Avaya and Nortel: Prelude to Further Consolidation?Avaya and Nortel: Prelude to Further Consolidation?

When we asked enterprises what they were forced to cut, as well as what they would cut last, surprisingly voice and UC topped both lists.

Avaya's winning of the auction to acquire Nortel represents a rather remarkable change in an industry that has primarily grown through divestiture and launch of start-ups over the last several years. Is it possible that Avaya's acquisition of Nortel is just a prelude to further VOIP/UC vendor consolidation?Here at Nemertes we spent the first part of this year interviewing IT leaders from approximately 200 organizations on the impact of the economic recession, as well as their specific plans for VOIP, UC, SIP trunking (as well as security, data center/sustainability, and virtualization). One of the key things we wanted to know was how the recession had impacted their planning for each of these technologies.

What we found was remarkable. Approximately 85% of participants noted a flat or falling IT budget for 2009, while nearly 100% said they expected flat or falling budgets for 2010. When we asked them what they were forced to cut, as well as what they would cut last, surprisingly voice and UC topped both lists.

Why the disconnect? First off, voice represents one of the larger budget items, with approximately 24% of total IT spending going toward voice and data systems and services. This is a broad figure including things like long distance, maintenance services, and even data networking services such as MPLS. But given the critical nature of voice (despite all the attention paid to alternative communication services), IT managers still need to cover the basic costs of doing business. They need to pay their phone bills, provision mobile devices, maintain equipment, and ensure service availability. Meanwhile, IT executives we talk to are aggressively looking to cut these operational costs by renegotiating contracts, adopting SIP trunking to reduce PSTN access charges, pooling mobile minutes, restricting SMS, or delaying upgrades or new roll-outs of things like IP telephones to replace perfectly functional digital phones.

UC also shows up on both sides of the coin. Here though we see a strong change from strategic to tactical. A year ago participants were aggressively looking at unified communications as the grand integrator of all applications and services, providing a simple dashboard desktop client that would show presence, enable click-to-call, and support a variety of conferencing applications. Now, participants tell us that they look at UC tactically and ask themselves "where is the biggest bang for the buck today?" This approach has led to growing interest in applications such as on-premise web and/or audio conferencing to eliminate hosted service charges, video to reduce travel costs, and software-based phones to reduce desktop costs or more easily enable telework (86% of participants aim to increase the number of teleworkers in their organization to save facilities costs and provide more flexible working conditions).

We've also seen a strong growth of adoption of managed services, with nearly half of participants now outsourcing the management of their phone systems, with 80% of those using managed services reporting a corresponding reduction in staff. Often the decision to leverage managed services comes in response to mandatory staffing reductions.

So getting back to the topic of this post, what do all these trends mean for the enterprise telecom systems market? The likelihood is further consolidation, and further expansion of managed services offerings to offset slowing hardware and software investments. Perhaps the merger of two of the largest vendors in the VOIP/UC space is just a precursor to further market consolidation?When we asked enterprises what they were forced to cut, as well as what they would cut last, surprisingly voice and UC topped both lists.