With rumours the successful US VoIP trailblazer Vonage is about to enter the Australian market, everyone is keen to shore up their own VoIP patch.
Companies offering anything faintly resembling VoIP-related products are talking up their prospects for 2005 and beyond. “We’re going to triple our revenue due to VoIP" or “We predict 100 percent growth this financial year” are common catchcries.
However, almost to the letter, when pressed for actual figures -- excusing listed companies -- the standard response for these companies is to slam shut tighter than a clam’s sphincter.
In the rush to hitch to the VoIP bandwagon, there will be some casualties, especially when regulatory requirements become clearer later this year.
“You’ll find in Australia there will be regulatory issues that will make it harder for some VoIP companies,” says Freshtel’s CEO Michael Carew.
“To a certain extent it will clean out the would-be startups who really don’t have any structure behind them.”
After a period of consolidation and turmoil, some will spectacularly bust or quietly disappear, while others will maintain some foothold by forming partnerships. Carew believes it will come down to half a dozen major players in the Australian marketplace.
Cisco’s general manager for convergence, Peter Hughes, admits VoIP has been through a typical technology hype-cycle. “The peak of inflated expectations and the trough of disillusionment followed by a plateau of productivity...No two ways about it, there were issues the [VoIP] industry had to overcome, but we’re well past that trough of disillusionment...I call it the erogenous zone at the end that we’re just about to move into,” he says.
And it is not just this year. IDC predicts a compound annual growth rate of 50 percent to 2008 for the local VoIP equipment market.
IDC has already signalled it is upgrading local forecasts on the back of bigger and bigger VoIP rollouts, some in the tens of thousands of seats. “Today, for one IP phone sold, there’s about four traditional phones sold,” says IDC’s telecommunications research director Landry Fevre. “In 2006 that will change to where there will be more IP phones sold than traditional phones. That’s a way to measure market maturity.”
Cisco is still VoIP’s kingpin with 50 percent of the local market, ahead of Avaya, Nortel and Alcatel, he says.
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| Cisco's Hughes: Past that rough of disillusionment |
It is becoming less clear who “owns” the VoIP customer Fevre says, as telcos -- like Telstra, Optus and AAPT -- compete with system integrators like IBM/Logicalis, Dimension Data, Alphawest and CSC.
“Even though the telcos don’t have a strong install base now in IP telephony, they have a strong mindshare,” he says. “System integrators have a much stronger hold on the install base today; [however] the telcos started to get their act together last year and are now frantically working to put offerings together to get customer references,” he says.
Now when a company looks to upgrade or replace their systems, you can expect them to consider IP telephony. “And if they don’t, then their management should be asking them ‘Why not?’,” Fevre says.
That goes for all industry verticals, he says. “This year the [VoIP] market will go mainstream...The most advanced to date are professional services, but the biggest opportunities for the next 12 to 24 months will be government, healthcare and education.” Next in line are telecommunications and media, and finance -- the big banks, he says. Cost saving is still the main driver for VoIP uptake, with secondary drivers being productivity and collaboration. “After that it’s less clear. Companies want all of the above, as well as flexibility and scalability, consistent functionality, centralised management and consolidation of networks,” Fevre says.
Where VoIP players are starting to define themselves is with applications. Historically telephony did not integrate much with the rest of a company’s applications, but VoIP brings almost infinite possibilities.
“There’s a lot of database applications at the moment,” says Avaya’s business development manager Robbie Kruger.
“We’re seeing directory applications and video, voice and web collaboration. It doesn’t matter what the media type is anymore, people can share PowerPoint, and do voice and videoconferencing all on the one platform.” Business productivity applications for 'rich media communications' is one area taking off, says Cisco’s Hughes.
“I’m seeing applications like natural language, speech recognition, voice calls, personalisation of services, instant messaging and video.” Efforts are also going into applications that integrate wireless and wireline, so that when you go from the corporate network to the public network, communications are seamlessly handed over between the two.
Challenges
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| IDC's Fevre: VoIP to go mainstream this year |
At present one of the biggest challenges to VoIP growth is getting the message out there. The uptake of VoIP is still predominantly reliant on word of mouth.
Forrester Research conducted in November 2004 titled “Where did you first hear about VoIP”, showed that friends and colleagues were the main evangelists for VoIP, with newspaper and magazines advertisements coming equal last. “It’s just a time issue,” says Freshtel’s Carew. “I’d say 50 percent of the population haven’t even heard of VoIP, which is a good opportunity for channel partners to spread the word.”
The extent to which the VoIP industry should be regulated is currently under the microscope. Some are advocating a light-touch approach so the market does not get smothered under a wet blanket of legalese.
Others want more stringent criteria to protect the VoIP industry so shonky services and practices do not wreck VoIP’s new-darling reputation.
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| Sonic Wall's Dickinson: Important to make a full assessment of whole network |
Three regulatory bodies are encouraging VoIP industry participants to have their say via a discussion paper. The Department of Communications, Information Technology and the Arts (DCITA) issued the discussion paper in conjunction with the Australian Communications Authority (ACA) and the Australian Competition and Consumer Commission (ACCC).
“We’ve had 40 submissions so far and we expect more as people return from leave,” says the ACA’s manager of industry operations and licensing, Greg Neylan. “It will take us a couple of months [before] we have some preliminary views available,” he says. In an emailed response from Federal IT minister Senator Helen Coonan, she acknowledged, “VoIP brings with it some thorny issues for policy makers. The fundamental question [is] should VoIP services be regulated, and if so, should this regulation be the same as applies to the traditional voice service or something different”.
