IP-VPN Revenue To Surpass $1.8 Billion In 2004

After a quiet and less aggressive 9-month period since the tragic events of September 11 last year, several service providers in Asia and around the world have either introduced or re-launched their IP-VPN service portfolio with new offerings, said IDC.

This is despite the fact that many of the Asian incumbent carriers and several global service providers have been somewhat reluctant to push IP-VPN services for fear of cannibalizing their lucrative traditional data network services. But they can no longer afford to delay their plans as IP-VPN is fast becoming an important element of the connectivity and managed data network services market in Asia (excluding Japan).

Said vice president, Communications Peripherals, IDC Asia-Pacific, Sandra Ng: “Companies are moving more enterprise applications online, generating demand for real-time communications between sites/branches as well as data replication and transfer. At the same time, enterprises are also looking to combine the effectiveness of information sharing via the network with the need to ensure security, manageability, functionality and privacy, while focusing on cost savings.”

IP-VPN provides many benefits, some of which include: low cost and wide reaching secure network services; new applications and value-added services; and savings and quality of service (QoS) offered by outsourced solutions.

But like many emerging technologies and market segments, there are inhibitors slowing the deployment of IP-VPN.

Many enterprises continue to have lingering concerns about the network security and reliability of IP-VPN services. The same enterprises typically use the more proven frame relay or ATM services for their existing networks and therefore, are unlikely to migrate IP-VPN services in a hurry.

In some markets, the availability of this infrastructure and service portfolio remains limited, resulting in the lack of true end-to-end connectivity for the user.

Furthermore, few service providers are capable of offering global research with their network services. This is a greater issue for local or regional service providers offering international connectivity, especially if the interconnection agreements are costly and quality of service difficult to guarantee.

One other key reason behind the slower than expected growth in IP-VPN services to date is the cannibalization effect it has on traditional data network services.

Today, most enterprises are often adopting IP-VPNs first as a back-up service or as a means of connecting non-mission critical networks, instead of replacing its existing data networks. In this manner, enterprises are effectively ‘trialing’ IP-VPN services before migrating to mission critical applications and services to an IP platform.

The positive news is with more enterprises adopting e-business related applications, including enterprise resource planning (ERP) and customer relationship management (CRM), there is a growing demand for real-time site-to-site connectivity. This results in new revenue potential rather than a threat to existing traditional data services.

In recent months, there has also been an increase of MPLS (multiprotocol label switching)-based IP-VPN services. IDC expects the adoption of technology to grow quickly as it uses the service provider’s own backbone network, rather than the public Internet, to provide better assurance of network reliability and security.

Tunneling and encryption will not be necessary as the network will be partitioned to provide security. The traffic routing capabilities of MPLS will also enable service providers to offer different classes of service options to customers with optimized routing for mission critical traffic.

Table: Outlook of IP-VPN Revenue and Average Revenue Per User (ARPU)