Gartner: Worldwide Communications-as-a-Service Revenue to Total $252 Million in 2007

The market for communications as a service (CaaS) has started relatively slowly as providers determine how to define, package and market service as a value-added Internet protocol (IP) telephony offering, according to Gartner, Inc. Worldwide CaaS is projected to total $251.9 million in 2007, a 37.6 percent increase from last year. The market is expected to total $2.3 billion in 2011, representing a compound annual growth rate at more than 10 percent for the period.

Gartner defines CaaS as IP telephony that is located within a third-party data center and managed and owned by a third party. The assets are not carrier-grade, the service is not in the network and the assets are multitenant in terms of usage.

Users will begin to embrace CaaS more enthusiastically in 2009, attracted by predictable costs for fixed telecoms, said Eric Goodness, research vice president at Gartner. Users will also be attracted to CaaS as a means of shifting technology risk to the service provider. Technology obsolescence will be more easily managed by a scalable third party.

Gartner analysts said the initial slow start of CaaS will be compounded by a longer sales cycle, as customers will need time to get used to larger, but consolidated, prices.

A single bill that consolidates telecom services with equipment infrastructure will gain acceptance, Mr. Goodness said. Providers are bullish about CaaSs potential because of the opportunity to bundle more new features and capabilities to avoid service commoditization.