Carriers Continue to Invest in VoIP

Surprise, surprise! Carriers are investing increasing amounts in building out packet-based networks.

According to a new report from Infonetics Research, carriers invested $1.73 billion worldwide on packet-based phone equipment in 2004. The packet network investments are seen by Infonetics as the beginning of a migration to next-generation voice networks. By 2008, Infonetics forecasts, carrier investment in packet-based equipment is expected to grow to $5.8 billion.

Though there is momentum towards next-generation packet-based networks and away from the existing legacy networks, survey respondents indicated that it would take them at least five years to complete the switchover.

VoIP penetration within carriers was also noted to be on the rise. An average of one-half of survey respondents indicated that next-generation voice equipment would be deployed in their central offices by 2006.

Service provider capital expenditures (capex) for public carriers with headquarters in North America, Europe, and Asia hit $161 billion in 2004, representing a growth rate of 9 percent. Infonetics has forecast that 2005 capex will grow by 8 percent.

“Going forward, we expect capex to be fairly stable with marginal increases, but overall capex-to-revenue ratios won’t deviate much from 15 percent as service providers grow at a controlled pace,” the Infonetics report states. “This is a positive capital spending environment for the fast-growing next-gen voice equipment market, which will make up larger portions of overall capex over the next five years.”

“When details are provided, most carriers say they are increasing capex in growth areas tied to additional revenue, such as VoIP and broadband.”

Kevin Mitchell, Infonetics Research analyst and lead author of the study told that among the surprises in the study was the fact that capital expenditures were still a driver. Though he noted that new applications and openness are the big reasons for deployment. “Moving from LD/tandem applications to more revenue-associated/local applications (like IP centrex) brings more challenges and barriers,” Mitchel said.

Among those challenges are voice quality and OSS (operations support system) integration, which were more often cited as challenges in this years Infonetics study as opposed to past years. (This year marks the fourth year for the Infonetics study which this year included 44 carrier respondents.)

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