 180,000 IP telephones across 5,800 banking centers in 29 states and the District of Columbia.

 

After signing British Airways in May, Cisco has now sold more than 5 million IP telephones. Ford Motor Co. spent $100 million and signed a contract with San Antonio based SBC Communications to manage a network of 50,000 VoIP telephones.  The city of New Orleans, according to chief information officer Greg Meffert, will save about $1 million a year after spending $4 million for VoIP on 4,000 telephones through Cisco and Global Data Systems. When Meffert entered office three years ago, the city was spending $3 million a year on data and telephone networks, including $1 million on line change services for employee moves and transfers.

 

Every time somebody moved from this office to that office, we had to get the BellSouth guys to service that change, and these guys cost $180 an hour, he said. The move was strictly cost savings, cost savings, cost savings. Now if employees move from one end to another, you don't change their number; it all connects to the network.

 

Meffert said the city flipped the entire data network, not just the telephone service, and created a networkwide, built-in telephone directory with all agency prefixes beginning with 658. The system also employs Enhanced 911, which pinpoints a caller's location to comply with federal legislation requiring Internet phone service providers to connect customers to 911. Vonage, the top residential VoIP service company, recently agreed to purchase access to Enhanced 911 from SBC Communications and BellSouth Corp.

 

Malnati said US LEC offers VoIP over private networks as opposed to public to allow

traditional 911 features. We service every kind of company from doctors offices to

telecom companies to churches and even an Internet design company, he said. The

benefit from IP phones over one network is you can unplug a phone, fly two states away, plug that phone in a new office and still have the same number. You can move your office across the hall or across countries, and your number follows you.

 

Court Richardson, president of CyberComm in Mandeville, La., said VoIP helped his

business install six of the services in the last nine months with six more in the works. We have modified our company plan a bit because of VoIP . . . the service is emerging so fast, Richardson said. It's really the way of the future for us.

Richardson said businesses should look at applications like remote work force, traveling salespeople and services connecting companies across states and countries before switching service from traditional phone lines.

 

Applications & Drivers

In most of the world, toll bypass to reduce long distance costs remains a valid argument to migrate legacy equipment towards VOIP while in North America, it may not necessarily be the most compelling argument for VoIP adoption. Added functionality and network convergence provide more arguments to support new investment in today’s tightened corporate IT budgets. Numerous studies suggest that small and medium enterprises are slowly adopting VoIP but that they are not well prepared while large organizations are slowly moving from long trials to commercial deployments.

 

Global Port Shipments

While 2001 and 2002 were difficult years for the telecommunications industry as a

whole, there are clear signs that VoIP migration among enterprises is moving from the

trial phase to critical commercial deployments.

 

Global port shipments for low density VoIP gateways and access devices were estimated at 929,670 in 2002 and should reach 1.4 million in 2003, a 50% CAGR increase. 67% of those shipments were analog ports while 33% were digital ports. The ratio should remain pretty stable throughout the years. Maravedis foresees that global shipments will reach 6.4 million ports by 2008 as a result of a compounded annual growth rate in the 35-45% range. The 1-2 ports represents the largest portion of the market, followed by the 8-30 ports range and finally the 4-8 ports. Naturally FXS/FXO are the most offered interfaces.

 

Market Sizes

Using the weighted ASP, the estimated market size for 2003 is just shy of $150 million.  Even if the global port shipments will be multiplied by 5 by 2005, the market size progression is limited by the continued price erosion and therefore we estimate 2008 market size to be in the range of $330 million in the moderate scenario using the

weighted ASP. Using the ASP, the more aggressive scenario suggests market size closer to $400 million by 2008.

 

Regions:

North America represents the #1 market in terms of ports followed very closely by

Europe. Asia represents the third largest market with a dense activity but a strong price pressure towards low end products. CALA and the rest of the world represent only marginal portions of the market and most of the activity lies in few multi-national

companies looking at redusing long distance call charges.

 

Voice Over Internet Protocol (VoIP) Market Opportunities, Strategies, and Forecasts, 2004 to 2009

Voice over Internet protocol (VoIP) can be implemented in two ways: calls can originate from the traditional TDM circuit switched technology, or originate from an Internet protocol router. IP to TDM and TDM to IP VoIP are very different. These fundamental differences in technology referred to as the same term (VoIP) have served to confuse the market, with distinctly different products being positioned as VoIP solutions.

 

In the near term, routers will be the bases for originating VoIP calls implementing IP to

TDM. IP to TDM will quickly become the entire market. TDM to IP call origination is

outdated and far more expensive. The implementation of broadband in the home will

hasten the desire to originate calls directly from an existing Internet connection.

IP to TDM is positioned to dominate the market. The multiple IP-to-IP gateway Cisco

IOS software images are used to implement VoIP that originates calls from an IP

connection and connects to the existing TDM traditional switched networks after call

origination. Feature licenses are priced based on the platform and processor used.

 

Ports per se do not exist in a system that originates VoIP from the router. Ports are virtual, dependent on the capacity of the network. The larger the performance capability of the gateway, the greater is the price of the feature license.

 

The global service provider voice over Internet protocol (VoIP) gateway market at

$165.3 million in 2003 is expected to reach 985.7 million dollars in the year 2009. The

market is anticipated to grow at a steady positive rate over the years. The growth is

brought by replacement of digital proprietary voice switching systems with systems that do manage to put voice over the Internet reliably and clearly.