Changewave Research: 2005 Telecom Purchasing Survey

ChangeWave Research: 2005 Telecom Purchasing Survey

ChangeWave Research Report:

2005 Corporate Telecom Purchasing Report

Overview

Recent Alliance surveys have shown strengthening demand for corporate telecom products and services. This report summarizes a January 26 - 31, 2005 survey on corporate spending for telecom, VoIP and RFID. A total of 547 Alliance members involved in or knowledgeable about decisions regarding telecom services for their company participated.

(A) Prices for Corporate Telecom Products

· Telecom Prices Falling. More than a third (35%) of respondents report prices are falling for telecom products in the current marketplace. Only 2% report prices are rising, the lowest percentage of the past three years.

(B) Corporate Telecom Carriers for Voice Communication

· Top Business Voice Carriers. AT&T (23%) is still the top voice carrier in the business marketplace, up 3 points since our January 2004 telecom survey. But the biggest positive move occurred with SBC (14%) – up 4 points over the previous survey results.

· Less Renegotiating. A combined 41% of respondents say their company will “Definitely” or “Probably” renegotiate their voice telecom contract to reduce costs, down significantly from 62% in January 2004. Moreover, 24% say their company “Probably Won’t” or “Definitely Won’t” renegotiate their contract, up from 12% a year ago.

· …And Less Switching. Only 10% of respondents say their company has switched voice telecom carriers within the past 6 months – a big drop from the 19% who had switched in our previous survey (January 2004). Looking ahead, just 9% say their company plans to switch voice telecom carriers in the next six months. Price was the primary reason cited for switching among this group.

· Which Telecom Companies Will Benefit. Among respondents who say their company will switch carriers in the next six months, Vonage (17%) is the telecom carrier they are most likely to switch to. Verizon (13%) and Cable Company (13%) came in tied for second.

· VoIP Deployment – A Flattening of the Demand Curve? A total of 27% of respondents say their company is currently deploying VoIP (14% within the past year, and 13% for more than a year) – no change from the previous survey in October 2004. Among this group, 42% characterize it as a “full VoIP deployment,” down one point from our October 2004 survey. “Reduced Cost” was the most important reason for deploying VoIP, cited by 39% of respondents. Interestingly, 17% cited “Integration of VoIP with Company Data Applications” as the most important reason.

· Top VoIP Equipment Suppliers. Cisco still leads in the marketplace, cited by 29% of respondents as their company’s primary VoIP equipment supplier, but this is down significantly from 44% in the October 2004 survey. At the same time, Avaya (15%) has increased nearly four-fold, while third place Nortel (12%) is up by 50%.

“These results are not surprising,” according to ChangeWave Research Director Michael Schulman, “Given that Avaya and Nortel have the flexibility to provide either Full VoIP or Mixed VoIP systems, while Cisco is limited to Full VoIP systems.”

· Customer Satisfaction. While a solid 82% say they are either “Very” or “Somewhat” satisfied with their primary VoIP equipment supplier, this is still a slight decline from the 84% recorded in October 2004. In addition, the percentage saying they’re “Somewhat” or “Very” unsatisfied increased slightly – from 5% in October 2004 to 8% currently.

· Spending Plans – Next Six Months. A total of 29% say their company will increase spending on VoIP Applications/Equipment in the next six months (7% a “significant increase” and 22% a “small increase”), similar to the results of our previous survey.
Again Cisco benefits most, cited by 25% of those whose companies are increasing their spending on VoIP equipment, but this is 6 points less than previously. On the upside, Avaya’s share among those increasing their spending rose to 14% – more than double the 6% recorded in the previous survey.

· VoIP Long Distance Service. Ten percent (10%) of respondents say their company currently has a VoIP long distance provider, while 19% are considering having a VoIP long distance provider – up 4 points from October 2004.

AT&T (20%) is still the top corporate VoIP long distance provider, and Vonage (12%) is second. But 8x8 (10%) and Sprint (6%) show the most momentum in the VoIP long distance market, with increases of 100% or more since October 2004.

Looking ahead, AT&T (20%) also looks to benefit most from corporate VoIP long distance spending over the next six months. Vonage (12%) is second, 8x8 (10%) third.

Overall customer satisfaction with VoIP long distance providers has improved, with 88% of respondents in companies that have a provider reporting they are either “Very” or “Somewhat” satisfied with their service – up 3 points from October 2004.

