American PBX Systems Suppliers Back on TopAmerican PBX Systems Suppliers Back on Top

Back in the old days, AT&T’s manufacturing arm, Western Electric, dominated the domestic landscape for telecommunications equipment, including PBX systems, based on its monopoly status across most of the contiguous U.S. market. But during the past 40 years, AT&T and its descendents Lucent Technologies and Avaya have seen its domestic PBX systems market share tumble from a high of about 90% to its current level of about 22%.

Competition came from a large number of suppliers that were American- or foreign-owned. AT&T’s significant market share decline (an amazing 65%) during the 20-year period from 1970 through 1990 was the direct result of the Open Interconnect era kicked off by the 1968 CarterFone Decision.

At first a number of domestic companies grabbed a sizable percent of AT&T’s installed customer base, but by the time Rolm Systems was acquired by Siemens in 1988, AT&T remained the only American PBX supplier of note. Domestic system suppliers controlled less than half the U.S. market for PBXs at the beginning of the 1990s. Would the foreign invasion and conquest continue or would the cavalry (to borrow a cliche from old Hollywood) come to the rescue?

It would take until the turn of the century when a new market player would start to turn things around and reverse the long term trend of lost market share to foreign-owned PBX system suppliers. In less than 10 years, Cisco Systems has helped U.S. system suppliers regain more than a majority share: almost two thirds of the domestic PBX market, the largest collective domestic supplier market share since the early 1980s. Cisco itself has captured almost one third of the U.S. market in a relatively short time. Three Canadian-based suppliers--Nortel, Mitel Networks, and Aastra Technologies--collectively split about one fourth, while the remaining European and Japanese suppliers collectively have less than one tenth (their lowest combined total since the 1970s).

The accompanying bar chart illustrates the changing makeup of the U.S. market for PBX systems based on system supplier geographic origin since 1980. When AT&T was still a dominant player in 1980, it was joined by two strong domestic suppliers, GTE and ITT--who would wind up abandoning the market before the end of the decade--plus a few (e.g., Rolm, American Telecom) who would eventually be acquired by foreign competitors, Siemens and Fujitsu, respectively.

Not one leading domestic PBX system supplier from 1980 is still around today in its then-corporate state. AT&T divested its manufacturing arm in 1996, and the resulting Lucent Technologies in turn spun-off Avaya in 2000. Among the domestic system supplier casualties from the 1980s were corporate giants IBM (buyer of Rolm, before selling its development and manufacturing arm to Siemens in 1988), United Technologies (short-term owner of Lexar Systems) and Exxon (who even then had money to burn). For a time in the early 1980s, Intecom (funded by Exxon Enterprises) threatened to become a major competitor, but its momentum stalled and it bounced around between several owners (Wang, Matra Communications, EADS) before landing with its current Canadian owner Aastra Technologies (who recently acquired the enterprise networks division of Ericcson as well). Other Fortune 500 companies would also withdraw from the PBX market over time, including Rockwell and Harris (who had acquired Digital Telephone Systems, a pioneering digital PBX developer).

There were also several infamous homegrown start-ups in the mid-1980s that didn’t survive the decade, such as Ztel and CXC. A less well-known system supplier that went as fast as it came was Cyber Digital. Datapoint, an early market leader in office automation and local area networks (its ARC solution was highly popular before there was such a thing as Ethernet) also flamed out fast as a voice system supplier.

The potential market for an integrated voice/data PBX system appeared too attractive not to take a crack at. It seemed that domestic system suppliers were popping up all over, at various times in the 1980s, but only AT&T remained a major domestic market force by 1990 (see table below).

During the 1980s, the collective market share of American system suppliers fell by almost half, from 74% to 38%, due to a combination of flame-outs, acquisitions by overseas suppliers, and bad management decisions. Between 1980 and 1990, Nortel and Mitel combined to more than double Canadian companies’ market share, from 13% to 27%, while European firms’ market share increased substantially, 5% to 20%, primarily due to Siemens’ acquisition of Rolm Systems. Japanese suppliers, led by NEC and Fujitsu (the latter of whom acquired GTE’s PBX operations) increased their collective market share from 8% to 14%. As the 1990s began, American suppliers may have been in the lead, but they no longer held a majority share of their domestic market.

