Report on IP Telephony

The deployment of higher bandwidth, coupled with the rising number of partnership initiatives and new entrants to the market are propelling the market for IP (Internet Protocol) services into a state of critical mass.

These conclusions are revealed in a new web-based subscription service by Frost & Sullivan, the international marketing consulting company. Frost & Sullivan paints a bullish picture of the growth prospects displayed in the European, Middle Eastern and African (EMEA) IP services market.

Following a sluggish start, the IP market will experience rapid growth, with revenues rocketing from $131.3 million in 1999 to $55.41 billion by 2006. This equates to minutes totalling 613.7 million in 1999 leaping to 972.6 billion within the same time frame. The total revenues values are generated by minutes of calls conducted over an IP backbone.

Rampant investment in IP-based telephony backbone technology in the future is set to transform the nascent IP services marketplace. This will open new dimensions in international calling and lower call costs especially across regions with relatively low teledensity.

Donald Tait, Research Analyst at Frost & Sullivan, points out that prices can be driven to a level where they are attractive to customers and still generate robust margins. "In some of these regions, this will also enable businesses to conduct international transactions more effectively and cheaply, consequently introducing competition and increased commerce to their markets," he adds.

Growth in the overall EMEA IP services market is set to soar to new heights in the wake of the exploding number of ISPs and the slew of telcos utilising IP telephony in order to avoid arbitrage charges.

As mobile operators are making their first foray into the IP telephony and, particularly, the VoIP sector, interest in IP telephony will expand further.

Frost & Sullivan adds that the prospect of exploiting new revenue streams and the flexibility and scalability of IP networks are additional factors causing demand demand to shoot up.

"Toll-by-pass" remains a strong driver behind total market growth, along with the intensification of deregulation across Western Europe.

Ian Rowlands, Lead Analyst for IP at Frost & Sullivan, expects the increasing quality of IP services and IP voice solutions to stimulate greater market acceptance. "This is due to the increasing optimisation of bandwidth, improvements in routing equipment that is being deployed into the core of these networks and the functionality of the software or device that enables the IP connection," he explains.

Running voice over cable, DSL and wireless and connecting to the PSTN at either end of the call has enabled service providers to undercut PSTN rates significantly, creating a market driven initially by price competition. In response to IP services and to other forms of competition, PSTN prices are falling. As the price advantage of IP telephony decreases, competition will move to other important benefits of IP such as value-added features and voice/data integration.

IP is expected to provide the service convergence layer bringing together the benefits of personalised communications offered by Web servers and mobile phones together with more traditional PSTN systems.

In terms of geographical markets, the Western European region - led by Germany - will cement its leading position and account for 52.7 per cent of total revenues in 2006. The delivery of enhanced services fuels IP usage in Western Europe and users seek more responsive applications.

Competition in Africa, the Middle East and Eastern Europe begins to erode the margins that IP service providers can charge within these markets, resulting in a decline in revenue growth. Meanwhile, the PSTN rates in Africa, the Middle East and Eastern Europe become more competitive.

Voice still accounts for the vast majority of revenues in terms of service type, currently representing around 80.0 per cent of service revenues. Fax and data account for the remaining 20.0 per cent. During the forecast period, the proportional importance of voice will diminish, whilst other service types such as data and video are poised to prosper.

Net2Phone, ITXC, iBasis, DeltaThree and Ursus Telecom count amongst the IP services market front runners in the race to claim a larger share of the overall market.

Frost & Sullivan's independent overview of the IP Telephony Services market in EMEA is the first deliverable from a new subscription-based service providing an authoritative view of the overall IP Services arena.

"IP Services in Europe, Middle East and Africa" is a unique web-based service offering a comprehensive picture of the overall market, significant insight into market sizing and forecasts, as well as an understanding of the competitive forces affecting this industry, segmented by region. Updated on an annualbasis, this web-based service offers a detailed look at distribution channels, end-user applications and the evolution of groundbreaking technologies, such as IP VPN.