(D) RFID

· Upsurge in RFID Deployment Plans for 2005. Only 5% of respondents say they are already deploying RFID, a 1 point increase since October 2004. But RFID testing and deployment appears set to increase three-fold in 2005 – as 3% say they are currently testing and plan to deploy an RFID system within 12 months, and 13% plan to test within 12 months.

· Lowering Costs is Still the Main Reason for Deploying RFID. One-half of respondents (50%) say the most important reason why their company is testing or deploying RFID is because they believe it will lower costs, down from 63% in October 2004. Another 32% cite the need to “eventually deploy RFID due to vendor/supplier relationships” as the most important reason – up 7 points since October.

· RFID Spending. More than a third (34%) of those deploying or planning to deploy RFID expect to spend the most money on Peripheral Hardware (tags, readers, etc.).

· Biggest Barriers to Increased RFID Adoption. Respondents in companies deploying or planning to test/deploy, say RFID Integration Issues (38%) and Cost of RFID Infrastructure (31%) are the biggest barriers to adoption within their company.

Bottom Line: While the price of corporate telecom products continues to fall, these survey results points to a stabilizing trend in the voice telecom industry, with less corporate renegotiating of contracts and less corporate switching between carriers. AT&T is still the top voice carrier in the business marketplace, while SBC and Vonage are showing momentum.

There has been little to no change in the percentage of corporations deploying VoIP since our previous survey in October 2004, one of several indications that the corporate demand curve may be starting to flatten. Cisco remains the top equipment supplier but has lost market share, while Avaya has surged and Nortel has also improved its market percentage. Among VoIP long distance providers, AT&T leads and stands to benefit most over the next six months, followed by Vonage. But 8X8 and Sprint also have momentum.

Regarding RFID deployment, while only 5% of respondents say their company is already deploying RFID, the survey results indicate a three-fold increase in deployment for 2005. Peripheral Hardware (tags, readers, etc.) ranked as the top RFID spending area for 2005. And while “Lowering Costs” was cited as the main reason for RFID deployment, “Integration Issues” and the “Cost of RFID Infrastructure” were seen as the biggest barriers. Importantly, there was a significant decline in the percentage that see RFID technology as not being mature enough.

The ChangeWave Alliance is a group of 5,000 highly qualified business, technology, and medical professionals in leading companies of select industries—credentialed professionals who spend their everyday lives working on the frontline of technological change. ChangeWave surveys its Alliance members on a range of business and investment research and intelligence topics, collects feedback from them electronically, and converts the information into proprietary quantitative and qualitative reports.

Helping You Profit From A Rapidly Changing World ™

www.ChangeWave.com

Table of Contents

Summary of Key Findings 5

The Findings 6

(A) Prices for Corporate Telecom Products 6

(B) Corporate Telecom Carriers for Voice Communication 7

(D) RFID 16

ChangeWave Research Methodology 19

About ChangeWave Research 20

I. Summary of Key Findings

Introduction

(A) Prices for Corporate Telecom Products

(B) Corporate Telecom Carriers for Voice Communication

(D) RFID

II. The Findings

Total Respondents (n = 547)

(A) Prices for Corporate Telecom Products

(1) Question Asked: Some companies report they're seeing falling prices for telecom products, while others are seeing telecom prices holding firm or going up. From what you know or have observed with your own company, how are the prices for telecom products doing in the current marketplace?

Current
Survey
Jan ‘05 / Previous
Survey
Jan ‘04 / Previous
Survey
Feb ‘03 / Previous
Survey
Aug ‘02
Prices are Holding Firm / 42% / 42% / 42% / 40%
Prices are Rising / 2% / 4% / 7% / 5%
Prices are Falling / 35% / 43% / 44% / 44%
Don't Know / 20% / 11% / 7% / 11%

Telecom Prices Falling. More than a third (35%) of respondents report prices are falling for telecom products in the current marketplace. Only 2% report prices are rising, the lowest percentage of the past three years.

(B) Corporate Telecom Carriers for Voice Communications

(2) Question Asked: What telecom carrier does your business currently use for voice communications?

Current
Survey
Jan ‘05 / Previous
Survey
Jan ‘04 / Previous
Survey
Feb ‘03
AT&T / 23% / 20% / 19%
Verizon / 15% / 16% / 15%
SBC / 14% / 10% / 7%
Sprint / 10% / 9% / 8%
WorldCom/MCI / 7% / 9% / 13%
Qwest / 5% / 5% / 8%
Global Crossing / 1% / 2% / 3%
Vonage / 1% / NA / NA
XO Communications / 1% / 1% / 0%
Cable Company / 1% / NA / NA
Allegiance Telecom / 0% / 1% / 1%
IBasis / 0% / NA / NA
IDT* / 0% / 0% / 0%
Level 3 / 0% / NA / NA
McLeod / 0% / 1% / 1%
Don't Know / 6% / 9% / 6%
Other / 17% / 16% / 18%

*Note: IDT was referred to as “Winstar/IDT” in the previous surveys.

