Shipment of Enterprise VoIP-lines in the U.S. crossed the 50% threshold during the 3rd quarter of 2004, according to our Monitor Report. During the period, VoIP shipments reached just shy of 1.8 million lines, barely nudging out TDM shipments to achieve a majority share for the first time. What is even more remarkable, this technology replacement has truly taken only three years since substantial shipments of VoIP only began in early 2002.

Not only has VoIP reached its majority extremely quickly, but also, the entire enterprise telephony equipment market has rebounded remarkably, shipping 3.5 million lines, its largest quarterly total since the heyday of Y2K replacements in the late 90's.

So, what does this mean when a replacement mainline technology like business voice systems take less than five years to replace the earlier generation? The earlier generation of replacements- digital replacing analog - that took more than twice as long to reach its majority. Well, it probably means many things, some of which will be explored in this article.

And this analyst's prediction that VoIP shipments would overtake TDM before 2004 was out was validated. Now I can breathe again - Phew! And so can at least this segment of the overall telecom industry breathe a sigh of relief. The recovery is clearly underway and further improvements during 2005 are likely as many of the clouds overhead are beginning to clear. Voice-based applications such as mobility, unified messaging, IP contact centers, self-service and multi-media communications are also now well positioned to grow, enabled by the broadening presence of the underlying VoIP platforms.

The growth of Enterprise VoIP shows that both incumbents as well as innovators can transition successfully to new underlying technologies, showing that Christensen's "Innovator's Dilemma" can be addressed successfully by some by "The Innovator's Solution."

This significant and surprising market reality is demonstrated by our finding that of the top 10 overall enterprise phone equipment vendors, 8 - led by Nortel, Avaya and NEC, are traditional long term voice vendors who have managed the transition to VoIP; while only 2 - Cisco and 3Com - are pure VoIP plays with no prior TDM history. While, for VoIP shipments only, only 4 of the top 10 players - Nortel, Avaya, NEC and Mitel - are transformed incumbents; while 6 - including Cisco, 3Com and ShoreTel - are pure VoIP players. The battle lines for market share success are clearly being drawn between the new VoIP pure-plays and the transformed voice incumbents. While the outcome is less than certain, I am sure the industry dynamics will be very interesting and compelling market share shifts will occur while the remaining installed base, still over 120 million lines of TDM, are transformed to VoIP over the coming years.

And now, some yearend observations and teasers about 2005

Along with VoIP, there is growing clarity that there are four key and inter-related transformation drivers operating upon our industry, simultaneously in parallel - that will collectively drive enterprise, consumer and network operator telecom technology expenditures in 2005 and beyond. The other three are: 1. Wireless and Wireline Convergence (or as our European compatriots are calling it - Fixed Mobile Convergence - termed FMC) - (first discussed in an earlier column in August 2004)

2. Triple-play or quadruple-play (why don't they just call it 4-play?) bundles -competition between the cable MSOs and the Telcos (see my November 2003 column)

3. Regulatory and Legislative

While it is certain that VoIP is driving broad industry change and is moving rapidly in a forward direction, it is less clear how quickly the others drivers will take a firm and constant forward direction that will mean new confidence and growth for our industry. I am optimistic that we will see significant progress across all these fronts in 2005.

David H. Yedwab is the Executive Vice President of The Eastern Management Group and can be reached at dyedwab@easternmanagement.com.