Last year small and medium sized businesses spent nearly $2.1 billion on telephone service, about half the amount spent by large corporations, reports the Wall Street Journal.

While the number is almost half that of the big players, the SMB sector is where folks are most dissatisfied with their phone service, making them ideal customers from a burgeoning ranks of VoIP service providers. Unlike consumer market, SMBs buy more than one phone, and are happy to spend more (as long as its less the old phone company) and are more long term customers. No wonder, everyone from M5 Networks (the one I use) to Covad, everyone wants a piece of this action.
Smaller providers “have cracked the code to a degree,” John Macario, president of Boston-based consulting company Savatar tells WSJ, and points out that the cost savings message resonates with the smaller businesses. Venture capital investors are savvy to this trend and have been funding start ups that address this opportunity. Fonality and Digium are two examples of companies that are riding the SMB trend with Asterisk.

Today, Whaleback Systems announced that it has raised $7.5 million in Series B round of financing from Castile Ventures, Egan-Managed Capital and Ascent Venture Partners. Roger Walton, a partner at Castile Ventures in a press release says, “No small or medium business wants to become its own phone company.”

While, the trend remains strong, a nagging worry is that there will be too-many of these SMB focussed VoIP providers, which can result to price wars, and market confusion. Many of these service providers have to show their value proposition beyond cheap calls.