Healthy Growth Rate For VPN Services

Strong demand from enterprises for managed virtual private network (VPN)
services will help push the worldwide Internet Protocol (IP) VPN equipment to revenues of US$4.7 billion by 2006, says Gartner.

The research and advisory firm projects that the market will soar 45.7 percent this year alone, from US$2.05 billion in 2001 to just under US$3 billion in 2002.

In Asia Pacific (including Japan), Gartner is projecting that IP VPN service revenues will hit US$2.4 billion in 2006, up from US$217 million in 2001.

The IP VPN market has its origins in the enterprise market and this sector is expected to continue to dominate throughout the forecast period. The US economic slowdown has had a deadening effect on the carrier end of the market, where the initial equipment outlay is more expensive. However, platforms that are designed for large-scale service provider
deployments will gain momentum and drive growth in the carrier sector when the economic climate improves.

“Between 2002 and 2006, this amounts to a compound annual growth rate of 62 percent,” says Andrew Chetham, senior analyst telecommunications and Internet at Gartner. “Clearly, money made from providing the services helps underpin the equipment market. IP VPN will be one of the most buoyant sectors of a fixed line operator’s portfolio of services looking over the next few years. Few services can expect that sort of growth.”

“The market for managed IP VPN solutions from carriers has enormous potential and will become increasingly important. Small-to-midsize businesses want the convenience and cost-effectiveness of IP VPNs without the set-up, support and management problems. In addition, most businesses in this sector do not have sufficient in-house expertise to support and manage a geographically dispersed VPN on a ’24×7′ basis,” he adds.

Gartner believes the cost benefits of using the Internet as a basis for a company’s global communications, rather than traditional wide area network (WAN) access via a leased line, frame relay or asynchronous transfer mode, are considerable.

“The cost savings are great when the necessary equipment is purchased and owned by the service provider – particularly in terms of equipment upgrades for capacity and technological advancement,” says Chetham.

As enterprises expand their IP VPN solutions from non-critical to mission-critical applications, the increased complexity of in-house provision will provide additional opportunities for service providers if they can demonstrate acceptable levels of service and security.

“Security continues to be a major issue for the uptake of IP VPNs in every region and those business sectors where data is highly sensitive,” says Chetham.

“To benefit from VPN’s great potential, service providers need to remember that a security solution for one region may not succeed worldwide.”

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