After years of anemic growth, global Session Initiation Protocol (SIP) trunking revenue more than doubled over the past year, making it one of the fastest-growing segments of the Voice over IP (VoIP) market. Incumbent service providers see this growth as nothing more than money draining from their legacy enterprise voice services, but carriers with limited enterprise voice market presence recognize SIP trunking services as an opportunity.
Worldwide revenue for SIP trunking services reached $599 million last year, a growth rate of 143% from 2009, according to Diane Myers, a directing analyst at Infonetics Research, which recently published its 2011 VoIP and UC Services and Subscribers forecast and market share analysis.
SIP trunking services cannibalize a long-commoditized legacy TDM business for large enterprise voice carriers. They see little opportunity for growth simply because enterprise customers won't pay more for voice services. The reverse is true for providers with a smaller stake in the market: They have the chance to take business away from large incumbent local exchange carriers (ILEC) that aren't as aggressive on SIP trunking in a given market.
Bill Longsenior director of enterprise voice product management, Level 3 Communications
"Because we have a relatively low market share here, I like going out and stealing market share out of a declining market because if it's a declining market, the incumbents are less likely to be investing heavily to keep that share," said Bill Long, senior director of enterprise voice product management at Level 3 Communications. "We have around 1% market share ... so the extent that I can go out and grow that market share to 2, 3 or 4% [translates into] new revenue for Level 3 that we've never had before."
Larger operators have been reluctant to go after the SIP trunking market because many enterprise customers were not ready to natively support SIP on their IP public branch exchanges (PBXs) and would require on-premises gateways, typically session border controllers (SBCs), Myers said. Regardless of whether a SIP trunking provider were to require the customer to buy that equipment or build it into the cost of the service, raising the price of voice services wouldn't fly with most business customers, she said.
SIP trunking revenues also make up a relatively minor slice—about 1%—of the larger VoIP and UC market, which hit $49.8 billion in 2010. Although SIP trunking is growing at much faster rates than residential VoIP services, which make up 69% of the market, larger carriers haven't had a clear return on the investment (ROI) case for expanding services, Myers said.
"If [SIP trunking] becomes more expensive than what I [as an enterprise] have today—a TDM line, a PRI, an ISDN—then I'm not going to move," she said. "A lot of [operators] have been very cognizant about that, and that's why they've been very hesitant [to market SIP trunking services] for a number of years.... They didn't want to incur that cost. They wanted to do a native SIP trunk."
It is also unclear to what degree SIP trunking service providers can layer on additional UC services. Level 3, for example, has text message-enabled all of its SIP trunking customers' phone numbers, but it is still waiting on IP PBX vendors to support it as a feature, Long said.
Some providers have been successful in marketing backup and recovery services they could not offer with TDM, such as short-term capacity bursts for busy seasons or relocating services to another site during a disaster, Myers said.
What's changed for SIP trunking services?
A confluence of serendipitous changes in the market has boosted revenue for SIP trunking services and encouraged everyone from Verizon to Skype to ramp up their efforts.
Enterprises have buoyed the market on their own by finally migrating legacy analog PBXs to IP PBXs, Myers said.
"We're starting to get over the hump of the early adopters," said Jim Harney, product marketing manager at Global Crossing, which saw about a 30% increase each quarter of 2010 in the total number of call minutes accumulated using SIP trunking services, as compared to 2009. "Part of it is driven by obsolescence and the other part of it is driven by building something they're going to have and use for a long time."
Level 3 has also seen a decrease in "the perceived risk" of SIP trunking, Long said. At the same time, the perception of SIP trunking's benefits is spreading virally among CIOs, he said.
"[Those dynamics] helped SIP trunking get to the point where the pragmatists ... could no longer ignore its value," Long said.
As a result of increasing demand, new providers have entered the market while incubment SIP trunking service providers have upped their game, Myers said. Most have expanded their geographic coverage area, added support for more IP PBX vendors and many have significantly expanded their marketing efforts, she said.
Verizon Business was "pretty aggressive about offering SIP trunking outside of their [ILEC] territory" last year, which will serve as a model for other incumbent carriers looking to avoid cannibalizing their PRI business, Myers said.
By the end of 2010, Level 3 tripled the number of concurrent call paths—a common metric for SIP trunking services—it provisioned since launching the service in mid-2007, Long said. It expects to see another bout of 300% growth by the end of 2011. Last year, two webinars it hosted on SIP trunking "were better attended than any other webinar Level 3 has ever hosted," he said.
"I think the industry did a much better job of articulating the job of SIP trunking," Long said. "When we have a customer event, any [time] you say, 'SIP trunking,' it's very well attended."
In addition to adding support for more IP PBX vendors, executives from Level 3 and Global Crossing said that publicizing their official certifications and partnerships with those vendors has made customers more confident in adding SIP trunking services.
Global Crossing recently touted its standing as one of four qualified SIP trunking providers for Microsoft's latest UC server, Lync. It is also publicizing Microsoft's use of Global Crossing SIP trunking services at Microsoft Technology Centers around the United States.
Level 3 has never been short on vendor support with its SIP trunking services, but customers weren't always willing to take its salespeople at their word, Long said. Despite having sales engineers with extensive SIP experience and a bevy of configuration guides available for customers, enterprises wanted to see formal, certified evidence of interoperability, he said.
"Our strategy was, 'Bring it to us and we'll make it work,'" Long said. "The problem is that doesn't solve that 'risk' question, so there's the marketing function of certification. That's valuable in the market. People want the official stamp of approval from both parties that it works—not just a config guide."
Let us know what you think about the story; email: Jessica Scarpati, News Writer.
Disaster recovery for SIP trunking: Find out what more you can do for enterprises when SIP trunks fail.
Learn how AT&T and BT got over their open source angst to meet growing demand for SIP trunking.
Understand the bigger picture to see where SIP trunking and the rise of packet voice fits into the evolution of next-generation voice services.