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Issue Date: March 2008

Hosted IP services

1 March 2008
Frost & Sullivan research analyst Letticia Nkumbula

South Africa has a high proportion of small medium and micro enterprises (SMMEs). These account for more than 60% of the overall number of companies in the country. The number of new companies emerging is also high. Amid this development, customer focus becomes critical, potentially opening an opportunity for hosted IP services to address the non-core functions of business operations.
The financial constraints faced by SMMEs impose a limitation on acquiring and maintaining in-house technology infrastructure. This results in companies acquiring inadequate equipment or housing outdated systems which consequently affect their productivity. These complications make hosted IP services a viable solution in the South African context.
Hosted IP services are provided by a third party as a rental or managed service for an Internet telephony or wide area network (WAN) connection. The service provider can either offer part or full services depending on customer requirements. Full services cover hardware, software and other services that are necessary for an enterprise to carry out its operations. In some instances, the client may opt to provide some of the systems, ie, software. In both instances, the client pays for the service based on the agreement with the hosted IP provider, which may be a fixed monthly charge or on a pay as you use basis.
An enterprise using hosted IP services can attain several benefits. Some of the most notable are cost savings, improved work productivity, easy scalability, support for mobility, elimination of some operational concerns and additional services that can be made available when required.
It is not only SMMEs that can benefit from hosted IP services though. Business innovation and the speed of its implementation have become critical due to increased competition in many sectors. This competition also forces enterprises to focus on the core processes of their businesses. Large enterprises are therefore also increasingly beginning to use hosted IP services in order to leverage the company's competitive advantage.
Hosted IP service providers have also begun to expand their service offerings. For example, the current low uptake of IP telephony/VoIP and unified communications offers an opportunity for hosted IP service providers to exploit. IP telephony reduces voice costs compared to other traditional voice carriers, which makes this service attractive to a spectrum of enterprises.
Hosted IP service providers can also now effectively customise their service offerings according to specific customer needs. A hosted IP service is no longer limited to providing similar offerings to different users.
Despite the various opportunities presented by hosted IP services, providers face a number of challenges that are largely cost related. In order to compete in the global market, hosted IP providers require sufficient broadband at cost effective rates. This is not yet available in South Africa. Potential customers can therefore host services with international providers more cost effectively. The market is further constrained by fluctuations in exchange rates that have a big impact on IT expenditure. The required skilled personnel are also in short supply and those that are available demand high remuneration.
Since the market is still in its early growth phase, new market entrants are anticipated. However, market consolidation is expected to reduce the number of hosted IP service providers in the market. Frost & Sullivan notes that current investments taking place in the telecoms space are likely to defuse the competition with international hosted IP providers. Advances in technology will continue to play a critical role for competitive advantage while the skills shortage is expected to continue posing a challenge. Nonetheless, the South African market has high growth opportunities for hosted IP services.

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