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M2M, Small Business Internet Access and Business VoIP have Highest Growth Rates

By Gary Kim September 27, 2012

One could make an argument that the three fastest-growing revenue streams for fixed network services providers are business focused, not consumer driven.

Machine-to-machine services, business Internet access and business VoIP all have double digit growth rates, according to Douglas Barnett, Atlantic-ACM senior analyst. Between 2011 and 2017, M2M will have a 28 percent compound annual growth rate, small business Internet access will have a 24 percent CAGR and Business VoIP will have an 18 percent CAGR.

Forecasts for “machine to machine” revenue are notoriously difficult, because observers disagree about the products that constitute M2M.  For some, the core M2M business is based on sensor applications in many vertical markets, ranging from energy management meters to transportation tracking to security. Others include mobile data connections for tablets as “M2M” revenue. That leads to important differences in market size.

The Atlantic-ACM forecast seems to include both core M2M and “connected device” revenue. “Near-term revenue growth to be driven by e-readers and consumer-centric offerings, while long-term growth will be driven by connectivity implemented in business centric devices,” says Barnett.

The small business Internet access business will be driven by small business customers “almost exclusively,” as the small business product is very similar to consumer offerings, says Barnett.

Business VoIP revenue will grow based on hosted solutions and SIP trunking, for example. Pricing will come under additional pressure; however, as cable operators aggressively enter the market. In part, growth of business IP telephony might actually represent negative revenue trends for competitive local exchange carriers or incumbent local exchange carriers, as cable operators take more share.

Also, some might argue that it still is not yet clear that hosted PBX services will be a significantly bigger business than Centrex has been.

True, the business continues to grow. The number of seats for hosted business VoIP and unified communications services is on track to more than double between 2011 and 2015, predicts Infonetics Research.

IP Centrex and hosted unified communication service revenue grew 22 percent and seats grew 25 percent in the first half of 2011 compared to the second half of 2010, according to an Infonetics. VoIP forecast.

In 2010, In-Stat forecast that IP telephony penetration among U.S. businesses would increase rapidly over the next few years, reaching 79 percent by 2013, compared to 42 percent at the end of 2009, In-Stat said.

There is no reason to disagree with the direction of the forecast, if some might quibble about the volume a bit. The In-Stat definition of adoption is based on a firm having a VoIP solution deployed in at least one location, though not necessarily enterprise-wide.

In-Stat has predicted that 41 percent of businesses with VoIP capability had no legacy TDM voice services in 2010, compared to 34 percent in 2008. Hosted IP services such as IP Centrex also grew steadily in 2009, while IP PBX growth was significantly stunted.

 

But that isn’t the point. We all agree hosted VoIP is growing. The issue is how big the hosted PBX business might ultimately reach. In a real sense, the hosted PBX business could theoretically displace a significant portion of the existing business phone system market. Generally speaking, though, the total cost of ownership advantage is clearest for small organizations and distributed sites.

A large organization generally finds the total cost of ownership is lower when using a premises switch.

To the extent that hosted PBX is the IP successor to Centrex, you have to compare expectations Some might argue that Centrex never was that big a business. The total market generated revenue of $1.9 billion in 1989, and is forecast to grow to $4.8 billion market by 1994.

Centrex revenue had gotten to be about $6 billion in the early 2000s, although I have seen some evidence that it might have been as small as $2.5 billion.

The Telecommunications Industry Association’s 2003 review of the communications market projected $4.2 billion in total PBX revenue in 2003, up 12 percent from 2002. Total PBX spending is expected to grow at a 7.2 percent CAGR from 2003-2006, following three straight years of decline.

The issue is that substituting a recurring service fee in lieu of capital expenditure is not straightforward. But assuming annual shipments of about six million to seven million new lines of PBX service, you can do the math on additional revenue if some of that demand was to shift to a hosted alternative. It just depends on your assumptions about the degree of potential displacement.

Nor is it easy to isolate hosted PBX revenue from SIP trunking and other components of the smaller business voice business.

Note that Frost & Sullivan said, “The market for hosted IP telephony and integrated access services with Centrex features will increase to $7.8 billion by 2009 from $61 million last year. In other words, it is difficult to isolate actual hosted PBX revenue from associated SIP trunking or access revenues, at times. Headline numbers often have to be pulled apart to determine the actual volume of hosted PBX revenue.”

Consider the common example of “business VoIP” revenues, which typically include “managed PBX,” separate hosted PBX and then “access services” such as SIP trunking that have some hosted PBX revenue content. In 2008 the hosted PBX and access revenue components were about equivalent. But ABI Research predicts that access will the largest revenue component in the future.

In fact, some analysts believe that PBX-based approaches might be a bigger part of the market in 2015 than they were in 2010. In fact, if consumer VoIP remains at 69 percent of all “VoIP” revenue, then consumer revenues would account for about $51.4 billion in 2015.

Assuming a total of $74.5 billion in total revenue in 2015, that implies $23.1 billion in business VoIP. Nearly half will be “managed PBX” services. Call it 48 percent, representing $11 billion in revenue. Access might represent about 27 percent, or $6.3 billion in revenue.

That would suggest about $5.5 billion in hosted PBX revenue. That puts hosted IP telephony in about the same area as Centrex. The point is that the numbers still don’t clearly suggest the hosted PBX actually will be much bigger a business than Centrex was.

 

Want to learn more about M2M technologies? Don’t miss the M2M Evolution Conference, collocated with ITEXPO Austin 2012 taking place Oct. 2-5, in Austin, TX.  Stay in touch with everything happening at M2M Evolution Conference. Follow us on Twitter.




Edited by Brooke Neuman

Contributing Editor

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