Business VoIP service is set to boom, with hosted VoIP poised for particularly fast growth, the Yankee Group said in a research report issued today.

Hosted VoIP, which enables enterprises to capitalize on the cost advantages of converging voice and data networks without heavy capital investment in equipment, should grow to $1.2 billion in revenues by 2010 from $233 million in 2005, the report stated, for a compound annual growth rate of almost 40%.

Report author Taher Bouzayen said service providers shouldn’t hesitate to emphasize hosted VoIP capabilities and expand their offerings, even through acquisition, as Covad Communications did with its purchase of GoBeam. One of the remaining enterprise concerns about hosted VoIP is security, and that must be addressed, he added.

Two other segments of the VoIP market are also growing, though not at the rate of hosted VoIP. The real-time VoIP-over-MPLS segment, which provides enterprises with integrated applications over an MPLS network, will grow at a CAGR of 20% to hit $822 million by 2010, Yankee predicts, with most of that growth coming from off-net traffic. Real-time VoIP over MPLS is today the largest segment of the VoIP market, but will take a backseat to hosted VoIP and VoIP virtual private networks, Bouzayen said.

VoIP VPNs grow as more enterprise traffic moves off-net, outside the enterprise, he added. This segment of the VoIP market should grow at a CAGR of 36% to $1.25 billion by 2010.