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IP equals new alliances - get used to it
IP is leading to outsourcing, outsourcing is leading to some strange bedfellows...

By Anthony Plewes

Published: Wednesday 20 August 2003

The widespread acceptance of internet protocol (IP) has some interesting knock-on effects. Anthony Plewes considers how it might affect who you end up paying for services...

Outsourcing is on the rise, claim analysts the Yankee Group. Shrinking budgets and migration to advanced networks coupled with an increasing pressure on ICT services are driving this move. Companies are planning to deploy converged applications that make the resilience of these networks all the more important. IP-based systems are being offered under the umbrella of managed services, which means companies can outsource the operation of their networks and let their service provider worry about details such as security, maintenance and monitoring.

"Customers are trying to implement converged applications and we can help them understand the network implications," says Alex Pannell, MPLS manager at BT. One of the most important developments to help companies deploy converged applications is the emergence of IP virtual private networks (VPNs) with classes of service, in the shape of Multiprotocol Label Switching (MPLS). "MPLS has changed the picture. Because it is IP-based, the core and the edge of the network can work together," explains Pannell.

Duncan Black, director corporate solutions strategies at Cable & Wireless, agrees. "Companies are plumping for a managed service when they move over to an MPLS-based network."

The key driver is to help them manage the complexity of the network. "Although there are no PVCs [permanent virtual circuits] to maintain," explains Black, "MPLS is replacing multiple networks, so there is a requirement to support multiple applications over a single network."

Much of the complexity stems from MPLS routing, and customers would need to learn new routing procedures, such as Border Gateway Protocol (BGP). But this complexity can, of course, be outsourced to a service provider with the necessary skills.

Managed MPLS networks give carriers much better control of the network right from the core to the edge. They will also give them a better view of where any problem might occur and they will be able to offer quality of service end-to-end. Carriers are seeing massive interest in MPLS IP VPNs and BT, for example, has seen a quarter-on-quarter revenue growth of 170 per cent in that application.

Companies have already identified the limitations of their networks for converged applications. A recent AT&T and Economist Intelligence Unit survey of 237 executives worldwide found that companies admit that their networks are not equipped to meet the challenges they expect to face in the next two years. Enterprises are particularly concerned that their networks aren't up to sharing information with their suppliers and customers, and that they won't be able to handle the greater volume of traffic expected. In fact only 2 per cent of those surveyed reckon that their networks were ready for all the business challenges of the next two years.

BT's Pannell says that 80 to 90 per cent of the project RFPs it already receives specify that voice and video are important considerations within the next one or two years. Many companies are making sure that their current applications run stably on IP networks before taking the plunge with voice or video.

Because enterprises are increasingly integrating infrastructure and network services, traditional outsourcers will have to depend on partnerships to deliver these services. This is reflected in recent wins such as the CSC-led consortium for the Royal Mail outsourcing contract. The Prism alliance also includes BT and Xansa and the deal includes data centres, networks and applications.

These partnerships, however, are not necessarily being led by systems integrators and some carriers are making a play to be the first line of contact with the customer. BT, for example, says that IBM can be both a competitor, supplier or partner.

The Yankee Group says that it is too early to call whether systems integrators or service providers are better placed to win these converged contracts. BT has had a fair amount of success in winning outsourcing contracts. For example in late 2002 it won a E1bn contract to manage and develop Unilever's entire global communications infrastructure.

However, many carriers are trying to develop their outsourcing business by building better partnerships with the large systems integrators. Peter Bannister, head of outsourcing and integrators at Equant, says: "We need to look at the integrators because they sign the big outsourcing deals and tend to deal with the incumbent."

Many carriers have scaled back their ambitions to play in the application market and are now tackling this area by developing partnerships with systems integrators. However, this does not mean that carriers do not manage any applications at all, it simply means that they are playing to their strengths and offering mainly communications-related applications such as IP telephony.

As some providers seek to bump up their IT credentials further while others concentrate on what they have always done well, the nature of partnerships and supplier agreements is likely to change even more. That should, in theory, be a good thing for users. And IP has played no small part in this changing landscape.

Go to www.silicon.com/ip for more on IP.