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Centrex returns to life as practical alternative to PBXs.

Centrex, a central office-based telecommunications switching service, was long thought to be a dying offering. With the introduction of digital PBX systems in the 1970s, which offered dozens of features and capabilities analog centrex service could not provide, centrex demand leveled off and began to decline.

The divestiture of AT&T in 1984 left the RHCs (regional holding companies) with a profitable base of centrex customers, and little else to sell other than network services. As a result, several RHCs pressured suppliers into applying digital technology to dramatically enhance the centrex features available via CO (central office) switches to compete effectively with PBX offerings. In addition, many RHCs sought regulatory changes that added to their ability to market centrex.

Consequently, centrex hasbeen revived as a viable alternative to PBX purchases and offers a variety of advantages over PBX systems. The marketplace for centrex equipment, service, and compatible CPE (customer premise equipment) combined is experiencing rapid growth in both revenue and unit demand. This growth is expected to accelerate through the early 1990s, with the annual revenue growth rate for the market as a whole reaching 13.2% in 1991.

The total market generated revenue of $1.9 billion in 1989, and is forecast to grow to $4.8 billion market by 1994. Certain segments have seen triple-digit growth, and the international potential for the market, given the changing regulatory conditions worldwide, is tremendous.

Initial development of the centrex services market occurred at the high end, among large corporations and institutional customers with more than 200 lines. While this segment will continue to experience rapid growth, small business with 30 or fewer lines have begun to generate substantial and fast-growing demand in centrex service and receive special attention as the most profitable segment with which to do business.

The CPE market consists of several products, such as key systems, single-line telephone instruments, and voice processing systems. Segmentation in this market, therefore, focuses on product differences.

Barriers to entry are relatively low in these markets, hence rapidly increasing demand has resulted in a fiercely competitive environment. Competitors in this market able to develop products which take advantage of continuing advances in CO switch features are likely to grab the

Total centrex market for 1986-1996.
 Revenue Growth Rate
Year ($Mil) (%)
1986 1,985.8 --
1987 2,035.3 2.5
1988 2,121.9 4.3
1989 2,307.4 8.7
1990 2,591.9 12.3
1991 2,933.3 13.2
1992 3,301.2 12.5
1993 3,678.1 11.4
1994 4,073.1 10.7
1995 4,470.5 9.8
1996 4,767.4 6.6
 Compound Annual Growth Rate (1989-1996): 10.9%
 Source: Market Intelligence Research Corp.

major portion of the market. Compatibility with competitors' products and with emerging standards are also critical to success in this market.

ISDN often is used as a tool for selling centrex. Large corporate and institutional customers that can gain economies by being able to transmit data, video, and voice simultaneously over the same telephone line, are eager customers for ISDN. By selling ISDN as part of a centrex package, many service providers win centrex sales.

The full development of the centrex market is revealed in a new report, "Centrex Equipment, Service and Add-On CPE Markets," recently published by Market Intelligence Research Corp., Mountain View, Calif.
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Copyright 1991 Gale, Cengage Learning. All rights reserved.

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Publication:Communications News
Date:Jun 1, 1991
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