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IP Centrex: Too Much Hosted Boasting?IP Centrex: Too Much Hosted Boasting?

There's no lack of hosted VOIP service providers, but where are the signs of success?

May 21, 2004

3 Min Read
IP Centrex: Too Much Hosted Boasting?

There’s been a wave of IP Centrex announcements lately, but there are some reasons to doubt that these will translate into big profits for carriers. Up until now, it seems, carriers have been expecting to enter a wild goose chase and actually bring home a bird.

Here's why the IP Centrex story isn't as polished pearl pretty as some have said:

  • Not all of these announcements are genuine hosted IP Centrex. BellSouth Corp.'s (NYSE: BLS) new IP Centrex service, announced this week, is just an adaptation of its existing Centrex service, and it is actually behind schedule on rolling out a softswitch-based IP Centrex service (see BellSouth Launches IP Centrex Service).

    SBC Communications Inc., likewise, has been offering a Centrex service and is only now moving toward IP Centrex. This suggests that although the big boys are feeling the heat from alternative IP Centrex providers, they are only beginning to test the waters.

    • Market researchers say the wider VOIP market is much more a sure bet than the success of IP Centrex (see VOIP Expenditures Will Double).

      Infonetics Research Inc.'s next-gen voice analyst, Mattias Machowinksi, says the hosted IP service providers will face a tough test ahead. “It doesn’t look like the managed service market is going to grow too much. If it is to grow significantly, businesses will require a lot of education from service providers to relinquish control.”

      Enterprises are likely to deploy their own IP PBXs and possibly only use IP Centrex services for linking remote offices. If the IP Centrex market fails to win over PBX customers and relies on Centrex upgrades to IP, analysts say it will only account for roughly 3 percent of business lines in the U.S., and even less in Europe where it is more of a niche market.

      If the future of IP Centrex is so bleak, why is there so much interest in it? It's a turf war, really. IP Centrex is a way for alternative carriers to encroach on the RBOCs' Centrex customers, while, conversely, it enables RBOCs to defend their turf.

      There is also some financial attraction. Heavy Reading's latest report, SIP Hosted Services: A Heavy Reading Competitive Analysis, finds that service providers should either go big or go home. The report says that a carrier with an assumed 25 percent market share, and an existing IP network, can reach breakeven in the third year of deployment.

      For a provider with less than a quarter market share, however, the return on investment is not so rosy. Its success will be reliant on the widening of its addressable market to PBX replacement customers.

      — Daro Clark, Research Analyst, Light Reading Insider

      The latest Light Reading Insider -- “VOIP: the Enterprise Options” -- explores the available hosted VOIP services and their addressable market.

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