VoIP Growth Vastly Outpacing Traditional Voice

VoIP system sales dwarfed those of traditional voice systems for the year ended in June 2005, according to a new research report issued this week by investment firm Merrill Lynch.

As of June, VoIP system sales grew 31 percent year-over-year, while sales of legacy voice systems declined by 20 percent during the same period, according to the report.

The drop in sales of traditional voice systems apparently cancelled out much of the momentum VoIP system sales gave to the overall telephony market, which grew only 2 percent year-over-year, to $2.24 billion, according to New York-based Merrill Lynch.

Heightened competition between the two fastest-growing VoIP vendors - Cisco Systems and Avaya - is underscored by the separate approaches of the two vendors, the report stated.

"Avaya and Cisco have consistently gained share in the enterprise telephony market, each with a slightly differing product strategy. Avaya offers a more manageable or slower migration path to IP that does not require the replacement of a company’s existing legacy PBX voice system, while Cisco banks on “rip and replace” deals which involve a new IP infrastructure and with new IP telephones," the report explained.As of June, market share for Cisco's pure-play VoIP products grew 15 percent quarter-over-quarter, while market share for Avaya's hybrid VoIP products grew 14 percent during the same three-month period, according to the report.

VoIP vendors Alcatel, NEC, Nortel and Siemens are "treading water in the market as a result of share loss and lower revenue from legacy systems than is being offset by IP-related revenue," the report stated. Avaya has been the beneficiary of these trends, according to the report.

Cisco's Linksys division could positively impact the SMB VoIP market by way of the elimination of local voice servers and the creation of more hosted VoIP services for SMBs.

The statistical data used in the Merrill Lynch report was gleaned from data compiled by Synergy Research, Reno, Nev., and the Dell’Oro Group, Redwood Shores, Calif.