The international connectivity services market, which was in nascent stage a
few years back, is now on almost every service providers' radar. These
services used to be the core domain of US operators. But after getting the
ownership of undersea cables, Indian operators too have joined the bandwagon.
The fight for the pie is now 'on'.
The purchase of the American assets by Indian firms has shifted the undersea
cable network ownership in the Asian region. As too much bandwidth would now be
available at nominal prices, the fate of new owners hangs in balance.
As far as services offerings are concerned, the fragmented international
connectivity market and bandwidth-hungry enterprises have a lot to offer to
service providers and the service providers are now gradually moving from the
legacy Frame Relay and ATM services to more robust MPLS VPN and IP VPN services.
Service Provider Scrutiny
Bharti Televentures was the first private bandwidth operator to offer cable sea
network-i2i from Chennai and Singapore. The network has capacity to provide 8.5
tbps. But after Tyco and Flag Telecom acquisitions by VSNL and Reliance
respectively, this market has become more competitive. The Tyco acquisition has
further strengthened VSNL's bandwidth capacity. Tyco has the capacity to
provide the maximum of 5 tbps. VSNL, which was the first operator to provide
undersea cable bandwidth to and from India, has capacity on SAFE, SeMeWe-4 and
Flag as well, in addition to SeMeWe-2 and SeMeWe-3. It also owns the Tata
Indicom Cable system between Chennai and Singapore.
Reliance too is laying another cable system – Falcon, which will provide
connectivity in the Gulf region, with submarine links stretching to Egypt in the
west to Hong Kong in the east. At present, Flag has capacity of 1.2 tbps
upgraded to 3.12 tbps. The incumbent operator BSNL too is laying its cable
network from Sri Lanka.
The global acquisitions by Indian service providers is the result of glut in
the international bandwidth market. Most of the companies acquired by Indian
telecom giants were on the verge of bankruptcy as customers were using only 15%
of the available bandwidth. On the contrary, India is completely a different
case study. Though the operators have the capacity to offer bandwidth in tbps,
the available bandwidth is still in gbps. The demand for international bandwidth
in India is around 50 gbps but the overall market comprises only12 gbps. The
international bandwidth services are growing at a rate of 60-70% per annum in
terms of revenue.
Competition has always benefited customers. As more players are coming in,
international bandwidth is becoming cheaper. VSNL has already announced 40%
price reduction in its leased lines and it's going to be further reduced once
Tyco becomes fully functional. With prices going down, international calls and
Internet would become more affordable. This will help ITES sector in a big way.
It would be win-win for both operators and enterprises. But the major area of
concern for most of the operators is to understand the economics of bandwidth
business and they'll have to work on a right business model to avoid revenue
losses.
The major demand for international connectivity is coming from BPO sector. It's
estimated that the demand for international connectivity from BPO sector itself
is growing at 20% every year.
International Connectivity Services
There is an array of services available in the market today. Some of them are
described below.
IP VPN
IP VPN is gaining popularity because of its ability to offer Frame Relay QoS and
Internet Protocol flexibility features at economical rates. IP VPN service
providers are offering managed services, which extend to provisioning of
end-to-end management of IP VPN. Service providers have alliances with their
global counterparts to offer better prices and global network reach with high
QoS.
“There's an increasing need for MNCs to extend IP VPN services beyond
metros to smaller Indian cities. At the same time, more Indian enterprises
require outbound international connectivity. To meet this demand,
interconnections between foreign and domestic IP VPN providers are necessary,”
said VP Sharma, vice president (Pre Sales Products and Marketing - Enterprise
Solutions) Sify Limited.
At present, most partnerships are commercial arrangements that allow foreign
carriers to extend their IP VPN backbone to the four or five major cities in
India. They use leased lines to connect customer sites, which can be a problem
if the circuit is long. The partnerships usually include local support from
domestic carriers. This is a good precursor to network interconnection.
The next step is MPLS NNIs, which will allow seamless IP VPN services,
extended up to the customer's site. Such arrangements already exist in China,
and global/regional carriers plan to use partnerships to extend their domestic
reach. This is important because MNCs also need a consistent COS to Tier 2
cities in India, and not just to the top four or five cities.
IP VPN is still the future. The enthusiasm for IP VPN hasn't diminished
over the last couple of years. While it's still the fastest growing managed
data service today, IP VPN won't be displacing leased lines or Frame Relay any
time soon.
