Microsoft could dominate telephones - report

Unlike traditional phone systems, voice over Internet Protocol (VoIP) setups are run by computer networks. As a result, VoIP systems rely heavily on software, and adding a feature such as one inbox for both voice mails and emails is a software-only upgrade in most cases.

That potentially gives an experienced software player like Microsoft a solid piece of the corporate and home telephone market, Tom Valovic, manager of IDC's IP telephony program, told CNET News.com last week.

"The whole (IP phone) business model is pretty radically different," Valovic said. "Hardware becomes commoditised. The value-add is software."

Valovic said Microsoft is already crafting such advanced applications with telephone equipment makers Siemens, Avaya and Mitel, and more partnerships are expected.

Although analysts have been predicting a nearly limitless market for IP phones, so far global economic gloom has kept most from upgrading. But if, as some suggest, corporate and consumer spending starts to increase, "Microsoft is getting a whole new market, and it's not a trivial one," Valovic said.

Because the market is still in its infancy, it's hard to pinpoint the stakes or even to predict if Microsoft will have a competitor. But software makes up a chunk of the budgets of many corporations that are looking to upgrade their telecommunications services and equipment, and businesses will spend $76bn (£48.2bn) on such telecommunications needs this year, according to market research firm In-Stat/MDR. About $12bn will be spent solely on voice data, while $33bn will go to data-transport services.

A Microsoft representative had no immediate comment. "It's not something they've placed a real strategic bet on yet," Jupiter Research analyst Michael Gartenberg said.