New analysis from Frost & Sullivan, European Business Telephony Markets, finds that the market shipped 21.4 million lines in 2007 and estimates this to reach 22.1 million lines in 2013.

"Vendor consolidation is increasing buyer power," notes Frost & Sullivan Research Analyst Dorota Oviedo. "The market is projected to slow down to grow at 3.3 per cent in shipment terms in 2008 due to a modest decline in activity in the 1000+ extension market. A significant portion of this market has already undertaken the migration to IP PBX."

The SMB segment is the primary growth driver over the long term. Cisco and Mitel are amongst the fastest growing tier 1 vendors. IP licenses have revealed significant growth. In the European market, Benelux and France enjoyed high growth rates in 2007.

Despite the general optimism, challenges loom large. The replacement cycle is past its peak activity, with markets set to slow down the growth. CAPEX constraints are dampening growth prospects. Unified Communication-related product launches are also leading to a 'wait and watch' attitude amongst many enterprises.

"Vendor consolidation has weakened supplier power," cautions Oviedo. "Price declines are being noticed with major vendors recently announcing pricing changes to reflect a focus on software."

Products are migrating from being hardware-based to increasingly software-oriented. Vendors are introducing appliance-based products to tackle the challenges of the SMB market. Due to high price sensitivity and lack of sophisticated IT management teams, the SMB segment demands simple systems.

"An appliance is a single product that bundles many capabilities, is intuitive and simple to manage and costs less," remarks Oviedo. "Vendors are using more off-the-shelf components to drive down costs and make margins."