IP VPNs - networking for an interconnected world?

Large businesses can't help but notice current hype about virtual private networks based on internet protocol. But what do they offer above and beyond infrastructure relying on our old friends Frame Relay and ATM? Tony Hallett takes a look at the market.

Five letters are on the minds of many telecoms and IT departments in multinationals - IP VPN. Knowing what this stands for (Internet Protocol Virtual Private Network) isn't the tough part. Knowing the benefits of IP VPNs is the big issue, and one that all businesses should be aware of.

The role of the VPN, in general, is about providing users with networking predictability in terms of performance and price. Security is another consideration.

But IP VPNs have to provide something more than VPNs based on Frame Relay or ATM. Users have to buy in to what the Yankee Group calls "a fundamental change in the industry".

Indeed, many analysts see them as the next big thing. Frost and Sullivan interviewed 200 large Western European organisations in the summer and noted a "high level of uptake already, with even higher to come".

Paul Devine, Frost and Sullivan Telecoms Group industry analyst, said: "When we say 35 per cent of large European corporations that do not currently use IP VPNs said they are likely to implement an IP VPN during the next 12 months, it gives some idea of the potential. An amazing 85 per cent of respondents said they were either 'likely' or 'extremely likely' to implement an IP VPN in two or more years."

A minority of users will want to build their own IP VPNs, dealing directly with integrators and equipment vendors, led by the likes of Cisco and Nortel but also featuring CoSine Communications, for example.

However, telecoms consultancy Analysys has quantified what the uptake will mean for service providers. It estimates those in Western Europe will generate almost $7bn in revenues in 2006 as users move their networking backbones and even voice telephony to IP VPNs.

A recent report concludes: "Service providers, anxious to identify services that generate value-added revenues and increase customer loyalty as pure bit transport becomes increasingly commoditised, should see IP VPNs as a key vehicle for exploiting the fundamental shift towards IP-based network infrastructure and applications."

These are strong words and ones understood by Equant, a service provider riding the IP VPN wave. The company, now the combined entity from the merger of the original Equant (born of the global airline communications network) and Global One, is now 54 per cent owned by France Telecom, with a $1.3bn cash infusion to prove it.

Jean Yves Charlier, markets and sales president of Equant, argues that IP VPNs should save providers money and enable them to pass on the savings to users.

Then there's the convenience. Charlier said: "We know users aren't sitting behind their desks all the time and the IP VPN can be the operating system for the organisation."

What he meant is that users can not only connect in to Equant points of presence (POPs) in any one of over 1,000 cities (albeit sometimes using the public internet to get to them), IP VPN also provides a platform for dealing with partners, suppliers and customers.

Cable and Wireless is another company at the IP VPN vanguard, in a group including players such as Infonet, Global Crossing and XO Communications. It has expanded on the ecommerce aspect of IP VPNs.

Duncan Black, director corporate networking strategy at C&W, said: "Historically, VPNs have been used internally, but if you're a company trying to do ecommerce, using extranets and so on, then an IP VPN is essential."

In other scenarios, Frame and ATM can be equally as useful, yet it is this enterprise connectivity while maintaining quality of service (QoS) and security that may well guarantee a healthy future for the IP VPN.

C&W, which also stresses its global presence and data strengths, cites customers such as the RSPCA and Shell, as well as Heinz, which has migrated to an all-IP network globally for data and voice because of total cost of ownership savings. Its use of the C&W IP VPN service is noteworthy for a company with so many connections to partners and complex supply chains.

Both C&W and Equant use Cisco and Nortel as their main suppliers.

But what of the incumbent operators in countries all around the world? How do they compete against companies of no fixed abode pedalling global POPs to multinationals?

Camille Mendler, Yankee Group director for European fixed telecoms, said: "The history of alliances, including Concert [AT&T and BT] and the original Global One [Deutsche Telekom, France Telecom and Sprint], is pretty poor. The perception of a company like Equant is good."

In other words, being dominant in one or maybe two territories while relying on alliances elsewhere could be perceived as a problem. That said, Frost and Sullivan found 77 per cent of the users they interviewed consider incumbent operators as suitable suppliers of IP VPNs, a figure higher than that for ISPs or competitive operators like C&W, Equant and co listed above.

Many types of service provider are likely to prosper from the uptake of IP VPNs, although pure bit carriers may be the ones to miss out the most. Going it alone won't be for the faint-hearted user, but is still likely to afford the main advantages. These are flexibility, cost savings, tiered QoS options and - most importantly - closeness to suppliers and customers.

It is not so hard to see why those five letters - IP VPN - make a lot of sense to a lot of people right now.