Abstract

Beyond Cost Savings

To be able to overcome the obstacles that will face them in the competitive environment of the future, and to respond effectively to the trend towards integrated IP networks, business enterprises are looking for more than just lower voice communication costs; they also want effective integration with their enterprise value chain. This integration may take the form of linking ERP (Enterprise Resource Planning) and call center systems, or integrating "point-and-click" e-mail directories with unified communication applications. The enterprise VoIP market will evolve in the following three stages.

In the first stage, the main emphasis will be on cost-savings Key applications will include toll-bypass to reduce the cost of long-distance calls, remote site voice system interconnection, and basic VoIP voice service applications such as MAC (Moves, Adds and Changes) system administration.

The emphasis in the second stage is on leveraging existing platforms to implement partial integration, while providing more advanced applications. The first of two key elements is  the integration of enterprise VoIP gateways and IP phones' digitalized functions, for example by integrating SMS (Short Message Service) applications or using IP phone screens to display important messages, to create a kind of prototype "unified message" environment. The second element is call center integration, for example customer information services, telemarketing applications and SME marketing.

In the third stage, the focus will be on horizontal and vertical integration of existing enterprise value chains. One of the two main elements here is unified communication - enterprise VoIP gateways should be able to provide platform integration for users with different needs, such as WiFi+VoIP applications, VoBB (Voice over Broadband), and VoIP over mobile devices applications. Applications of this type might involve, for example, using a mobile phone handset or PDA to receive e-mail and then using the gateway to implement automatic conversion to voice. The second key element would be the improvement and vertical integration of the enterprise's organizational structure and processes, such as work process contact integration or ERP integration.

Datacom, Telecom Vendors Throw Down the Gloves

Currently, the players in the enterprise VoIP equipment industry fall into two main categories: datacom equipment vendors that have expanded into the VoIP market, and telecommunications equipment vendors.

Those companies that have expanded into VoIP from the datacom equipment market benefit from having an in-depth understanding of data and IP networks. They have the technology needed to resolve large enterprises' concerns about voice security and virus issues when introducing VoIP systems. Furthermore, the CIOs of large enterprises tend to have more confidence in the ability of datacom equipment vendors to overcome IP network security problems.

Another advantage that datacom equipment vendors such as Cisco and 3Com possess is that they already have strong IP data network equipment manufacturing capabilities. Currently, Cisco supplies nearly 70% of the IP network solutions used by large enterprises, and VoIP networks are normally built on an IP data network. As the investment required to set up a VoIP system is roughly one third to one fifth of that needed to establish an IP data network, CIOs tend to focus on overall cost and whether or not the VoIP system can be integrated effectively with their company's existing IP data network.

Telecommunications equipment vendors have the advantage of greater familiarity with PSTN (Public Switched Telephone Network) networks; they usually also have strong signaling and error detection technology, as well as possessing more experience in interoperability issues such as voice switching and PSTN network interconnection.

Some of the leading telecommunications equipment vendors that are expanding into VoIP are Avaya, Nortel, and Alcatel. These companies have strong brands in their telecommunications switching businesses, so the cost of moving over to VoIP will be relatively low. Taking Avaya's IP telephone products as an example, these products provide a high level of system compatibility, and are compatible with Cisco's enterprise network equipment. By contrast, Cisco's VoIP solutions can be used only with pure IP networks; they cannot be used with an enterprise's existing PSTN digital phones.

As to whether it will be the datacom or telecommunications equipment vendors that come out on top in the struggle for domination of the enterprise VoIP equipment market, the key factor is the tradeoff between conversion cost and IP network integration. The cost of switching over to VoIP will be lower for the telecommunications equipment vendors, whereas the datacom vendors benefit from strong IP data network capabilities. If Cisco can start launching products that work in non-pure IP networks as well as in pure IP networks, then Cisco's conversion costs would fall to around the same level as Avaya and the other telecommunications equipment vendors, significantly enhancing Cisco's chances of achieving a dominant position in the VoIP market. If Cisco moves in such a direction, then the outcome of the battle for dominance in the enterprise VoIP market will be far more uncertain.

Appendix

Research Scope

The Taiwanese enterprise VoIP equipment industry encompasses all Taiwan-headquartered companies that produce IP phones and enterprise VoIP gateways in Taiwan and China.

Definitions

Business Types

OEM

The OEM business model entails carrying out product manufacturing or assembly according to specifications supplied by the customer. The OEM business model emphasizes production efficiency; thus, in order to lower costs, customers outsource manufacturing to OEM providers. This cooperation forms a division of labor among design, manufacturing, and sales.

OEM production for WAN includes shipments in both PCB (Printed Circuit Board) form and bundled with desktop and notebook PCs. Manufacturing undertaken for leading international vendors is also included.

ODM

The ODM business model entails undertaking product design and manufacturing, but not direct retail sales or brand promotion. ODM providers either collaborate with customers on product specifications or independently design products according to customer specifications; the ODM provider then receives manufacturing orders upon customer approval. The ODM model links the sales capabilities of the ODM customer and the design and manufacturing capabilities of the ODM provider, developing a cooperative division of labor throughout the product's value chain.

Retail Channel

Business from retail channels includes orders from brand-name retail channel players, such as Linksys or Netgear, with whom Taiwanese makers cooperate on design. Business from retail channels also includes private label shipments to end-market retailers.

Product Types

IP Phone

An IP phone is a telephone that uses voice signals encoded and compressed on an IP network to convert them into packets for transmission over the IP network, thereby providing an Internet telephony voice communication capability. The data included in this report are for IP desktop phones only.

Enterprise VoIP Gateway

Traditional enterprise PBX (Private Branch Exchange) equipment employed circuit switched technology for switching. An enterprise VoIP gateway implements voice switching through the use of the packet switch method in a LAN (Local Area Network) environment. There are currently two main types of enterprise VoIP gateways. Enabled enterprise VoIP gateways add a VoIP module to a traditional TDM (Time Division Multiplexing) system, whereas pure enterprise VoIP gateways operate on a pure IP network with no circuit switched capability.

Shipment Destinations

''Asia Pacific'' does not include Japan or China, but includes Australia and New Zealand. Russia is included in ''Europe.''

Glossary of Terms