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

By Tara Seals

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.