A Star is Born

By Tara Seals

It’s official: The premise-based IP PBX has crossed over, hit the Big Time, entered the Top 40. No longer merely a favorite of a cult fan base of early adopters and network visionaries, the product has been embraced by businesses large and small. “Next-generation” has become “now-generation” technology.

As Britney, Christina and Justin know, fans are fickle, and the ability to change is necessary for continued viability. The premise-based IP PBX market continues to mature towards standards-based, software-focused, all-IP solutions, industry players say. Channel partners must remain nimble: They can’t just sit back and rake in the royalties.

Technology analysts at Allied Business Intelligence Inc. say the enterprise IP PBX market has “moved well beyond the days of protracted testing in enterprise IT labs, and into substantial numbers of user deployments,” leading to greater revenue opportunities and a bigger user target. IP PBX seat shipments are projected to grow from 3.2 million in 2003 to 26 million in 2009, reports ABI. Albeit a slower growth rate than the technology enjoyed before, this simply indicates a more mature market, the company explains.

Many of these solutions are offered for small and medium-sized businesses. “Cisco, Avaya and Nortel all have rolled out IP PBX solutions targeting the SMB space,” says ABI senior analyst Julia Mermelstein. “Channel partners may go after the Fortune 1000, but with an edge approach. Maybe they’ll target one branch, or new offices.”

HYBRID HITS

Hybrid IP PBXs, which combine IP and old-fashioned circuit-switched lines, still account for more than half the market, say analysts at Canalys. The space is dominated by market leaders such as Nortel Networks, Siemens AG, Avaya Inc., Alcatel, Ericsson and Cisco Systems Inc., all with sizable VAR and integrator channels.

Image: Sphere System Architecture

Other players have launched new hybrid products to the channel this year. Iwatsu America Inc. for example, has rolled out the SIP-based Enterprise Communications Server PBX platform, aimed at the 100- to 150-user market in the enterprise or as the basis of a managed service SIP Centrex platform. It is marketed through traditional PBX resellers, and Iwatsu may expand this to include VoIP-savvy VARs.

Similarly, Centrepoint Technologies Inc. has rolled out TalkSwitch CVA, a hybrid PBX for small and multibranch businesses. Retailing at only $1,795, the solution was designed for small businesses with five to 20 lines. It offers eight extensions: four VoIP trunks and four PSTN.

“A lot of the typical IP PBXs are on LANs and require SIP and MGCP phones at the enterprise, which communicate with a black box, a VoIP or WAN interface and IP,” says Bryan OConnor, director of marketing at Centrepoint. “That’s typical of an IP PBX and it’s an expensive solution that’s complex in the network.”

In contrast, TalkSwitch can be up and running within an hour; it includes an auto attendant, which gives small businesses a big-business image; and allows users to interface with Vonage or other IP telephony service providers. “We’re using VoIP to let customers take advantage of toll bypass,” explains Eric Ramsden, senior product manager for Centrepoint. “A lot of companies aren’t looking to migrate completely away, and they want to keep their PSTN lines and handsets, while using WAN VoIP for inter-branch communications or toll bypass.” He adds the system is designed to move in the all-IP direction if necessary.

VARs figure heavily into Centrepoint’s distribution strategy. “We need to expand the channel because the market is so fat and small business is at the bottom of the pyramid,” says O’Connor. “There are five [million] to six million businesses out there with less than 20 employees, and there’s no way we can reach all of them ourselves. The install time is small, so it’s easy for the interconnects and VARs to grasp it and pick it up.”

THE NEXT BLOCKBUSTER?

Despite continued development in the hybrid area, the all-IP approach may be the next blockbuster. The IP PBX market can be seen as a bellwether for the acceptance of convergence, which enables scores of advanced features.

In 2001 and 2002, IP PBXs were typically “IPenabled,” explains ABI’s Mermelstein, where a VoIP gateway was added to a legacy PBX system, so businesses could route interoffice toll calls over a wide area network rather than the PSTN. Doing so also meant access to some unified messaging-like features. By 2006, ABI expects more than 90 percent of new IP PBX seats to be on all-IP systems.

“IP PBX feature sets have stabilized to the point where most vendors now have the legacy features that business users are accustomed to, as well as a relatively standard set of more data-centric applications,” says Mermelstein. “Future product development will focus on improving ease of management and customization for specific vertical markets.”

Applications and functionality are two of the driving forces for all- IP PBX sales, according to Konstantin Nikashov, vice president at MERA Networks Inc. “Last year was marked by a considerable growth in the sales of IP PBXs, and especially of converged systems; LAN-based IP PBX systems still have a smaller share of the market,” he says. “One of the most conspicuous tendencies was the enhancement of IP PBXs with unified communications and presence functionalities, as well as their integration with computer telephony, that allows telephone features and services to be merged with computer applications.”

MERA Networks, which targets small and medium-sized enterprises via distributors in Europe, Asia and North America, earlier this year released the MERA VoIP Key System, a low-cost solution for small and midsize businesses. It also offers a signaling and media converter for seamless integration of multivendor IP PBX systems into carrier networks, directly over IP links. Nikashov says that the top-selling features are the connection of remote offices and home/mobile workers through IP channels, unified messaging and presence. “The IP PBX technology provides enterprises with an ingenious tool for keeping their business successful - that is, a fully mobile, convergent and feature-reach communications system at a moderate price,” he says.