Top Business Voice Carriers. AT&T (23%) is still the top voice carrier in the business marketplace, up 3 points since our January 2004 telecom survey. But the biggest positive move occurred with SBC (14%) – up 4 points over the previous survey results.

(2A) Question Asked: What is the probability of your company renegotiating its contract with its existing voice telecom carrier to reduce the cost of service?

Current
Survey
Jan ‘05 / Previous
Survey
Jan ‘04 / Previous
Survey
Feb ‘03
Definitely Will Renegotiate to Reduce
Cost of Services / 15% / 24% / 37%
Probably Will Renegotiate to Reduce
Cost of Services / 26% / 38% / 31%
Probably Won't Renegotiate to Reduce
Cost of Services / 19% / 11% / 11%
Definitely Won't Renegotiate to Reduce
Cost of Services / 5% / 1% / 0%
We Have Already Renegotiated to Reduce
Cost of Services / 15% / 16% / 6%
Don't Know / 20% / 10% / 14%

Less Renegotiating. A combined 41% of respondents say their company will “Definitely” or “Probably” renegotiate their voice telecom contract to reduce costs, down significantly from 62% in January 2004. Moreover, 24% say their company “Probably Won’t” or “Definitely Won’t” renegotiate their contract, up from 12% a year ago.

(3) Question Asked: Has your company switched voice telecom carriers within the past 6 months?

Current
Survey
Jan ‘05 / Previous
Survey
Jan ‘04 / Previous
Survey
Feb ‘03
Yes / 10% / 19% / 19%
No / 87% / 77% / 79%
Don't Know / 4% / 4% / 1%

…And Less Switching. Only 10% of respondents say their company has switched voice telecom carriers within the past 6 months – a big drop from the 19% who had switched in our previous survey (January 2004).

(3A) Question Asked: If yes, what is the primary reason for your switch in carriers?

(n=50)

Current
Survey
Jan ‘05 / Previous
Survey
Jan ‘04 / Previous
Survey
Feb ‘03
Price / 62% / 71% / 79%
Prospect of Better Customer Service / 16% / 19% / 14%
New Service Features / 8% / 6% / 7%
Other / 12% / 4% / 0%

Price Still the Primary Reason for Those Switching. Of those who say their company did switch voice telecom carriers in the past six months, nearly two-thirds (62%) say it was primarily due to price.

(4) Question Asked: Does your company plan to switch carriers in the next six months?

Yes / 9%
No / 61%
Don't Know / 30%

(4A) Question Asked: If yes, what is the primary reason for your switch in carriers?

(n=47)

Price / 60%
Prospect of Better Customer Service / 17%
New Service Features / 15%
Other / 9%

Switching Next Six Months. Looking ahead, just 9% say their company plans to switch voice telecom carriers in the next six months. Price (60%) is also the top reason for switching among this group.

(4B) Question Asked: What voice telecom carrier is your business most likely to switch to? (n=47)

Current
Survey
Jan ‘05 / Previous
Survey
Jan ‘04 / Previous
Survey
Feb ‘03
Vonage / 17% / NA / NA
Verizon / 13% / 10% / 3%
Cable Company / 13% / NA / NA
AT&T / 7% / 6% / 26%
WorldCom/MCI / 4% / 5% / 3%
Level 3 / 2% / NA / NA
Qwest / 2% / 2% / 0%
Sprint / 2% / 6% / 0%
XO Communications / 2% / 0% / 0%
Allegiance Telecom / 0% / 0% / 3%
Global Crossing / 0% / 0% / 0%
IBasis / 0% / NA / NA
IDT / 0% / 0% / 0%
McLeod / 0% / 0% / 0%
SBC / 0% / 5% / 7%
Don't Know / 22% / 34% / 29%
Other / 15% / 32% / 29%

Which Telecom Companies Will Benefit. Among respondents who say their company will switch carriers in the next six months, Vonage (17%) is the telecom carrier they are most likely to switch to. Verizon (13%) and Cable Company (13%) came in tied for second.