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Voice over Broadband Driving Growth in VoIP Equipment Market, Reveals Research Report by Mercator Capital

RESTON, VA -- (BUSINESS WIRE) -- Dec. 22, 2004 -- An industry update on VoIP carrier equipment published today by Mercator Capital, a privately held investment bank, reveals that the main driving force behind the present growth in VoIP is Voice over Broadband (VoB). According to the report, many VoIP equipment vendors stand to gain from the proliferation of VoB in countries where mature broadband markets already exist.

Based on a survey of 30 vendors, Mercator Capital established market revenues and line shipments in VoIP equipment segments including Softswitch, IP Centrex, Session Border Controller, and Media Servers.

The combined contribution made by Class 5 lines, Class 4 lines and Media Gateways (i.e. the Softswitch solution) in third quarter 2004 was $169 million. Once relegated to deployments in long distance networks, Softswitches have made a major impact at the edge. Mercator Capital attributes this to the VoB phenomenon. As a result, Softswitches continue to account for the majority of revenue for the VoIP carrier equipment industry. Revenue from VoIP equipment that enables enhanced applications (and contribution from other allied equipment sectors in VoIP such as Session Border Controllers) continues to be modest in comparison to the Softswitch.

According to the report, in Q3 2004, Carrier IP Centrex equipment generated $7.7 million in revenues. The Session Border Controller segment generated $15.5 million, while the Media Server segment generated $12.5 million.

According to Rod Hackman, Partner at Mercator Capital, "VoB appears to be the main market driver for VoIP in the immediate future. This will in turn drive business for several VoIP equipment segments. As VoB offerings proliferate, Softswitch and IP Centrex vendors will be providing the voice feature set, Session Border Controllers will address the inherent security risks, and Media Servers will be the hardware on which enhanced applications are deployed.

The need to interconnect with PSTN (since IP-to-IP calls in VoB offerings are a very small portion as compared to IP-to-PSTN calls) will drive the demand for Media Gateways."

The research report is the first of its kind addressing and tracking segments outside of the Softswitch in the VoIP market. Within the Softswitch segment, the Mercator report also provides a breakdown into Class 5 and Class 4 lines shipped during Q3 2004. Nortel (NYSE:NT) and Sonus (Nasdaq:SONS) dominate the Class 4 market. Nortel and UTStarcom (Nasdaq:UTSI) were the leaders in Class 5 business in Q3. The leaders in the Media Gateway segment were Nortel, UTStarcom, Cisco (Nasdaq:CSCO), and Sonus.

About Mercator Capital

Mercator Capital is a privately held investment bank committed to helping its clients achieve superior results. Mercator's success stems from a focus on providing clients with quality advice and developing creative solutions. With decades of Wall Street leadership and extensive industry knowledge, Mercator prides itself on a culture of excellence that promotes intellectual insight and rigorous analysis. The firm focuses on building long-term relationships with clients rather than pursuing individual transactions. For Mercator's clients, the approach means a much greater understanding of their business and markets, a more thoughtful and committed effort and an unmatched degree of senior-level service.

Mercator's clients rely on Mercator's technological vision and financial expertise to assure the successful execution of their strategic initiatives. Additional information on Mercator Capital is available at http://www.mercatorcapital.com.