Hosted VoIP services in Europe

By Konstantin Nikashov, VP, External Economic Activities, MERA Systems

VoIP should grow considerably in the next 3-5 years, as will the market share of hosted VoIP. Europe welcomes hosted solutions more than other parts of the world, but hosted VoIP, even there, is still used mainly by smaller businesses. European service providers expect that the use of hosted VoIP services by large companies will grow given the speed and ease of deployment, the limited capital investment needed, lower operating and maintenance expense and the increasing availability of special features.

Hosted VoIP (voice over IP) services appear, today, to be a competitive alternative to premise-based equipment. The rapidly developing market is expected to grow to US$5.9 billion by 2010 in the US alone, galvanising life into similar processes in other countries. Indeed, hosted VoIP is a type of service advantageous for all parties involved. Software manufacturers, service providers, and end-users that explore the option, find it both beneficial and costeffective. Manufacturers that design IP Centrex solutions and VoIP softswitches with partitioning capabilities obviously win more customers. Renting out a VoIP solution to other carriers is profitable for the host provider since the business model can be extended to a limitless number of clients. Thinking rationally, enterprises are inclined to use hosted VoIP services, because this choice allows them to save system maintenance and management resources (Figure 1).

To host or not to host: the European view

Although European service providers are adopting hosted VoIP solutions more eagerly than their American counterparts, the VoIP market in the region today resembles a patchwork bed quilt in terms of bandwidth cost prices, one of the key factors that influence the choice of a host provider. Average bandwidth prices allow a wider choice of hosts, which makes companies more open minded about the whole idea of hosted VoIP services. High bandwidth prices, as in the UK, often leave companies with just one possible modus operandi - sticking to proven telco leaders. Consequently, enterprises there reject hosted VoIP more easily, if they are not happy with the offer. As a result, proliferation of hosted VoIP services within Europe is now an erratic process.

At the same time, software manufacturers say there is a growing demand for VoIP solutions with partitioning capabilities in Europe. Small service providers that consider the transition to next generation technologies see the proposition to rent VoIP capabilities from large carriers as a low-risk, low-cost way towards communications convergence. Large European service providers have always benefited from hosted VoIP (Figure 2) but they demand high quality hosted solutions to meet the needs of their numerous customers. Moreover, although European software manufacturers have been designing VoIP solutions with partitioning capabilities for years, it is only now that they have started to revise the very notion of hosted VoIP. The proposition has evolved from a cheap offer to a premium one. Slowly but surely, the region is giving in to the temptation of hosted VoIP. _____________________ ___________________

Carriers: play wise - learn to resize!

Initially, the hosted VoIP market has been focused on SMEs (small and medium sized enterprises) and European service providers still stick to this unspoken rule. IP Centrex (Hosted IP PBX) is a service traditionally popular among businesses with less than 400 employees. However, carriers active in the small business market in Europe face tight competition from cable and other alternative service providers. Therefore, telcos have to look for innovative strategies that help them maintain their market share.

One of the possible strategies is to be very scrupulous about choosing the hosted VoIP solutions they deploy. Apparently, IP Centrex solutions with the most appetizing mixture of features attract more end-users. The ability to offer enterprises advanced features, such as ‘find me/follow me’, integrated with email applications, user-friendly Web interfaces and various dial plans is a competitive advantage for carriers hosting IP Centrex services.

Another strategy is to reconsider the current business model. Offering a hosted IP PBX to large enterprises rather than to SMEs is becoming more popular in Europe. On the other hand, large service providers often opt to rent out, virtualise, VoIP capabilities to smaller telcos. The latter option seems even more lucrative when host carriers realize that apart from fees paid by the enterprises they get increased traffic volumes generated by the growing customer base.

Enterprises: a penny saved is a penny earned

Carriers still see SMEs as their main target audience for hosted VoIP solutions, but today’s market challenges make service providers broaden their horizons in terms of defining their customers’ profile. Small businesses always welcome hosted VoIP solutions. They would rather rent a hosted IP PBX and pay for the number of lines they really use - without incurring additional costs - instead of employing a sizeable IT staff to take care of a premise-based PBX deployment, monitoring, management and upgrade. Large companies might have sufficient resources to deploy their own solutions, but renting VoIP capabilities might also be quite costeffective for them.

While small enterprises usually choose to rent a VoIP solution only when some significant event forces them to - end of lease or Centrex contract, or a relocation - larger organizations opt for hosted VoIP solutions to deal with their immediate business requirements without the need to make a sizeable investment in equipment, operations and maintenance. The use by large enterprises of hosted VoIP solutions will certainly begin to grow throughout Europe in the near future. Given the cost advantages, the ease of installation, operation and maintenance, hosted VoIP services are likely to benefit almost any kind of company irrespective of its size.

Although hosted VoIP is still considered a budding market, European service providers should not be in a hurry to write off the novelty. Once it is treated as a real alternative to premise-based equipment, hosted VoIP brings additional revenues, efficiently addresses market challenges and offers a variety of new business opportunities to explore.

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