SIP Trunking—Savior during a Recession?

As SMBs and enterprises watch their budgets closely in 2009, dealing with the economic fallout, vendors and service providers are trying to figure out how to convince them to keep spending. The cost benefits of UC, a hot industry topic for the past 2 years, have been subject to much debate; so far, UC has failed to entice customers to open up their wallets. Enter SIP trunking. With trunking services, monthly expenditures are well known, and it’s easy to arrive at a reasonable ROI calculation. And so many vendors are now rallying around SIP trunking as a way to get customers to buy new equipment, the cost of which will be offset by reduced expenditures in the long run. It sounds like a great idea, but does it have legs?

VoIP dominates within the enterprise border
People are always surprised to hear that enterprise telephony system sales are primarily IP PBX-based (some 90% of lines sold today), yet when it comes to connecting these IP PBXs to the PSTN, the use of legacy connections like T1s and PRIs prevails. A closer look explains why: T1s and PRIs are widely accepted standards, but IP trunking keeps evolving, from H.323 earlier in the decade to SIP trunking now. And even with SIP settled as the standard, the interoperability between operators and IP PBXs has been a significant challenge for the deployment of SIP trunking services, due to different implementations of the standard. But this is changing (thanks to groups such as SIPConnect and 3GPP2 Business Trunking) for IMS, and IP PBX vendors, who are supporting these efforts and working with network vendors and service providers. Cisco, Siemens, Avaya, Alcatel-Lucent, and Nortel all have programs promoting SIP trunking with their IP PBXs.

SIP trunks are gaining traction . . .
When we polled VoIP users in 2007 about their use of IP trunking services, only 13% used them at the time. Fast forward to 2009: that number has risen to 39%. These data points come from focused studies of medium to large size companies deploying VoIP, so they are not representative of the entire landscape of companies. But the overall trend remains valid.

Why are companies interested in SIP trunking? Saving money is one reason: recurring communication services account for the bulk of all voice communication expenditures, and to significantly lower their overall spending, they need to tackle the biggest budget item. SIP trunking helps them achieve that goal, with many expecting double-digit percentage decreases, a significant amount of money.

In addition, companies want to streamline their operations, and they like the ease of management and flexibility SIP trunking offers. Because SIP trunks are independent of the underlying network infrastructure, they can be deployed anywhere in the network. As long as the underlying bandwidth is there, companies can easily increase (or decrease) SIP trunking capacity, often via web-based management tools, making it is easier to match trunking capacity to actual needs. This is in sharp contrast to the cumbersome process of provisioning T1s and PRIs, including the need for additional hardware.

. . . but they won’t lift the industry out of its doldrums
One of the main obstacles to SIP trunking is a telephony infrastructure that’s not ready for it, and companies will wait until their infrastructure is ready. It’s unlikely that SIP trunking will offset the drop in equipment spending, as it is generally implemented along with general technology upgrades, which won’t pick up until 2010.

While there are significant opportunities in SIP trunking, it has the potential to leave huge revenue gaps for incumbent trunking providers as a whole (a SIP trunk is cheaper than a legacy trunk). These will need to be plugged by selling more bandwidth, or by creating convincing new features that companies are actually willing to pay additional money for, perhaps high definition voice quality, disaster recovery, or other enhanced communication services.