This is the fastest growing segment of international connectivity in terms of
percentage growth. The major customers are in segments such as technology,
services, and manufacturing. Today, most enterprise customers wish to focus on
their core business activities and expect service providers to take the
ownership of end-to-end SLAs. IP VPN is the perfect solution for such customer
segments.
“In terms of the VPN market, it remains very large with ATM & Frame
Relay garnering the lion's share with IP VPN and Ethernet-based VPN as growing
alternative solutions. IP VPN and Ethernet-based VPN will likely drive many new
installations, as operators build out their network and convince customers of
the quantitative and qualitative benefits of the new offerings,” said Neeraj
Gulati, vice president and managing director, Ciena
India. IPLC
IPLC services remain the most popular data offering. The needs of enterprise
customers evolve and vary over a period of time. Typically, IPLC services are
being used by the customers who have a demand of constant usage, and hence wish
to run and manage their own protocols. It's widely used by segments like
secure captive BPOs and BFSI. It's also used by large MNC customers who wish
to run their own protocols. It's the most common international connectivity
service with the largest current customer base. We've started seeing trends
where innovative service providers like VSNL have started offering
next-generation dedicated global Ethernet services,” said Sandeep Mathur,
president, Enterprise Business Unit, VSNL.
It's completely understandable that IPLC is still the most popular
offering. It provides high performance and security for point-to-point
connectivity for a large variety of enterprise applications. However, IPLCs are
now changing from traditional TDM to Ethernet-based solutions. Ethernet-based
private lines over optics provide the same level of quality, reliability, and
security but offer more bandwidth flexibility.
Frame Relay
Frame Relay service developed in the early 1990's is a simpler and more
cost-effective alternative to leased lines for interconnecting large wide area
networks (WANs). Its success proved the case for cost savings and reliability
that corporate networks can gain through outsourced WAN services. However,
Frame Relay, as currently deployed, presents a relatively static network
environment that has not achieved global proportion. Most of the existing
services also assume low speed (T1 and below) access. As a result, Frame Relay
service remains best suited for branch office to headquarter connectivity. It
has not been extended to the small office and remote access community.
More than ever, companies are striving to cut costs while maintaining, if not
improving, their competitive advantage. So it's surprising that Frame Relay is
still heavily in demand. This 20-year-old technology has managed to remain
relatively unchanged from its incarnation. However, many would argue it's
struggling to keep pace with the demands enterprises require from their
connectivity.
There is a problem with Frame Relay-based WANs in most business environments,
as they provide too little bandwidth at too high cost. This technology is
primarily used to connect remote offices with multiple users, and low bandwidth
actually limits the productivity instead of enhancing it. Traditional Frame
Relay networks are struggling to handle the deluge of network traffic from
bandwidth-hungry business applications such as Web browsing, file downloads, and
large e-mail attachments.
Hence, enterprises interested in migrating from a Frame Relay- to an IP-based
solution are responding heartily to the idea of outsourcing much of the network
design, provisioning, support, and management. With Frame Relay, most of the
data traffic management has to be done by the internal IT department.
MPLS VPN
MPLS VPN or Virtual Private LAN Service (VPLS) or Layer 2 VPN has to some extent
replaced Frame Relay as the dominant enterprise private data communications
service. Until recently, Frame Relay was well suited for internal data
communications among enterprise sites. The advantage with MPLS VPN is that it
provides an attractive migration path for frame relay subscribers as it has
Frame Relay's features.
Since MPLS VPN is also a switched service like Frame Relay, its combination
of Ethernet and MPLS QoS capabilities can be used to offer guarantees on
availability, latency, jitter, and throughput. Security and privacy can also be
assured, as it has Ethernet's VLAN capabilities and MPLS's virtual routing
and forwarding features.
MPLS VPN is attractive among enterprises that buy into IP convergence and
plan to adopt VoIP, prioritize data traffic, and need more than 1.5-Mbps data
rates for many of their sites. This profile fits most enterprises. However, for
network modernization, enterprises still consider Frame Relay as secure and
reliable for their private networks, primarily for transaction processing,
Though MPLS VPN has gained the support of many of the major equipment
vendors, like Cisco, Juniper, and Nortel, it's not for everyone. Some
organizations are dependent on pure IP and don't want an Ethernet solution.
Others don't want routing information exposed to carriers. Therefore, most of
them are going for IP VPN solution.
