Packets pack a punch: ATM, frame relay expected to drive market, study reveals

Packets pack a punch: ATM, frame relay expected to drive market, study reveals

Wayne Carter

ATM, frame relay expected to drive market, study reveals

The landscape of the packet/cell-based service market will change rapidly in the next few years, according to a new study by International Data Corp.

The overall market, estimated at $2 billion at the end of 1996, will reach about $3.3 billion by the end of 1997. And by 2001, according to IDC estimates, packet/cell-based services will comprise a $10.6 billion segment of the telecommunications market.

But as the market expands, its composition will also change. The report predicts that while frame relay will see continued strong growth and asynchronous transfer mode will boom, X.25 and switched multimegabit data service (SMDS) will begin to fade, at least in the United States.

The report is based on discussions with carriers regarding their outlooks and strategies, according to Melanie Posey, IDC senior analyst. The way carriers are approaching the market leaves room for continued growth in frame relay and accelerating deployment of ATM.

“It’s misleading to look at ATM and frame relay as being in competition with each other,” Posey said. “You’ll bump up against bandwidth limitations of frame relay, and that opens up the market for frame-to-ATM service interworking.”

IDC’s research shows that the frame relay market will have doubled in size from year-end 1996 to year-end 1997 and will experience a cumulative annual growth rate of 46% through 2001. The growth in frame relay, which had initially been driven by the need for LAN-to-LAN connectivity, will continue to be driven by users’ needs for bandwidth and for connecting new sites to existing networks. Frame relay is expected to continue to be the dominant packet/cell-based technology (see figure).


ATM will see a five-year growth rate nearly double that of frame relay, according to IDC’s research. Posey attributed that to the fact that ATM will be growing from a smaller base than frame relay.

However, IDC’s research indicates that ATM’s cut of the total packet/cell services market will grow.

But X.25 and SMDS won’t entirely disappear, Posey said.

“There will be a place for X.25 and SMDS … in point-of-sale, credit card authorization and banking applications,” she said. X.25 will also be prominent in international connections, particularly where frame relay and ATM can’t be supported. “Where the telecom infrastructure is not in such good shape, [X.25] will still work,” she said.

For the foreseeable future, the packet/cell market should be studied in two distinct categories: services offered on the local level and long-distance services, Posey said. To date, long-distance carriers are the dominant forces in the market, particularly Sprint and MCI, but the distinction may become more difficult to make as more carriers build service offerings.

“A lot of competitive local exchange carriers are building data networks,” Posey said. “We could see AT&T, MCI and Sprint buying from the CLECs, and vice versa, to offer end-to-end service.”

It’s not likely that much of the predicted growth will come from incumbent LECs, Posey said. And even as incumbent LECs, particularly the Bell companies, move into long-distance, they likely won’t go after packet/cell business.

“Their focus in the long-distance market is on voice,” Posey said.

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