Sphere Communications Inc. offers a software-based product set that can scale from one office location to more than 22,000 ports in a pay-as-you-grow design. Available via the company’s “Real Partner” network of VARs and consultants, the just-released Sphericall 4 system offers voice, presence, video, text messaging and integration with an enterprise buddy list for instant messaging and drag-and-drop conferencing. It also links to calendaring and Microsoft’s Outlook e-mail client, and it automatically changes the way calls are handled according to schedule, so there’s no need to maintain a separate contact database. The solution also integrates multiple forms of communications on the desktop and syncs with various IP and analog phones, whose information shows up on the desktop manager. These features, the company says, will enhance adoption significantly.

“The real value of the IP PBX is the ability to deliver rich features to companies that wouldn’t otherwise be able to afford it,” says Pat Bennett, executive vice president at Covad Communications Group Inc. “You can’t ignore the cost differentiation, that’s a piece of it, but what people are really excited about are the features,” he explains. “You don’t need people to do adds, moves and changes, they re-align features as a matter of pushing a button. Unified messaging capabilities are available at the desktop. My schedule’s loaded in and the phone knows how to route calls accordingly. And I can get voice mail as .wav files in my e-mail.” He says the applications bolster productivity, for the end user, but also facilitates a more mobile society.

Covad plans to roll out an all-IP PBX product set later this year for companies with fewer than 20-users, via agents and resellers. The impetus for the move is its planned acquisition of GoBeam Inc. in a $48 million deal expected to close around May 1. Covad intends to leverage GoBeam’s development expertise to develop its own portfolio, which likely will consist of IP-centric premise-based and hosted offers. “This deal accelerates out-entrance into the VoIP market by six months and we gain their experience,” says Bennett.

In the next year, IP PBX systems will feature embedded mechanisms for integration into VoIP carriers’ networks, according to MERA Network’s Nikashov. “When enterprises choose to connect their IP PBX to the carrier’s network through IP channels, they receive attractive cost-saving opportunities,” he notes. “Voice and data convergence allows a significant reduction in [long-distance] costs, as compared with legacy telephony. Furthermore, enterprises can quickly and easily migrate to another carrier or carriers without changing their existing network infrastructure, which is a strong argument in negotiating interesting rates with carriers.”

FUTURE CHART-TOPPERS

VARs accustomed to selling Cisco and Avaya hardware solutions could be in trouble if Pingtel Corp. and others have their way. Movements are afoot to unseat the vendor hegemony in favor of an interoperable, open-source environment.

Pingtel is hoping to take the market to a new level of maturation by moving to an open-source software approach for its entire enterprise communications suite. The company is taking a page from Linux, leveraging its SIPxchange IP PBX platform into a software-and-services play. It will make money by offering annual subscriptions for customer support, documentation, professional services and training, while offering the code for development for free. Further, standardization on SIP will lead interoperability and innovation, says the company.

“Open source increases the level of innovation,” says Bill Rich, Pingtel’s president and CEO. “There are unique packaging opportunities, so it’s not just a pipe that leaves the intelligence to Cisco and Avaya. A carrier can take a platform and start building solution service sets to wrap a consumer in more deeply.”

Martin Steinman, senior vice president of marketing at Pingtel, says the move will make vertically integrated, proprietary solutions with hardware, software and signaling protocol obsolete. “Our IP PBX platform is unique in that it’s allsoftware,” he says. “We used the standard Linux computer platform, entirely standardized SIP - the phones, the media gateways and the applications. IP PBX will become a free platform, off the shelf, and it relates to anything that speaks SIP.

“For Avaya, Cisco and Nortel, the value proposition goes away,” he adds. “We intend to drive a stake in the heart of that, and once that happens, prices fall and commoditization sets in for enterprise VoIP. We remove the development roadmap from the vendors and shift it to the industry as a whole, so everyone can develop on a code base. So a carrier can build packaging around customers instead of around vendors.”

Pingtel’s Authorized Solution Provider Program targets IP PBX VARs, interconnects that sell traditional PBXs and key systems, data communications vendors that sell IP routers, switches and other LAN and WAN equipment, system integrators and service providers.

“This is supportive for the VARs because they’ll be more competitive in going to market,” says Rich. “Solutions will be cheaper, around 30 percent less than a traditional solution, so there’s more headroom and bigger margins. And they can assemble a solution that better fits the customer. Companies with 250 lines and below, those are the customers owned by VARs, where the channel relationship is key. With the open-source approach they can package a solution that helps with upgrades, cabling, installation, training and first-line tech support.”

Pingtel isn’t the only company singing the multivendor, interoperability tune. Todd Landry, vice president of marketing at Sphere, says the company’s softwarebased solution can run on the platform of the customer’s choice, unlike Cisco’s solution that requires customers to buy its hardware. “Most vendors sell IP phones, the PBX and supporting elements,” says Landry. “We sell desktop software, PBX functionality and media gateways, but resellers can choose bestof- breed. We support a range of phones, plus SIP-based Windows Messenger. We’re finding that enterprises will look at other options and capabilities beyond existing vendors like Cisco.”

For the channel, the ability to work with numerous third-party vendors means they can put together a best-of-breed solution sale for better margins, he adds.

Nikashov believes there will be an evolution to a “smart” network, “where different features are implemented not by a specific equipment type, but by way of interworking between a variety of systems located on different platforms.” The boundaries between IP phones, IP PBXs, session border controllers and softswitches will disappear. “We will be inventing a totally new terminology,” he says.