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Enterprise Voice Market Review: Focus on the Leading Competitors

Allan Sulkin

TEQConsult Group

www.teqconsult.com

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Introduction:IP Telephony Market is Moving Forward

• IP Telephony (IPT) systems dominate domestic market for PBXs– 95%+ total system shipments are an IPT platform– 58% total 2006 line station shipments were IP endpoints– Client/Server closing in on Converged as most popular IP-

PBX design; demand for IP-enabled offerings is rapidly declining

• Key/Hybrid market segment a relatively equal mix mix of traditional digital and IPT designs– 16% total 2006 line station shipments were IP endpoints– Sizable number of small system customers with IPT

requirements are replacing their installed Key/Hybrids with offerings classified as IP-PBXs by their supplier

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0

2

4

6

8

10

12

14

16

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Stations (millions)

2005 2007 2009 2011 2013

Total CPE Line Station Shipment Forecast4% AAGR

IP

TDM

Source: TEQConsult Group, 2006 ECA CCS Market Report

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PBX Line Station Installed Base Forecast (USA)

0

10

20

30

40

50

60

70

2005 2006 2007 2008 2009 2010 2011 2012 2013

Lin

e S

tati

on

s (m

illi

on

s)

IP

TDM

Source: TEQConsult Group, 2006 ECA CCS Market Report

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0

2

4

6

8

10

12

14

16

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$ Billion Revenues

2005 2007 2009 2011 2013

CPE System Revenues Forecast3% AAGR

Services

I&M

Product

Source: TEQConsult Group, 2006 ECA CCS Market Report

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2006 CPE Market Share(Total Line Station Shipments, USA)

20.0%

16.5%

15.0%9.0%

5.0%

4.5%

4.5%

4.5%

3.8%

3.3%

14.0%Avaya

Nortel

Cisco

NEC

Mitel

Siemens

Toshiba

Inter-Tel

Vertical

3Com

Others

Source: TEQConsult Group Estimates

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Focus on Leading Enterprise Voice Communications Market Competitors

• Avaya

• Cisco Systems

• Nortel

• NEC Unified

• Siemens Communications

• Mitel Networks

• Alcatel-Lucent

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Installed Base CPE Market Share

(% Total Line Stations, USA)

20

20

85.5

4.5

3.5

0.25

38.75

Avaya

Nortel

NEC

Siemens

Mitel

Cisco

Alcatel

Others

Source: TEQConsult Group Estimates

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Global Enterprise Voice Communications Market Revenues

0

1

2

3

4

5

6

Avaya

Nortel

Siem

ens

NEC

Alcat

el

Cisco

Mite

l

$ B

illi

on

s

Source: Corporate Financial Filings, TEQConsult Group estimates

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IP Telephony System Offerings*Competitor IP Enabled Converged Client/Server

Avaya IP Office Communications Manager

Nortel BCM 50/200,

CS 1000M

CS 1000E CS 2100

Cisco UCME, UCM

NEC IPK Elite,

NEAX 2000 IPS,

NEAX2400 IPX

SV 7000/MPS

Siemens HiPath 3000/4000 HiPath 8000

Mitel 3300 ICP

Alcatel OmniPCX Office OmniPCX Enterprise

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* Standard Configuration Design

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USA Market Coverage/PresenceCompetitor <40

stations40-99

stations100-399 stations

400-999 stations

1000+ stations

Avaya *** **** **** **** ****Nortel **** **** **** **** ****Cisco ** *** *** **** ****NEC **** **** *** *** **Siemens * * ** *** **Mitel ** *** *** ** *Alcatel * * * * *

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Current Market Share Estimates**** Very Strong (>10%) *** Strong (5%-10%) ** Moderate (2%-5%) * Limited (<2%)

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Rating The Leading Competitors

Voice/Msg Systems

IT Infra-Structure

Contact Center

Solutions

Unified Comm.

Support

Services

Avaya Very Strong * OEM Very Strong * Strong Very Strong *

Cisco Strong Very Strong * Strong Strong Strong

Nortel Very Strong Very Strong Very Strong Very Strong Strong

NEC Very Strong Strong Mod. Strong Mod. Strong Strong

Siemens Strong OEM Very Strong Very Strong * Very Strong

Mitel Strong OEM Strong Strong Mod. Strong

Alcatel Strong Strong Very Strong(Includes Genesys)

Very Strong Moderate

* Market Leader

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Avaya• Recent management organization restructuring with many

new top executives lacking market space experience• Strongest product/applications/services portfolio• Entire organization highly focused on enterprise

communications market: by far the strongest direct sales/service channel among all domestic competitors

• Prices traditionally on high side, but improving• Unfocused marketing messages• Working relationship issues, e.g., communications, with

customers and consultants has hurt market growth

Outlook:

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Cisco Systems• Major strides in a few short years to emerge as top tier

voice communications system supplier• Very successfully leverages IT infrastructure dominance

to market/sell voice offerings• Deep financial pockets and energetic management

organization• Some core system product feature/function gaps still

remain• Still playing competitive catch-up in some application

areas (high end contact center, messaging, unified communications)

Outlook:

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Nortel• Major executive management overhaul brought in many

industry “outsiders” with little or no voice market experience• New emphasis on customer support services as revenue

generator (partially tied to MSFT relationship)• Outsourcing most non-core system product development:

telephone instruments, contact center, messaging, unified communications

• Strong MSFT relationship (ICA) will likely help competitive market positioning in short term, but hurt in long term

