IT Services' IP Telephony-Related Growth Remains Strong Through 2007 (Executive Summary) Executive Summary

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1 IT Services' IP Telephony-Related Growth Remains Strong Through 2007 (Executive Summary) Executive Summary Publication Date: 15 December 2003

2 Author Eric Goodness This document has been published to the following Marketplace codes: ITSV-WW-EX-0400 For More Information... In North America and Latin America: In Europe, the Middle East and Africa: In Asia/Pacific: In Japan: Worldwide via gartner.com: Entire contents 2003 Gartner, Inc. and/or its Affiliates. All Rights Reserved. Reproduction of this publication in any form without prior written permission is forbidden. The information contained herein has been obtained from sources believed to be reliable. Gartner disclaims all warranties as to the accuracy, completeness or adequacy of such information. Gartner shall have no liability for errors, omissions or inadequacies in the information contained herein or for interpretations thereof. The reader assumes sole responsibility for the selection of these materials to achieve its intended results. The opinions expressed herein are subject to change without notice

3 IT Services' IP Telephony-Related Growth Remains Strong Through 2007 (Executive Summary) Buyer Behavior Gartner Dataquest believes the market for IP telephony products and IT services has reached an inflection point. Increasing numbers of announcements by vendors and external services providers for large commercial and public sector network convergence projects point to decreasing market skepticism and inertia to accept Internet Protocol telephony. In fact, IP telephony is only two to five years away from broad acceptance, as showninfigure1. Figure 1 Enterprise Networking Hype Cycle Visibility Wi-Fi Hot Spots Secure Sockets Layer Virtual Private Networks Very-High-Bit-Rate DSL Lambda Services Unified Communications Enterprise Content Distribution Network "In the Cloud" Security Services IPv6 Home Entertainment Video Telephony IP Centrex g Optical Switching Cable Voice Over IP Ethernet Metropolitan-Area Networks General Multiprotocol Label Switching Softswitches Bluetooth Networking Third-Generation Network Capability Session Initiation Protocol Next-Generation Satellite Fiber to the Home Video Streaming iscsi Storage Application Service Area Networks Providers Intrusion Prevention Broadband Wireless Access Ultrawideband Multiprotocol Label Switching Services Unified Messaging Multiprotocol Label Switching a Voice Over IP Services IP Security Virtual Private Networks Location-Aware Services IP Telephony Managed Router Services General Packet Radio Services Key: Time to Plateau Less Than Two Years TwotoFiveYears Five 10 Years Obsolete Before Plateau Dense Wave Division Multiplexing Wi-Fi/802.11b Asymmetric DSL Cable Modem As of May 2003 Technology Trigger Peak of Inflated Expectations Trough of Disillusionment Maturity Slope of Enlightenment Plateau of Productivity Source: Gartner Dataquest (May 2003) Market Forecast In the Americas (North and Latin America), the market for IP telephony-related IT services grew to a $3.3 billion market in This forecast considers IT services surrounding IP-enabled private branch exchanges (PBXs) and key telephone systems (KTS) and pure IP PBX/KTS within the customer premise equipment environment. The forecast also draws revenue associated with IT services related to upgrades in LAN and WAN to accommodate IP telephony migration (see Figure 2). Figure 3 shows IT management and development and integration services will exhibit the strongest growth through 2007 at 48 percent and 46 percent respectively Gartner, Inc. and/or its Affiliates. All Rights Reserved. 1

4 2 IT Services' IP Telephony-Related Growth Remains Strong Through 2007 (Executive Summary) Figure Americans IP Telephony IT Services Market WAN $25.5 Billion IP Telephony $3.3 Billion LAN $17.7 Billion CPE $10.1 Billion Note: CPE = customer premise equipment Source: Gartner Dataquest (December 2003) Figure 3 Growth Rates IP Telephony Related IT Services From 2002 to 2007 Hardware Maintenance and Support Consulting Software Maintenance and Support Development and Integration Management Services Percentage Growth Rate Source: Gartner Dataquest (December 2003) 2003 Gartner, Inc. and/or its Affiliates. All Rights Reserved. 15 December 2003

5 IT Services' IP Telephony-Related Growth Remains Strong Through 2007 (Executive Summary) 3 Driver and Inhibitors The market for IP telephony is being driven by the following hard and soft metrics: Increase return on investment for product and IT services Decreased total cost of ownership for network infrastructure acquisition and management Improved and enhanced enterprise communications processes Creation of new business opportunities and communication services What enterprises will be faced with in the two- to five-year interim is how to time their migration to an IP telephony infrastructure. Table 1 provides an estimate of migration costs to the enterprise LAN to support IP telephony. The assumption is that the older the LAN infrastructure is, the more costly the migration to IP telephony will become. Forecast Drivers Table 1-1 Gartner Estimated LAN Upgrade/Replacement Costs for IP Telephony Percent That AgeofDataNetwork Percentage That Will Require Upgrades/Replacement Will Require Configuration Changes More Than Five Years Old Four to Five Years Old Three to Four Years Old TwotoThreeYearsOld One to Two Years Old to 1 Year Old Source: Gartner Dataquest (December 2003) Short Term TheeasewithwhichIPtelephonycanbemanagedacrosssitesencourages companies with multiple divisions/branches to implement the technology. Potential cost savings associated with in-house management and maintenance contracts promotes the adoption of IP-PBX systems. An increase in the number of knowledgeable IT workers will encourage adoption. IP phone and PBX and IP-PBX equipment prices are expected to drop. Long Term Voice and data equipment purchased at the height of the technology boom during the late 1990s will be ready for replacement during the next two to threeyears.itiscost-effectivetoreplacethetraditionaltelephonyinfrastructure with IP components because the traditional components need to be replaced. Vendors may phase out traditional PBX/key telephone system equipment lines, forcing some users to migrate toward IP-enabled or pure IP-PBX systems, even though a business case may not necessarily justify the conversion Gartner, Inc. and/or its Affiliates. All Rights Reserved. 15 December 2003

6 4 IT Services' IP Telephony-Related Growth Remains Strong Through 2007 (Executive Summary) Forecast Inhibitors Channel improvements in understanding how to sell and support converged voice/data equipment are expected to improve the sales processes associated with some IP-enabled and pure IP-PBX sales. Short Term Challenges with distribution channels understanding how to sell and support converged IP-PBX equipment will delay some wide-scale adoption of converged equipment internationally. The substitutions of voice services, such as traditional analog telecommunicationsservicesandgrowingmobiletelephonyarereducingprice,which contributes to a constrained adoption timeline of IP telephony. Government regulation regarding toll arbitrage in regions such as Latin America protects government telecommunication providers and monopolies at the expense of IP telephony. Security concerns about eavesdropping on IP-enabled phones are not adequately addressed. Long Term Development of applications for IP-enabled systems has been slow and has yet to differentiate IP-enabled systems from traditional telephony systems. Infrastructures on many LAN and WAN sites throughout the world fail to consider IP voice traffic support. This means most users must spend large sums of money during the next several years to prepare their networks for IP-PBX equipment. Incompatibility of IP telephony equipment across the manufacturer landscape. Enterprises need to purchase all equipment from a particular vendor instead of being able to select the best pieces from individual vendors. For the full report, see "IT Services' IP Telephony-Related Growth Remains Strong Through 2007," ITNI-WW-MS Gartner, Inc. and/or its Affiliates. All Rights Reserved. 15 December 2003