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There is a clear trend in the telecommunications enterprise market to increase the value of service providers' product portfolio. On one hand, CIOs are looking to reduce costs and improve productivity of the company's distributed business processes. On the other hand, they would prefer a more disruptive model and shift their network service strategy from enhancing productivity to value creation with new business processes. Hence, the emerging 'new generation' communications services will have a significant impact on enterprise and industry business processes. These services have to support communication-critical applications in the changing environment of network and service convergence. Therefore, VPN, a key component of an enterprise service offering, is evolving to shift the focus from multiple site connectivity to applications, collaborations, individuals, and communities of individuals.

The First Three Generations
Tracing the evolution of VPN, we find that its first generation was based on circuit connectivity between sites. This was based on TDM/PDH and then complemented by SDH network infrastructure. Lack of flexibility, coarse granularity, lack of efficient bandwidth utilization, and relative high cost of these solutions triggered a migration towards the second generation, in which TDM circuits were replaced with Frame Relay and ATM connections. Flexibility was introduced, nonetheless, service provider's network only offered end-to-end connectivity between sites. All the VPN intelligence was located at customer premises. The typical topology of these VPNs was a star, at the center of which was the company headquarters. This solution nicely fit the system architectures and business processes used at that time.

Today, the market is focused on the third generation, for which the first service model is IP VPN, typically based on an IP/MPLS infrastructure. The service provider manages VPN intelligence using network-located devices. In simplified terms, the key differentiator of this generation is that each VPN site sends all the traffic to a device, that is controlled by the service provider. This device, usually called provider edge equipment, is responsible for forwarding the traffic to the right destination (eg, a customer site) with the expected quality of service (QoS).

This service model introduces the flexibility to deploy, at a controlled cost, VPNs of any topology1, which is well adapted to the new business processes of the enterprises. The enterprises, therefore, outsource the VPN intelligence to the service provider. Examples of network functionality that are outsourced are connection termination, switching and routing.

Other important characteristics of the third generation are:

• increasing usage of Ethernet as the IP transport layer usage of DSL access to allow for low-cost, ubiquitous, mid-bandwidth connectivity well suitable to SMEs
• increasing number of enterprises, including most large enterprises, that have deployed or are in the process of deploying voice over their IP VPNs

More recently, Layer-2 (Ethernet) VPN services have begun to be provided. This was facilitated by the Metro Ethernet Forum (MEF), which clearly defined the framework for various Ethernet services. These Layer-2 VPNs belong to the same generation in our classification as Layer-3 (IP) VPNs, since the forwarding intelligence is deployed in network located devices and a given site sends all the traffic to a given PE that forwards to the destination site (in addition, Ethernet is also being used for point-to-point connectivity). As for the Layer-3 VPNs, these services are suitable for metro, countrywide and global networks (indeed, the MEF is changing its name to the Global Ethernet Forum). To clarify the concept of Layer-2 VPNs: since most user applications are IP-based, most of the traffic over a Layer-2 VPN is IP. The major difference with Layer-3 VPNs is that the service provider bases the forwarding decisions on Layer-2. Layer-3 routing, when required, remains under control of the customer.

Layer-2 Ethernet VPNs are typically deployed with dedicated Ethernet network termination units (E-NTUs) that are located at the customer premises and ensure end-to-end service control, fault management (with standard Ethernet OAM) and traffic handling. In fact, in case of an IP VPN, a customer-located router usually serves as the 'IP NTU' that enables required termination functionality at the IP layer.

A lot has been written and said regarding the comparison between Layer-3 and Layer-2 VPNs. We will not duplicate this debate here, but we would like to note that the major VPN service providers have reached the conclusion that both VPN types will co-exist. They roughly estimate that Layer-2 VPNs, a market that is now growing even faster than Layer-3 VPNs, will amount to 30% of the total VPNs market in the near future (once a stabilization in the growth of these two services has been reached).

Nevertheless, in both of the third generation's service models the customer is required to have strong network competency, since the SLAs are based on technical parameters such as bandwidth, class of service, quality of service, etc. It is the customer's responsibility to define the mapping policies between the applications and the class of service, even when the effective mapping (marking) is done by a service provider's network equipment. In addition, the customer has to understand the benefits and drawbacks of Layer-2 and Layer-3 solutions in order to select which one fits his specific needs better. When both service models are available, a customer would prefer to have a hybrid solution. For example, by adapting the technology per type of site (small/large branches connection, data centers interconnection, etc).

Both third generation IP and Ethernet VPNs enable basic connectivity between multiple customer sites that is used as the foundation for value-added services (VAS) providing additional value with premium services. Such VAS is particularly important when IP VPNs are becoming a commodity that results in price erosion. For instance, this could be end-to-end quality assurance (with several classes of service). Another example is OBS 'Enterprise Application Management,' which is a value-added service for IP VPNs.

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