VoIP market outlook real and rosy, but not for all: Frost & Sullivan

Crediting Vonage and a favorable regulatory climate with accelerating the voice-over-IP market, Frost & Sullivan VoIP program leader Jon Arnold offered his “state of the nation” report on two market segments today: session border controllers and residential VoIP in North America.

The outlook for the many purpose-built session border control vendors that have emerged the last few years is quite good in the short term. The market is expected to grow at an annualized rate of 59% through 2008. Revenue this year is expected to reach $70 million.

However, the long-term prospects are less certain. “It is not an endless growth curve for standalone vendors,” Arnold said. He expects the market to grow steadily to about $300 million worldwide by 2007, but sees a drop-off back down to $250 million by 2008.

Currently, there are approximately 18 vendors in the border control space, and each has its own approach, Arnold said. He singled out companies such as Nextone and Kagoor Networks as being the most flexible solutions to date, albeit not necessarily the best, because they are able to address issues in both the carrier and access spaces as well as address issues in either an integrated or modular environment.

However, he noted that the competitive landscape for session border control providers is complex and is still evolving as a distinct market segment. That said, Arnold believes the market will eventually be driven and dominated by the larger vendors who will either develop their own integrated solutions or acquire the leading standalone vendors.

Arnold called VoIP a panacea for the many ills of the telecom space because it enables a variety of players to get into the market. However, he said the technology is not mature enough to be a primary line replacement and indicated that wireless has a stronger value proposition today than VoIP because of the mobility factor.

“Consumers value mobility more than they do cheaper landline service,” Arnold said.

Still, Arnold expects VoIP to attract 18.1 million North American subscribers by 2008 and generate $5.3 billion in revenue.

“The Vonage effect is real,” he said. “For better or worse, Vonage’s impact in the market place has really accelerated the deployment plans for RBOCs, cable companies and others.”

On the downside, the barriers to entry in the market are so low that it attracts a lot of new players and offerings. “That is [both] good and bad,” Arnold said. ‘It is quickly creating a price-driven market which is leading to the commoditization of VOIP, which is a concern.”