Talking About IP Telephony in Asia Pacific

August 18, 2003

According to a leading analyst firm, Frost & Sullivan, the market for IP telephony technology such as IP-PBX (private branch exchange) in the Asia Pacific region grew by more than 300 percent in revenues from 2000 to 2001 – and is expected to be worth US$1.67 billion across the region in 2008.

From a Cisco perspective, IP telephony is a powerful tool companies can use to increase productivity and reduce costs; and with Cisco leading the IP-PBX market in the Asia Pacific region, it is clear that customers have been getting the message.

To talk about this increasingly important market, News@Cisco brought together two of the region's most respected experts on IP telephony – Manoj Menon, director, technology practice, Asia Pacific, Frost & Sullivan, and Craig Gledhill, senior manager, business development, advanced technologies and solutions, Asia Pacific, Cisco Systems.

What are the main drivers for IP telephony adoption among customers in the Asia Pacific region?

Craig Gledhill: The drivers are similar to what Cisco is seeing elsewhere in the world. Moving to a converged network can reduce an organization's total cost of network ownership and the ongoing costs of maintenance and upgrading.

By simplifying network administration, IT staff can focus on strategic initiatives that generate demonstrable business benefits.

While hard-cost savings are enough to justify a converged network, less easily quantifiable "soft" benefits provide the most compelling argument for why an organization should consider migrating.

Many of our customers are attracted by the ability to deploy new services that increase their operational efficiency even further. One of the hottest is unified messaging - the ability to merge voice, video and e-mail.

Moreover, our new IP phones, such as the Cisco IP Phone 7905 and the Cisco IP Phone 7912G, will have local language support for simplified Chinese and Korean. This will be crucial in our ability to penetrate two of the bigger markets in the Asia Pacific region.

This time last year Frost & Sullivan recorded 300 percent per annum revenue growth the Asia Pacific's IP-PBX market. Is that growth still being sustained?

Manoj Menon: The market has grown in line with our forecasts for 2002. Revenues for IP-PBX were US$100 million, almost double the figure for 2001.

We expect the market to grow in excess of 45 percent annually in the next two years; total revenues in Asia Pacific are expected to reach US$417 million by end of 2004.

How many IP telephony customers does Cisco have in Asia Pacific today?

Craig Gledhill: Cisco Systems has more than 500 IP telephony customers in the Asia Pacific region and we recently shipped our 100,000th IP phone in the region. This is remarkable considering that our IP telephony solutions have only been available in this region for three years.

The momentum is definitely there and most of our customers have overcome their initial fears over IP telephony. The early adopters have begun to reap the benefits of converged systems. As for the rest of our customers, it is now not a matter of if they should deploy, but when.

Which Asia-Pacific countries are leading the way in IP telephony adoption - and why?

Manoj Menon: The penetration of IP-PBX in relation to traditional PBX is between 1 and 30 percent. Singapore, Hong Kong, Australia and New Zealand - the leading adopters of new technologies - have the highest penetration.

Education and government have been the key sectors driving growth.

What kind of operational expenditure reductions are IP telephony customers seeing in the region?

Craig Gledhill: On average we see customers enjoying 30 percent savings on a five-year total cost of ownership basis, from the reduction in operational, maintenance, telecommunications and WAN (wide area network) costs. Many of our customers have experienced tremendous savings from the toll bypass alone.

This in no way alienates our service provider customers - many of whom have seen managed IP telephony services as new source of revenue. For smaller companies, outsourcing voice, video and data to a service provider is the way to go. This creates a winning situation for all parties.

For enterprise customers building their own networks, a converged infrastructure provides the surest form of future-proofed network. The primary feature that many have insisted on is in-line power for their switches, thus paving the way for both IP telephony and wireless LAN (local area network) solutions.

How does Asia Pacific compare to other parts of the world in terms of trends and overall speed of IP telephony adoption?

Manoj Menon: In Asia Pacific, IP-PBX accounted for 6.7 percent of the total PBX and IP-PBX market in 2002.

While Asia is lagging behind North America in terms of penetration of IP-PBX to traditional PBX, the assessment may not be fair considering that there is a considerable deployment of traditional low-cost analogue PBX systems in markets in China, India and Philippines.

If you were to compare specific countries like Singapore and Hong Kong, we would be very much ahead of rest of the world in terms of deployment. In Singapore the penetration is as high as 19 percent of the total PBX and IP-PBX market.

IP telephony is of course just one converged network application - are others being deployed by customers in the Asia Pacific region?

Craig Gledhill: Absolutely. As I mentioned earlier, unified messaging is seeing an excellent take up rate. Approximately one third of all our IP telephony customers have also specified Cisco Unity, our unified messaging solution, as part of the overall project.

We also see IP Contact Centers (IPCC) starting to gain favor, with many large call centers in China, India and Korea deploying our IPCC solution.

What market share does Cisco have in Asia Pacific (excluding Japan) and what are the reasons for this top position?

Manoj Menon: Cisco has an estimated 56 percent of the Asia Pacific market for IP Centric telephony systems and has been the leader in this space. It was an early entrant and this has benefited the company tremendously. It was among the first companies to introduce local language capabilities on IP phones in several Asian countries and has a broad spectrum of IP phone offerings.