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Q&A: Avaya CEO Discusses The Battle For IP-Telephony Market Share

Donald Peterson, CEO and chairman of Avaya Inc., sees telecommunications making a complete transition to IP telephony within 10 years.

The fast growing voice-over-IP and IP-telephony market has attracted participation from a large number of vendors. For those looking to implement IP-telephony systems, potential benefits include operational cost savings, enhanced communications, and eventually, improved business processes, according to research firm Gartner.

InformationWeek recently discussed this market with one of its participants: Donald Peterson, chairman and CEO of Avaya Inc. The vendor, which provides business-communications systems and services, has taken a solid step toward ensuring stable migration and operation of enterprise-class IP telephony, according to Gartner.

InformationWeek: What has attracted so many vendors to entering the IP telephony space, and are most of them going to evaporate?

Peterson: In the PBX space, there are a lot of companies that have come and gone, but in IP telephony it is arguably easier because the networking is there; you can come into different places in the market. It's still, though, a battle of the more capable firms.

There is differentiated value that people will come up against. You can get into [the] business and offer cheap and dirty connectivity, and it may attract a fair number of small customers. At the high end, you need the added features and functions, and you also need the credibility and the experience.

Some very credible technology companies have taken a pass on this transition to IP telephony, but the market is going to grow and telephones will transition to IP, because they won't get support for TDM in another 10 years.

InformationWeek: Do you think that the IP world is going to change the role that voice plays in businesses, and does voice matter?

Peterson: There is no question that the technology is available to everyone. Voice is an undifferentiated technology that can create a very differentiated business model for a business. Buying a new PBX that will save you a lot of money is not the message; it was the message a couple of years ago. Today, the real value preposition of IP telephony is integration with business processes used to drive substantially differentiated business models.

InformationWeek: What has your experience been with hosted services? Are you starting to see any change or growth in hosted services?

Peterson: Hosting at the low end hasn't taken off to the level a lot of people had hoped. More people are using hosting to handle complexity, because it is a pretty complex system and network-integration process to put the IP telephony in and to integrate it with business software.

Hosting is still more talked about than done. I am more encouraged by the hosted business model. IP Centrex is something that has to be built, but I don't believe it's doing better than traditional Centrex. I think that [Customer Premise Equipment] will continue to be the solution of choice, and the good news is that you can put CPE into a hosted model.

InformationWeek: How do you analyze Cisco's success in the IP telephony marketplace where it has no history or heritage?

Peterson: Customers would be happy to buy a used car from Cisco because they trust the company. They have converted that trust plus an early entry with a fairly simple product into a strong position in IP telephony. They have the very best interest in the adoption of IP telephony because it's the first traffic load on their network and for quite awhile it will substantially increase the demand, in terms of low latency. But we don't have a lot of Cisco equipment in our network because it's pretty expensive. If you are really technology savvy you don't need that security blanket.

InformationWeek: What is your No. 1 priority?

Peterson: That's definitely revenue growth.

InformationWeek: Should we expect any acquisitions this year?

Peterson: You shouldn't be surprised at any. We're not looking for acquisitions to diversify the business, but we did go out and look for an acquisition to get into Europe. I'm not sure that the same opportunity will exist in China, South Korea, or Japan.

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