Uncertainty about the level of regulation is not unique to Australia. Regulators the world over are pondering this very thing -- not only how to get it right in their own country, but how to cope with cross-pollination of VoIP breeds in a borderless communications world. In the meantime, adopting a “wait and see” attitude is commonplace -- even government departments are not immune.
A spokesperson for Stephen Conroy, Federal shadow (Labor) minister for Communications and IT, says: “We’re interested in exploring what sort of effect the introduction of VoIP technology will have on the competitive environment but we’re still very much in our early stages at the moment. It’s really a question of taking the opportunity of upcoming Estimates Hearings to explore what the thinking is of the policy makers and of Telstra”.
Carew says the discussion paper “has highlighted the fact that most parties are unsure of exactly where the industry is”.
Session Initiation Protocol (SIP) is starting to drive the market a bit harder. The big IP equipment vendors last year started to introduce SIP-enabled IP PBXs. IDC’s Fevre says SIP is a much cheaper standard to develop products around and therefore should help bring prices down.
Craig Neil, chairman and founder of solution provider NSC Group, agrees. “We’re implementing SIP now. What I like about SIP is that it really opens up third party product.”
“It will bring the price of IP telephones down and there will be IP faxes, IP modems; it really opens up that market and removes all those analogue devices. SIP will make it a lot more competitive.”
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| NSC's Neil: SIP opens up third party product |
With Microsoft now starting to use SIP inside its desktop, the desktop can really start to be used as an interactive tool, says Nortel’s chief convergence architect, Mick Regan.
“It will be more of a multimedia-type device, an audio-output device. You can incorporate the video component and the application-sharing component because you’ve got the SIP capabilities within the applications,” Regan says. Avaya’s Kruger cautions that it is not all good.
“One issue we see in the SIP environment -- and this only comes with people who have very lax security -- is that we’re seeing the uptake of spam. If you don’t regulate SIP, you can actually start to get spam mail in your voice environment,” he says. Avaya has filtering mechanisms to stop that spam.
As more companies move towards VoIP, it requires a new way of thinking about telephone security. “The phone system is a really critical part of the network and people are just used to it always working,” says SonicWall’s Tim Dickinson. “It’s always been such a closed network but now the network is opening up, moving voice packets over the internet.” It is very important to make a full assessment of the whole network while installing VoIP.
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| Nortel's Regan: Desktop can be used as an interactive tool |
“Don’t think of it as just the phone system but as an extension of the actual computer network. You really have to put in place the same kind of protection and the same security as you would afford your servers and mail,” Dickinson says.
SonicWall says it has technology that is ideal for companies with a number of branch offices. “Our deep packet inspection technology enables high volumes of data to be scanned for malicious code on the fly, instantaneously. It does not affect network performance,” Dickinson says.
For channel partners eyeing off the VoIP market, the number one thing they should be doing is assessing the balance in their skills bank.
“Look at the skills you have today and do some gap analogies. There are a lot of companies toying with the idea of putting together IP telephony offerings, but they need to ask if they have the expertise internally, and if not, how to build them,” IDC’s Fevre says. IT providers pitching for work in the VoIP space will have noticed changes in the competitive environment over the past year.
Even as recently as 10 months ago, when Zultys’ business development director Tony Warhurst went to bid for project opportunities, he would be the only VoIP guy there amongst traditional PABX vendors. “Now when we go in to bid, it’s normally three VoIP vendors bidding for the business,” he says.
Zultys manufactures telephony and data integration products and in 2001 built a new VoIP platform and IP handsets from the ground up, Warhurst says.
“One hundred percent of our business is IP telephony...and we focus on SMEs,” he says. SMEs will end up being a lucrative VoIP market, they make up a big proportion of the Australian market. “Some of these companies might only have 75 employees, but they’ll have small offices in all the capital cities,” he says.
Telcos may not have made huge inroads in the VoIP market so far, but expect that to change. Logitech Australia’s general manager, Marco Manera, says while telcos still currently make a huge amount of revenue on traditional telephony services, it will not be long before they work out how to maximise their revenue opportunity with VoIP, without losing revenue [on traditional services] in the meantime.
They will be looking at additional services, he says, and one way to do that will be to partner with VoIP providers who already have some traction in the market. Hopefully VoIP channel partners will be smart enough not to get gobbled up and spat out.
There are VoIP opportunities at every tier from big business right down to the consumer. Express Data’s managing director Ross Cochrane says there is money to be made with customers of any size -- so long as you can create trust and a ‘value relationship’ with the client.
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| CMS's Lane: Know that the bandwidth can cope with VoIP |
“If you help them through decision making around a business outcome they want to achieve, then there’s very good opportunity for margin. There’s consulting and scoping, hardware, software and a whole ancillary infrastructure around voice -- such as security, reliability and power. It’s an opportunity to support them through a big change in their business,” he says.
There are varying reasons why companies head for VoIP, apart from the business benefits. “Some go into VoIP because their competitors are, and they have to keep up with the Joneses,” says Jenny Lane, managing director at distributor CMS Better Online Solutions.
“Others want to be perceived as being at the cutting edge of technology, or simply because they hate Telstra and want to give them a little slap in the face. Still others are given directives from their overseas head offices.”
Whatever the motivation, channel partners who do thorough groundwork prior to implementation pull off successful projects.
“You need to do your homework. Know that the bandwidth can cope with VoIP, that the infrastructure can cope with VoIP, and minimise nasty surprises.”
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