• Renewed SMB emphasis offset by recent downturn in large system market results

• Dealer channel loyalty can turn into a major problem issue

Outlook:

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NEC Unified• Techno-centric organization that needs more (or at least

some) marketing pizzazz: last great product launch effort was 1983 NEAX2400 intro

• Strong product portfolio from very small to large line size market with right mix of direct/indirect distribution channels for sales and service support

• Growing SMB shipments have been offset by declining large system shipments

• Applications development requires greater attention, particularly unified communications solutions

Outlook:

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Siemens Communications• Operating as an independent entity since Siemens AG

dissolved its Siemens Communications Group late last year: semi-limbo state until a “partner” is found

• Exclusive enterprise communications market focus should help product development and marketing efforts

• Euro-centric approach to global market has handicapped North America market position for many years

• IP telephony system product delays have hurt high end sales results and forced organization to play catch-up mode with strategic competitors

• Stronger market coverage (SMB product offerings and wider distribution network) needed to increase total CPE market share

Outlook:

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Mitel Networks• Currently in transition mode operating as semi-public

company awaiting IPO first announced last year • Has effectively competed against companies several

times its size, but with limited historic presence in high end of market: SMB market niche player tag still attached

• Recent focus on higher end of market supported by latest 3300 ICP product release, but far greater customer/dealer service support resources are needed to be competitive

• Relatively strong applications offerings, with emphasis on MSFT relationship, but limited market share of contact center and unified communications sectors

Outlook:

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Alcatel-Lucent• Alcatel & Lucent assimilation will take time, with little

effect on near term dismal North America enterprise market results

• Corporate focus appears to be on carrier and wireless markets with enterprise communications lost in the mix

• Strong product and application solution offerings, but vastly improved distribution channel network and associated support services are needed to boost IPT system sales

• Marketing efforts have been lackluster, to say the least, with insufficient support structure: weakest analyst and consultant programs among top tier competitors

Outlook:

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System Supplier(# Survey Citations)

IP Telephony

System Applications

PortfolioSupport

Services Working

RelationshipConsultant Program TOTAL

Avaya (42) 4.40 4.45 3.85 3.59 3.93 20.22

Cisco (42) 3.95 3.86 3.73 3.80 4.19 19.53

Nortel (42) 4.00 3.86 3.74 3.79 4.00 19.39

NEC (40) 3.78 3.55 3.65 3.98 4.10 19.06

Siemens (42) 3.81 3.93 3.34 3.79 4.14 19.01

Mitel (40) 3.87 3.63 3.53 3.63 3.91 18.57

ShoreTel (33) 3.73 3.33 3.06 2.91 2.76 15.79

Alcatel (34) 3.32 3.09 2.76 2.76 3.00 14.93

Inter-Tel (33) 3.12 2.82 2.76 2.82 2.09 13.61

3Com (33) 2.94 2.73 2.61 2.61 1.97 12.86

Ericsson (32) 2.41 2.38 2.28 2.31 1.94 11.32

Another Rating’s View:Society Of Telecommunications Consultants (STC)

2006 Perception Survey

1 = Negative 2 = Slightly Negative 3 = Neutral 4 = Slightly Positive 5 = PositiveSurvey created, conducted and tabulated by TEQConsult Group, November 2006

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Future Strategic Competitors

• There are many potential competitors who can upset the current enterprise communications market equilibrium– Current peripheral market players, e.g., Microsoft,

IBM & HP– Current alternative solution players, e.g., AT&T &

Verizon– Current non-players with the potential to enter the

market, e.g., Nokia, Oracle & Google

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Microsoft: The Next Cisco Systems?

• Microsoft has been on the periphery of the enterprise communications market for many years, but now appears ready to make a big move– Upgraded unified communications solutions integrate VoIP

and telephony with existing Microsoft Exchange Server and Live Communications Server (LCS) architectures

– Promises to offer a seamless communication experience for end users with single login access

• Microsoft/Nortel Integrated Communications Alliance (ICA) and numerous business partner agreements with most of the other leading IPT system suppliers focusing on LCS/Office Communicator solution

• LCS/Office Communicator poses future threat to fully replace voice-centric IPT systems

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Hosted/Managed IPT Systems: Alternatives to Traditional CPE

• Hosted IPT systems were based on softswitch solutions using third party components (software, server, media gateways, telephone instruments)– Spearheaded by independent service providers, but only

AT&T and Verizon can drive future market direction– Primarily targeted today at SMB customers as a CPE

alternative• Traditional CPE suppliers have also entered the

market with hosted/managed offerings of their IPT system solutions– Hosted: Mitel 3600 Hosted KTS; Avaya on Demand;

Siemens HiPath 8000; Cisco Unified Call Manager– Premises-managed: NEC Univerge MPS MIPT; Alcatel

OmniPCX Office

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Closing Comments

• The IP telephony market is entering its mature phase with an increased emphasis on applications

• Market demand for IPT systems will remain moderately strong with:– Customers replacing KTS/Hybrids with more fully featured

PBX solutions– Alternative network solutions posing a threat to continued

growth• New competitors are certain to enter market from

peripheral product/service markets that are quickly converging with traditional enterprise voice systems

• Wireless technology will replace desktop wired, and virtual communications systems will blur distinctions between premises/network and business/consumer markets

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Thank You for Your Time

Audience Questions?

Allan Sulkinamsulkin@aol.com

www.teqconsult.com

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