Making the Right Moves?

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