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Small and medium sized enterprises are warming to hosted IP telephony services. Frost & Sullivan (F&S) reports that the North American enterprise IP Telephony end point market hit revenues of $822.8m last year. It estimates that revenues will reach $2.44bn in 2012.

All this ought to spell boom times for equipment manufacturers and service providers. However, F&S reckons that increased competition and the commoditisation of IP phones could erode margins over time. But firms that are able to market products that are distinguishable from competing offerings can look forward to tapping into a lucrative market opportunity.

"IP telephony, which was restricted to the medium and large enterprises segment, is beginning to make inroads into small enterprises as well, thus leading to a rise in demand for IP telephony end points," said Frost & Sullivan research analyst Kumar Alagappan.

The availability of hosted IP telephony solutions from service providers and growing acceptance of open standards such as session initiation protocol (SIP) is shaking up the market, according to F&S. "The IP telephony market, which is characterised by end-to-end solutions based on proprietary protocols, will slowly shift to best-of-breed solutions with the increasing popularity of SIP based telephony solutions. Enterprises that were previously confined to phones based on proprietary protocols will now have the option of choosing from low-cost third-party SIP phones," Alagappan explained.

As the IP telephony market matures, interoperability, which is currently limited to basic private branch exchange (PBX) features, could be extended to support more advanced feature sets. Vendors need to develop SIP phones that can offer support for the PBX features provided by their proprietary IP phones, which nonetheless still have a future.

F&S reckons manufacturers should distinguish their proprietary products by incorporating support for custom applications, such as CRM, targeted at specific industry verticals. ®

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