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Customer churn indicates VoIP static

Ben Charny CNET News.com

Published: 17 Sep 2003 17:20 BST

Two years ago, National Commerce Financial turned to Cisco Systems when it wanted to test the waters of Internet telephony.

The midsized bank installed 150 VoIP (voice over Internet Protocol) phones from the data networking giant. But, in what appears to be an increasingly common reversal, NCF recently switched to a new provider.

"Cisco couldn't work out the bugs," said Marc Hill, president of Stable Networks, one of the bank's information technology consultants, who helped the company rip out its Cisco gear and install a competing system from Shoreline Communications in January.

Corporate phone customers have greater choice than ever before among vendors promising big savings by migrating traditional voice systems to cheaper and more flexible data networks. And Cisco, which all but created the fast-growing enterprise VoIP market single-handedly, is beginning to feel some heat as unhappy customers vote with their feet.

The signs of churn come as Cisco is banking on VoIP to fuel growth. Having built its business in the deep end of the network -- selling routers and switches that make data networks such as the Internet and corporate intranets hum -- the company is increasingly turning to higher-end services. VoIP is one of six major business categories that executives have identified as key to the company's future.

"Cisco is predicting 35 percent growth in earnings per share for the next fiscal year," said Zeus Kerravala, The Yankee Group's vice president of enterprise infrastructure. "They own 90 percent of routing and 70 percent of switching, but only 2 percent of the total voice market. If they are going to hit these numbers, they have to hit on voice."

Although the number of customer defections for now are too small to derail Cisco's VoIP push, they serve as a reminder of the difficulties facing the data networking giant as it goes after the enterprise voice market.

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