IP-VPN is not yet the biggest item in the Asia’s data services market, but it’s certainly the hottest

Wary MNCs make leap of faith to IP-VPN: IP-VPN is not yet the biggest item in the Asia’s data services market, but it’s certainly the hottest

Robert Clark

Asian regional data services revenues grew a measly 5% last year, according to IDC. By contrast, the IP-VPN business, although worth only 11% of the market, grew 40% by value.

“It’s our fastest-growing service–our bread and butter,” said Jerome Marquet, head of network management services and solutions for Equant.

“It’s pretty much our flagship product. We would expect to have all our customers migrated over by the end of 2006,” said AT&T Asia-Pacific vice-president Steve Lowe.

He said 70-80% of his customers were now adopting or planning to adopt IP-VPN. “IP-VPN is not something everybody is moving to, but in virtually every bid we’re putting forward, IP-VPN, MPLS and IP infrastructure is part of what is being called for,” Lowe said.

AT&T, which has 30 POPs in Asia, has begun retiring its legacy network, decommissioning its first frame switch in Asia Pacific last December.

The technical factor underlying the rise in IP-VPN demand in the last three years is the advent of MPLS, which enables five classes of service (COS): voice, video and three different classes of data.

A survey of 30 Asian-based CIOs by consultancy Intercedent has found most are already on the path to IP-VPNs.

It found that the rapid shift to IP-VPN was driven by multiple CoS requirements. Just over half of the respondents said the need to provide multiple CoS to support multimedia traffic was the major reason for migration. Some 44% pointed to the ability to improve quality of service, while the same proportion also cited cost.

Service providers interviewed by Telecom Asia believed cost savings and simplicity were the biggest divers.

An MPLS-VPN can cost as little as $1,100 (Taiwan) or $1,150 (Australia) per port, according to a Frost & Sullivan study issued in January. By comparison, an E1 link to the US using frame relay can cost $6,550 in Hong Kong or $3,610 in India using a leased line.

Price is particularly important for those who operate multiple sites around Asia, said Darren Day, MCI’s regional marketing director. “For anything under four or five nodes, MPLS and frame relay are about the same cost. With the dynamic nature of the network, the bigger the networks gets the more economical it is to have MPLS-VPN,” he said.

In addition to the opex and bandwidth cost, some saving is possible on the cost of equipment as well, depending on the timing, said RHK analyst Mark Seery. He said the cost differences between ATM/frame and IP gear “go through periods of being different and periods of being similar.”

He adds: “There is the caveat that as IP traffic volume grows for all types of services, carriers will end up buying bigger IP routers than they need for just business services, so they can get a cost per bit reduction if they converge all services on to a single network.”

In other words, network managers know that some day they have to install and run everything over IP. The more and the earlier they can aggregate, the better–as long as they can be assured of the quality they’re accustomed to.

The growing demand shows customers are overcoming their reservations about IP-VPN, says Noboru Tamura, marketing manager at NTT Communications’ global service division.

He says IP-VPNs have been operating in Japan since 2000 and Japanese firms now increasingly expect to run IP in their offshore operations as well. “That’s a big change compared with two years ago,” Tamura says.

The days are past when TDM or PBX specialists were required for managing traffic through a switch or enterprise network. Once installed the great attraction of IP-VPN is its ease of deployment and scalability. “To add a new port, you just plug into the IP cloud,” says AT&T’s Lowe.

IP-VPNs also devolve power and control out to the network edge. In recognition of this service providers are offering more self-provisioning and capability–right down to the end-user in a cubicle.

That’s a key attraction for customers, says Joe Fusco, director of private IP services for Infonet, the global networking company about to be acquired by BT. With self-provisioning, corporations can dynamically adjust bandwidth as required, so they can synchronize servers at the end of the month, for example.

The big trend is that enterprises, having deployed IP-VPN, seek to leverage their investments by adding fresh functionality.

Most Asian regional carriers have seen a sharp uptake in demand for VoIP in the last six months. While this presents potentially the biggest cost savings and productivity gains, it is also the most difficult. As a Yankee Group report last July put it: “It is a real-time application that demands uninterruptible service.”

Certainly, IP-VPN has not yet won the hearts and minds of all enterprise comms managers for its reliability.

A North American IP-VPN customer satisfaction study by research group RHK emphasizes this, with reliability and security topping the list of attributes sought by users.

NTT Communications guarantees 99.9% reliability end-to-end, says Tamura, who points out that this is better than the quality of some local networks in Asia. “The IP platform itself is quite stable. We have already achieved 99.999 reliability,” he said. But it was “quite tough” to reach that level around the region.

It is because of specific concerns about data security, network reliability and stability with IP-VPN that many corporates still prefer to renew their frame contract at a better price than move to the new platform, says a report from Frost & Sullivan.

Arguably, this is just a short-term problem that IP-VPN will overcome as it matures and climbs the adoption curve.

A bigger issue is that customers doubt whether carriers can deliver the seamless service they promise. This becomes an acute problem for carriers with supposedly uniform SLAs that are actually delivered across multiple Layer 2 and 3 service providers.

“Everyone promises a one-stop shop, but you still need to get the local office to sign the document,” says Simon Chart, chairman of the Hong Kong Telecommunications Users’ Group (HKTUG). Sometimes it requires a local signature just to access to a switching room, Chan complains.

“It’s a problem for every operator,” admits Equant’s Marquet. “Consistency only works if you have one single architecture in one single domain. You think you have one network, but you have gateways everywhere.”

The Intercedent survey notes that “telcos were cited as slow, unresponsive or unable to translate business requirements into specific offers. The chief hurdle … is the perception that the service capabilities are not extensive enough, or not ‘best in class’ enough, in the region.”

Enterprises were looking to buy solutions that were a “precise fit to requirements,” not on the basis of SLAs or performance metrics, respondents said.

IP-VPN’s growing pricing advantage over frame relay, especially in key routes such as Taiwan-China, guarantees its continued growth in the years to come.

Yet the truly striking thing about MPLS IP-VPN is that it has no logical successor. Incredible as it may seem for anything in the networking or telecom sector, there is no new technology on the horizon.

“People are getting increasingly comfortable with MPLS, and they are starting to talk about what is next. But we are not seeing anything that, with any credibility, can replace MPLS. It seems it is here to stay for the moment,” said Marquet.

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Bandwidth price structure

IPLC Frame Relay ATM

(to US) (to US) (to US)

Australian 512K E1/512K 10M

$2,950 $4,370 $20,510

China 256K 512K/256K —

$2,250 $4,090 —

Hong Kong E1 E1/512K 10M

$3,450 $6,550

India 256K 256K/128K —

$3,610 $3,180 —

Malaysia 256K 256K/128K —

$2,920 $2,650 —

Singapore 512K E1/512K 10M

$1,660 $3,150

South Korea 256K 512K/256K —

$1,050 $3,500 —

Taiwan 256K 512K/256K —

$1,350 $2,960 —

IP Sec VPN MPLS VPN

(Port Price) (Port Price)

Australian 512K 512K

$529 $1,150

China 256K 256K

$546 $1,360

Hong Kong E1 E1

$1,032 $2,560

India 256K 256K

$954 $2,390

Malaysia 256K 256K

$493 $1,230

Singapore E1 E1

$1,075 $2,800

South Korea 512K 512K

$615 $1,560

Taiwan 512K 512K

$467 $1,100

Source: Frost & Sullivan

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