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The hosted PBX (News - Alert), or hosted IP telephony business, has been a puzzle to some of us, who had thought it would grow faster than it has. According to Insight Research Corp., in early 2012, hosted PBX revenue might amount to about $500 million annually, expected to grow to about $1.2 billion by 2015, Insight Research predicts.

That is far less revenue than many had been predicting would be the case by now. In 2010, NPD In-Stat (News - Alert) forecast that IP telephony penetration among U.S. businesses would increase rapidly over the next few years, reaching 79 percent by 2013, compared to 42 percent at the end of 2009, NPD In-Stat said.

At this point, that degree of penetration appears wildly out of reach. In fact, sales of premises private branch exchanges, which one might have assumed would suffer from hosted IP telephony, seems not to have been affected as much as many would have predicted.

The Telecommunications Industry Association (News - Alert), for example, expects the PBX market to continue to expand, with a growth rate of about five percent annually during the next two years, with growth dropping to four percent in 2014, and to 3.8 percent in 2015.

For the forecast period as a whole, growth will average 4.7 percent compounded annually to $5.4 billion in 2015 from $4.5 billion in 2011.

A recent report by Gartner shows the IP voice-as-a-service market growing at a 36 percent compound annual growth rate in North America through 2015 to $2.2 billion. 

That is worth putting in perspective. By 2015, total U.S. telecom industry revenue might be $337 billion. If that turns out to br correct, and the Gartner forecast also proves substantially correct, then hosted IP telephony would represent less than six tenths of one percent of U.S. industry revenue, being generous.

Growth in the PBX market is being driven by small and medium businesses, the TIA (News - Alert) report also suggests. SMBs accounted for approximately half the lines sold in 2011, TIA says. In part, that is because suppliers such as Cisco and Avaya now offer small IP PBX systems targeted to SMBs.

As recently as 2009, Cisco (News - Alert) and Avaya did not offer small IP PBXs, although they were the leading sellers of large IP PBXs overall.

Still, the TIA report does note that cloud-based platforms have the potential to replace premises based systems, particularly for SMBs, though not offering any specific forecasts.

“The hosted PBX/VoIP service providers had only garnered less than four percent of the small business lines (seats) as of year end 2010,” Insight Research says. “This low penetration level, can be attributed to the lack of knowledge about the cost and functionality benefits of hosted PBX/VoIP services among the business community.”

The good news is that Insight Research Corp. analysts believe hosted PBX services revenue could grow at a compounded annual growth rate of almost 25 percent between 2012 and 2015.

Still, one might argue that suppliers of premises phone systems have proven to be resilient. Traditionally, the value proposition for a hosted IP telephony system has been the ability to avoid capital investment while gaining the features available to larger businesses using full-featured private branch exchanges (business phone systems).

But phone system suppliers have been working hard to reduce the cost of such premises-based systems, eroding the capital investment hurdles.

Hosted IP telephony is a very-important revenue stream for many competitive local exchange carriers, to be sure. But the revenue generated by hosted IP telephony remains far below what many had expected.