Vendors in the European business telephony markets are beginning to heighten their focus on software and applications, moving away from the "margin-sapping" hardware business, research reveals today.

"Growth in shipments was driven by the buoyant replacement market fuelled by the adoption of IP, and by green-field deployments in emerging markets such as Russia, Poland, the Czech Republic and Hungary," said Frost & Sullivan industry analyst Shomik Banerjee.

"European scepticism toward IP telephony is gradually on the wane. Led by multinationals headquartered in the US, enterprises have started deploying IP telephony on a larger scale."

Around 83 per cent of lines shipped were IP-capable, out of which around 4.3 million were shipped to users with some kind of IP endpoint.

Most large vendors have developed an IP capability within their systems and, in a race against time, vendors with considerable installed bases are marketing their IP portfolio aggressively.

Vendors in the European business telephony markets have also stepped up their efforts to endorse Session Initiation Protocol (Sip).

As the margins in the network continue to decline, vendors are being forced to look at new growth opportunities to enhance their application suites and add business process integration functionality.

In the world of multi-vendor networks, standards such as Sip play a pivotal role in enabling these new opportunities, Frost & Sullivan noted.

However, the analyst firm warned that increasing price pressures remain a key barrier to the further growth of the European business telephony markets.

Despite the 6.2 per cent year-on-year growth in line shipments, revenues declined by 0.2 per cent.

Frost & Sullivan also highlighted the threat of alternative business models such as managed and hosted service eating into the on-premise proposition.

"Microsoft's entry into the unified communication space has given a fillip to the software-based solution market," said Banerjee. 

"Microsoft has not only made software-based solutions a de facto alternative to hardware based PBX, but has pushed the case for enterprise convergence through unified communication."