The softswitch market, as defined by investment banking firm Mercator Capital, grew to $169 million in the third quarter, as the softswitch case expanded from long distance implementations to edge deployments, thanks to demand for voice-over broadband.

In a report released today, Mercator Capital, established market revenues and line shipments in VoIP equipment segments including softswitch, IP Centrex, session border control media servers. The report identified the softswitch market as the lead revenue generator at $169 million. Mercator defines the softswitch market as the number of media gateway ports ($81.06 million) and Class 4 ($46.87 million) and Class 5 lines ($40.96 million) shipped.

In comparison, carrier IP Centrex equipment generated $7.7 million. The session border control segment generated $15.5 million and media servers generated $12.5 million.

Media gateways will continue to see growth because the majority of calls over broadband are IP-to-PSTN and not direct IP-to-IP calls, according to the report.

The report also provides a breakdown into Class 5 and Class 4 lines shipped during Q3 2004 and shows Nortel Networks and Sonus dominating the Class 4 market, while Nortel and UTStarcom lead in Class 5. The leaders in the media gateway segment were Nortel, UTStarcom, Cisco Systems and Sonus.

The report, based on a survey of over 30 VoIP equipment vendors, identified voice-over-broadband (VoB) as the driving force behind growth in the VoIP equipment market due in part to broadband operators, including ISPs, bundling voice into their services.

Mercator said such an environment will make it hard for ASPs like Skype and Vonage to remain competitive.

The firm also said that only about one-tenth of Class 4 traffic in the world is IP, and that the majority of Class 4 deployments in the third quarter took place in the US. Those were mostly in greenfield implementations, or by carriers setting up networks in territories where regulation previously has prevented them from deploying.

Vendors shipped about 2.7 million Class 5 lines, 2.5 million Class 4 lines and 4.25 million media gateway DS0 ports in the quarter. There was an aggregated total shipment of 169,000 IP Centrex lines, most of which were in North America. Session border control suppliers shipped an aggregate of 2,559,350 concurrent sessions, also primarily in the U.S.