RESELLER CHANNEL: It's Showtime for Network-based IP VPNs

Posted: 10/2002

It's Showtime for Network-based IP VPNs

By Tara Seals

IP-BASED VIRTUAL PRIVATE NETWORKS quietly are moving from underground to headliner status for enterprise WANs as they deliver secure, high-quality, cost-effective networks for business-critical voice, data and video applications. As the steady drumbeat of convergence continues to grow, smaller service providers, LECs and larger independent resellers are finding vendors eager to use their distribution channels.

A number of vendors with resale strategies are betting network-based IP VPN technology, which offers high margins and fast ROI, will be the next big thing, in a wave of deployments. These managed service offerings are delivered from within the provider's network to the customer via a standard local loop connection. No customer premise equipment (CPE) is required, and the provider handles management and maintenance.

Backstage

Infonetics Research predicts worldwide end user expenditures for managed network-based services will grow 283 percent between 2002 and 2006. This compares to managed CPE-based VPN services, which are expected to grow 178 percent, and unmanaged service expenditures, expected to decline 8 percent.

Growth in the network-based IP VPN service sector makes sense: IP VPN technology has evolved to maturity. IP VPNs once suffered latency, packet loss, jitter and hackers -- hallmarks of using a public Internet that has no service or security guarantees. At best, IP VPNs were poorly secured, difficult to configure and difficult to scale CPE-based red herrings that created connections between sites via the Internet.

With the development of multiprotocol label switching (MPLS), traffic can flow in many environments, including IP and ATM, allowing VPNs to run across hybrid networks on a global basis, easing implementation. For security, technologies such as IP-Sec and secure sockets layer (SSL) encrypt the packet streams for security even in the public Internet, and gateway solutions are available. In addition, QoS became a reality in IP VPNs with the development of technologies such as the Internet Engineering Task Force's (IETF) "Differentiated Services" or DiffServ, which identifies the IP Type of Service and uses it to assign the required QoS level to each packet, and to identify which packets belong to which class of service. Other QoS technologies include packet classification using Committed Access Rate (CAR) and use of clear text headers and MPLS, among others.

Network-based VPNs take the evolution a step further, offering end-to-end security and classes of service, keeping all traffic on the provider's own network without touching the public Internet or requiring significant CPE investment on the part of the end user.

SAVVIS, for instance, offers managed IP VPN services through VARs and private-branded resellers. The offering is based on a Layer 2 switched network core, with Layer 3 virtual routers at its PoPs. The customer's traffic never touches the public Internet, and SAVVIS is able to offer real-time communications and separate classes of service for different traffic types, including voice, video and enterprise resource planning.

"The customer is not concerned with whether the carrier has solved problems in the core," explains Tina Mayland, vice president of marketing at SAVVIS. "They care about problems being solved from one customer site to another -- they want flexible, scalable connectivity that IP brings but with the high performance of Layer 2."

A major benefit to the enterprise is cost savings. For instance, moving to IP VPNs from a WAN that is built on frame relay or private lines can save as much as 50 percent in monthly charges, says Maaz Sheikh, vice president of product marketing for VPN provider Virtela Communications Inc.

For network-based IP VPNs the savings are yet more significant. Managed options reduce capital investment and management overhead, and free up the IT staff's time to focus on more strategic projects. A router is all the investment needed in CPE, and the carrier takes care of VPN administration and functionality on its network. That also means no truck rolls for maintenance and no new equipment deployment as the enterprise grows. New users, applications, bandwidth or sites can be added with a point-and-click in most cases.

"You eliminate the upfront capex," says Sheikh. "If a customer is looking for a 100-site VPN, but they need to deploy $100,000 in equipment at each site, the value proposition goes out the door."

Because this is a convergence technology, there are other cost savings. Voice, data and video sharing the VPN infrastructure brings reduced total cost of ownership. Companies also reap savings in long-distance bypass with voice over IP (VoIP). "If you start doing video conferencing or VoIP the savings can be as much as 80 percent over conventional technology," says Sheikh.

Local loop savings also are a plus. "The local loop charges are often the single most expensive part of any network," says Mayland, "and being able to run multiple applications on one circuit saves the customer a heck of a lot of money."

Midmarket companies, which may need to link offices, that have small IT staffs or that need extranets to link customers and suppliers, are common targets for this type of managed service. "Companies that want this have applications that require an allocated amount of bandwidth, like enterprise resource planning ... CRM, video conferencing and 'voice over' applications," says Jonathan Cohen, director of advanced IP networking services at AT&T Business.

Click Here for Chart
Source: Virtela Communications Inc.

Managers and Groupies

It doesn't look like network-based IP VPNs will be a one-hit wonder. Several major names are getting into the act, and many offer wholesale opportunities for service providers, independent resellers and other partners.

The host of options stems from increasing enterprise demand and also from a cost concern -- it's actually a cheaper proposition for the vendor to offer network-based IP VPNs than CPE-based services, according to research firm In-Stat/MDR. Suppliers can use the same network edge box to deploy VPNs for multiple customers, as opposed to deploying individual CPE boxes at many customer sites, thus enjoying economies of scale that offset the cost of maintenance.

Nortel Networks Inc., for instance, reports the strategy can save service providers and carriers as much as 60 percent in operational expenses. Efficient Networks Inc. launched series 5900 business gateways this year, which enable service providers to offer managed service IP VPNs with a tool for the provider's VPN administrator, to provision VPN service for multiple locations, adding new users at no additional cost.

All of this means suppliers are rolling out managed service IP VPNs at a faster clip than ever before.

Click Here for Chart
Source: SAVVIS Communications Corp.

Opening Acts

John Marcus, vice president of IP business services at Probe Research Inc. suggests that managed service models are critical for providers and resellers to capitalize on high-margin enhanced services revenue.

"To be successful, the essential question that providers must answer is how to put together a bundle that makes outsourcing more attractive than an in-house solution," says Marcus. "Clearly, the key lies in a combination of features and services that enhance worker productivity and reduce overall enterprise costs."

For example, AT&T Corp., which offers private-label offers as well as resale and commission-based distribution opportunities through its Alliance Channel, has announced new managed IP network and Internet service capabilities for wholesale partners to deliver services like e-mail, personal home pages, net news, chat and instant messaging to their end users. The offers also enhance the network features, security, management capabilities, reliability and scalability on many of the disparate regional shared network environments the resellers use to deliver service.

"The technology is not the reason that people buy these services," says Cohen. "It's the implementations and the packages that people buy from AT&T."

New network management and monitoring capabilities allow resellers virtual control over their traffic on AT&T's IP network, as if it were their own network, and offers support for MPLS.

"You also can leverage VoIP, Internet access, extranets and so on in network consolidation, and add on additional revenue streams," explains Cohen. "Once you start getting into the application layer or providing specialties, it works very well to be engaged with one of our channel partners, who can bring missing pieces to the table."

SAVVIS resellers can win by bundling Web hosting and network-based IP VPNS, says Mayland. "For example, an ad agency may have an app that lets their customers design their own brochures -- they need hosting for the app, and they need an extranet for customer communication," she says. "It works really well."

Similarly, the Cable & Wireless IP-VPN QoS can be combined with managed hosting and content delivery services to support customers' e-business and e-commerce requirements.