During the 1990s, the collective market shares of American system suppliers, with AT&T/Lucent Technologies the only very strong domestically-based player, held relatively steady. Shipments were sufficient to retain a several-point lead over Canada’s Nortel and Mitel at the start of 21st century.

It was during the late 1990s, however, that seeds were being planted for American-based suppliers to recapture a good percentage of lost market share experienced over a 30-year period.

In late 1998, Cisco made headline news when it acquired Selsius Systems from Intecom. There were also several domestic start-ups, several hoping to leverage desktop CTI technology, which had the potential to contribute to the turnaround. These suppliers included NBX (acquired by 3Com in 1999), ShoreTel (originally known as Shoreline Teleworks), Vertical Networks, Artisoft (who merged with Vertical Networks to form Vertical Communications), and Altigen. Interactive Intelligence, another 1990s startup, began as an ACD systems supplier, but has since entered the IP-PBX market with its Vonexus IEC solution. Sphere Communications was another late 1990s startup, but they were acquired by NEC last year.

In the last few years, another group of American system suppliers has emerged in the market, those repackaging and selling IP telephony systems based on open source software. The most prominent open source solution is Asterisk from Digium (which also markets its own system offering, Switchvox, itself a product that came from a startup which was acquired by Digium)

Today the domestic market for PBX systems is once again dominated by American system suppliers, or more accurately two American system suppliers. Cisco and Avaya collectively account for 57% of current line station shipments; they are easily the two strongest domestic competitors. It goes without saying that Cisco’s decision to expand into the voice communications market has been a game changer.

Another prominent competitor from California is Siemens Enterprise Communications, who I now classify as an American supplier since Los Angeles-based Gores Group recently acquired a 51% stake from Siemens AG (which is gradually divesting its communications businesses after more than 160 years in the industry). It now remains to be seen if Gores Group can help Siemens Enterprise Communications return to its Rolm glory days.

Cisco, Avaya, Siemens, and the other American system suppliers now have a collective 64% share of the market, the highest level since the mid-1980s.

During the first nine years of this decade, Canadian suppliers have lost a few market share points despite Aastra’s acquisitions of European-owned Intecom and Ericsson, and Mitel’s purchase of U.S.-based Inter-Tel. Mitel’s and Aastra’s recent gains have been offset by Nortel’s declining PBX system shipments the past three years in the U.S. Since the beginning of this decade Nortel has lost about one third of its U.S. market share. The table below shows the history of the Canadian supplier picture.

European and Japanese suppliers have declined even more. Alcatel-Lucent, the sole European entry left standing, has a U.S. market share slightly under 1% and NEC, the only current Japanese supplier of enterprise PBXs, has dipped below 5% share in the U.S. The two tables below show the changing picture for European and Japanese leaders.

The comeback by American-owned PBX system suppliers will likely receive another boost in the next few years, because Microsoft is now gingerly feeling its way into the voice communications market with its evolving OCS 2007 solution. In a few years, Microsoft hopes to challenge today’s market leaders on an equal footing. Should Microsoft succeed in its mission, and there are those like myself who can’t dismiss this possibility, the collective domestic market share of American-owned system suppliers may someday return to the old AT&T monopoly levels of 90%. Microsoft has the resources and capabilities to emulate Cisco’s market success. The recent OCS 2007 Release 2 announcement at VoiceCon Amsterdam demonstrates Microsoft’s commitment to the voice communications market and its intention to be a global market leader in the future federated telephony/UC server market.

It appears that after reaching a nadir in the mid-1990s, American-owned suppliers have again established themselves as forces to be reckoned with in the enterprise voice communications market both domestically and globally.

Allan Sulkin, founder and president of TEQConsult Group, is also known as the Guru of PBXs. He is celebrating 30 years working in the telecommunications industry, has been a longtime contributor to Business Communications Review/nojitter.com, and helped found PBX in the 90s, the ancient ancestor of VoiceCon.