ATM
This is a service used on a limited basis by enterprise customers who have huge
bandwidth connectivity across the globe. ATM leads to efficient usage of
bandwidth across protocols while maintaining QoS. Service providers agree that
ATM will go hand in hand with IP VPN because it can serve as a complementary
access technology to frame. It's ideal for corportaes that have the
requirement of high-speed (up to 622Mbps), multi-protocol and QoS. Majority of
service providesr are using Frame Relay and ATM as integrated propositions.
Data Services Market
There are several factors contributing to the growth in the data market. The
first driver is bandwidth demand for Internet, Intranet, and custom
applications. The second demand driver is the ubiquity and simplicity of
Ethernet. Ethernet data rates offer speeds up to 10Gbps and many new
applications expect performance of their applications, traditionally located on
a LAN to operate over a WAN. This means that the data network grows and the
bandwidth connecting the networks grow, while performance parameters must remain
the same. Finally, the third reason for data growth is the need for shared
computing resources such as distributed server farms and grid computing all of
which support ERP and CRM applications as well as many banking and healthcare
applications.
Also an enhanced capability of Indian corporates to deliver goods and
services on a global basis is opening up new customers and geographies for the
business. There's a significant growth in existing customers' end
businesses. “One of the basic needs for corporates is to know more about their
customers through the host of data that is available on various systems across
geographies. The sectors, which will be driving this growth, are government,
banking, telecom, and manufacturing. Retail is also expected to emerge as a big
player for data services to optimize the supply chain management,” said
Sharma.
Technology Trends
Enterprise customers are now looking for managed services options, which help
run their businesses in the most efficient manner. They wish to utilize the
best-of-breed connectivity solutions to connect their key hubs across the globe.
Since enterprises are looking for better connectivity solutions, service
providers are providing flexible solutions to them.
Service providers are currently offering flexible solutions that let their
network change on the fly without worrying about when to expect their customers
to change. They're using technologies such as programmable line cards, which
offer the ability to change offerings quickly without purchasing new hardware.
Service interworking capabilities that allow ATM/FR networks offer new Ethernet
services and interoperate as a single cohesive VPN solution and standards-based
psuedowires (PWE3) enable existing ATM/FR and IP/MPLS networks to be used to
offer new Ethernet-based services.
There's an emerging, universally accepted standard for wireless access –
WiMAX. This technology is in use to roll out wireless point of presence by VPN
service providers. The service providers proposed to offer value-added managed
services around VPN, which includes broadband Internet access, co-location
services, designing and deployment of disaster recovery solutions and business
continuity solutions, and managed security services.
Price Performance
Pricing always plays an important role in the growth of new services. That's
why Ethernet is being demanded by many enterprises. As the low-cost interface of
choice and the ability to inter-operate with other technologies (ATM/FR/IPL),
Ethernet is an ideal solution. As bandwidth grows, price-per-bit must continue
to decline. Low-cost DWDM ensures a low cost of Ethernet-based private line, as
does ATM/FR interworking with Ethernet and support for Ethernet psuedowires that
essentially offer Ethernet across ATM or IP networks.
Due to increased competition, pricing is being used as a strategy. But
pricing varies on guarantees for parameters such as latency and jitter. Large
enterprises are able to negotiate on the basis of volumes. The decrease in
bandwidth price will narrow down the gap between international leased line and
IP VPN.
In the Indian context, a majority of enterprise customers' bandwidth
demands are fairly inelastic, as they're driven by their end-customers'
businesses. In addition, bandwidth pricing doesn't play a big role as prices
have been falling very aggressively over the last three years and the bandwidth
costs forms a miniscule percentage (less than 5%) of total cost structure for
key services and manufacturing businesses.
Also, connectivity has been further supported by proactive measures by
players like VSNL, who have gone ahead and made comprehensive investments to
create global infrastructure capabilities. In turn, investment helps it support
its enterprise customers with a wide variety of service offerings across the
global markets.
Service providers need to offer end-to-end solutions in addition to just data
connectivity. These include value-added managed services around VPN, like
broadband Internet access, co-location services, designing and deployment of
disaster recovery solutions, business continuity solutions, and managed security
services. US companies like Cable&Wireless, AT&T, Singtel, and Verizon
used to have major chunk of international market couple of years back. But their
business has got a major hit when Indian service providers started offering
similar services, not only in India but across the globe. As the market is
picking up, more action is expected from service providers.
Rahul Gupta
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