The US had almost one million installed hosted IP telephony lines at the end of 2008.

This figure is expected to grow to about 3.6 million lines in 2014, according to a report by Frost & Sullivan.

It suggests that integration with other unified communications (UC) applications – chat, presence and conferencing – will provide the most opportunity for the hosted IP telephony market, which it believes is being challenged by the economic downturn.

Elka Popova, Frost & Sullivan’s global program director, said small businesses will continue to be attracted to hosted IP telephony offerings primarily for cost-efficient voice communications.

However, she said some of them will also choose a hosted offering for the ability to gain access to a complete UC package from a single provider.

"Medium and large businesses will also appreciate the economies provided by hosted IP telephony, but will seek such solutions mostly so they can focus on core business processes and gain access to applications and capabilities that they can test without making a capital investment," she said.

Popova said that integration with other applications can help the hosted IP telephony market plough ahead.

Barriers to Market

However, significant technology enhancements to premise-based solutions and extensive private branch exchange (PBX) vendor channels present significant barriers to further market penetration.

The report said that IP telephony vendors will have to develop astute channel strategies since most market participants are small, next-generation providers with limited geographic presence and service support capabilities – and with no established customer base or brand-name recognition.

It recommended that service providers should seek to expand and diversify their channels and strengthen relationships.

Moves that will need to be based on specific portfolio requirements, it added.

"Meanwhile, the low barriers to entry will cause the North American market to remain extremely fragmented," said the report.

"The incumbent local exchange carriers (LECs) are reluctant to grab larger market shares due to the fear of cannibalizing legacy service revenues and limited demand for next-gen hosted telephony services among their existing Centrex base."

Diverse Competitive Landscape

The competitive landscape is also likely to become increasingly diverse with competitive LECs (CLECs), software as a service (SaaS)/hosted application providers, value-added resellers (VARs) and system integrators (SIs) competing for a share of a slowly growing market.

In such a scenario, channel support will determine each provider’s chances for success.

Popova said that in order to ensure extensive customer reach and superior customer support, service providers need to develop stronger relationships with various VARs, SIs, and agents that may include real estate companies, IT consultants, and moving companies.

"Further, providers should seek to develop an eco-system of partnerships to jointly enhance market awareness and be able to offer customers a range of interoperable solutions and capabilities," she said.

Other recommendations made in the report include:

  • Telephony providers should cooperate with hosted contact center, email, customer relationship management (CRM), Web 2.0 and other communication and business application providers.
  • Service providers may choose to adopt diverse business strategies. For instance, some may focus on businesses seeking inexpensive voice communication packages, while others may choose to target businesses that seek advanced communication solutions such as UC, where application integration provides considerable productivity benefits.
  • Providers could also take advantage of merger and acquisition opportunities based on complementary technologies, expertise or channels, since consolidation can help improve customer awareness, margins and the value proposition of hosted IP telephony.

Subscribe to our Newsletter