PBX Monitoring

Cisco’s Remarkable Climb

Cisco remains apart from the competition in terms of IP station shipments. Although its new customer sales last year were flat, Cisco still accounted for about 45 percent of total IP station shipments, and more than 8 percent of total PBX station shipments.

Most of the remaining IP station shipments were distributed among a small group of suppliers, dominated by traditional suppliers such as Avaya and Nortel, and two relative newcomers to the U.S. market—Alcatel and 3Com. A sizable percentage of 3Com’s IP station shipments are more accurately classified as KTS/hybrid shipments, not PBX. Likewise, the limited number of Avaya IP Office and Nortel’s Business Communications Manager (BCM) IP station shipments could be classified as KTS/hybrid shipments.

Cisco is likely to retain its market leadership position for at least one or two more years. The following summarizes the current competitive market environment for IP-PBXs:

· Cisco is strongly positioned and identified as the leading supplier of client/server IP-PBXs. While its AVVID solutions are designed to cost-effectively support IP station equipment, its support for analog stations remains relatively expensive. Digital telephones are not supported at all.
· Cisco’s primary competitors are attacking those weaknesses. Their IP-PBX systems support a mix of telephone instruments (analog, digital and IP), but that variety has a downside—it limits the number of IP station shipments on their systems.
· Existing customers with circuit-switched PBXs are likely to retain a large number of installed analog and digital stations when they upgrade to an IP-enabled and/or converged solution.

While Cisco’s short-term market position looks secure, longer-term, it’s in jeopardy, unless it enhances the CallManager’s generic software package—currently there are gaping holes in the feature set, including least cost routing, authorization and accounts codes and night service, and several attendant-specific operations (e.g., trunk group access and control, camp-on and intrusion). By contrast, vendors like Avaya, Siemens, Nortel, NEC, Mitel and Alcatel offer systems with a full complement of features and related applications, and have caught up to or, arguably, passed Cisco in terms of IP-telephony capabilities

PBX Market and Definitions

avaya pbx system A PBX is primarily a software offering that runs on a server. A very advanced feature set is implemented as software. PBX software has highly evolved voice feature systems that implement over 1,000 different functions for the desktop. No router can duplicate this set of functions.

Primary offerings for this segment include converged voice and data networks. Traditional voice communications systems, customer relationship management offerings and unified communications solutions. A critical component of strategy is a focus on the migration of customer circuit-switched voice communications systems. Traditional voice communications systems are being changed in favor of a converged packet-based network.

PBX Internet protocol systems architecture promises to drive market growth. The convergence of voice and data combined on a single network infrastructure means the elimination of voice networks. Voice over IP revolution in transmission has brought the collapse of telecommunications markets. A major area for PBX market growth is in applications. Value added services are implemented using software applications. Increasingly, revenue growth is moving from the core switch into other areas such as call centers, unified messaging systems, and computer telephony integration or CTI.

Growth in the converged PBX industry is occurring in two major areas related to overall solutions—customer premise switching platforms and applications. The lowering of federal regulatory barriers to competition across traditionally distinct sectors of the telecommunications industry has opened new markets for and increased competitive pressures on PBX telecommunications companies

The industry growth rate for PBX systems is tracking general economic trends. Economic downturns are accompanied by decreased demand for PBX equipment. This is accompanied by uncertainty about the particular architecture evolution. Growth, when it returns will be driven by business expansion.

The PBX market at $13.2 billion in 2002 is forecast to reach $17.9 billion by 2008 during the forecast period. Integration of the voice communication network with a range of data and video applications promises improved productivity of the enterprise.

The PBX business, along with the rest of the telecom and networking market, has been enduring rough times. Shipments and revenues have tumbled to mid-1990s levels, and profits have all but disappeared.

PBX Revenues (U.S. Market)
Year	Revenue (Millions)
1999	$5.200
2000	$4.530
2001	$3.900
2002	$3.750
Includes core PBX system only; excludes external application server options, installation and wiring.Source: TEQConsult Group
As shown in this table, sales peaked in 1999, and have declined every year since. PBX shipments during 2002 are estimated at about 6.175 million stations, a 3-percent drop from 2001 (see Table 2). Estimated core PBX revenues are about $3.75 billion, a 4-percent decline. (The $3.75 billion does not include installation, wiring, maintenance or service fees, or incremental revenues from advanced ACD options.) Aggressive discounting is common, necessitated by reduced customer demand and increased product supply.

Line Shipments—Traditional, IP and Total (U.S. Market—000s of units)
Year	Traditional	IP	Total
1999	7,950	50	8,000
2000	7,000	250	7,250
2001	5,850	500	6,350
2002	5,175	1,000	6,175
2003	4,800	1,800	6,600
2004	4,550	2,500	7,050
2005	4,200	3,225	7,425
Source: TEQConsult Group
The increase in shipments of IP stations has been one of the few positives, although they have not grown fast enough to offset the overall decline in revenues from traditional PBXs. While some customers are testing the IP-PBX client/server designs, most still prefer a solution primarily based on circuit-switched technology. As a result, “IP-enabled” and “converged” PBXs will dominate the landscape for several more years, until the LAN-centric, client/server design proves ready for wider market acceptance (see "Flavors Of IP-PBXs," a sidebar to this article).

Several factors have contributed to the unprecedented three-year decline of PBX sales. Sales were buoyed in the mid- and late-1990s by Y2K concerns and the overall boom in the tech sector. But just as the Y2K issue was running out of steam, another factor started to cut into sales of circuit-switched PBXs: the avalanche of IP-PBX marketing and promotion activities led primarily by Cisco. In response to the emergence of IP-PBXs, many customers postponed decisions about buying new systems, and then when the Internet bubble burst in early 2000, many buying decisions were shelved entirely.

But the most significant factor that capped demand for new systems was the extended life cycle of older systems. In a way, the PBX vendors are a victim of their own success: Unlike the planned obsolescence of PCs and other datacom gear, voice systems were designed to grow and expand to meet changing size and functional needs. The 6–8 year useful life of most PBXs shipped during the late 1970s through early 1990s has stretched out to 10 years or more.

IP Telephony Gains

Today, of course, the market is still sluggish, but the mix between circuit-switched and packet-switched IP peripheral equipment continues to shift in favor of the latter. In the span of five years, IP stations have increased from less than 1 percent to more than 16 percent of total PBX shipments. Last year, circuit-switched (TDM/PCM) station shipments declined 11 percent, while IP station shipments doubled.

This trend will continue for the next decade, and as it grows, prices for IP telephony will fall. Increased volumes have already triggered a decline in the average price of IP phones, although they’re still 25–50 percent more expensive than digital instruments. But, the gap is starting to narrow.

Indeed, many suppliers have been so aggressive in marketing their IP telephony options that their traditional systems have suffered. That's to be expected, as the days of the 100-percent circuit-switched PBX system are clearly numbered. The primary reasons why include the following:

· An IP system simplifies station moves, because there is no fixed, physical connection between the user desktop and the common control of the communications system. Voice packets are transported using switched connections between logical IP addresses independent of the physical location of the telephone. System administrators are not needed for relocating IP peripherals.
· IP phones facilitate remote and teleworking applications—either fixed or mobile.
· IP phones can support several features and functions that aren’t available with digital telephones. Most models support an integrated Ethernet switch port interface to connect a desktop workstation. Higher-end models have an integrated, thin-client browser that can be programmed to display information downloaded from servers across a LAN or WAN. This makes it possible for customers to implement CTI-like applications without using a desktop computer. Feature options such as visual voice mailboxes and personal directories also are supported.
· Compressed voice transmitted over wide area network (WAN) trunk circuits reduces total trunk circuit requirements, especially the dedicated private lines required for intelligent networking between two or more systems.