Companies are investigating IP VPNs and combination networks as options coalesce
VPNs have saved businesses a lot of money compared with the cost of conventional private networks. Now a new breed of VPN based on the Internet Protocol is generating even greater savings. IP VPNs are also giving companies more bandwidth, more flexible network designs, and the ability to more easily connect remote and international offices. They also provide the network infrastructure for combining voice and data networks, a much-hyped trend that's been slow to catch on.
U.S. companies are expected to spend $2.3 billion on IP VPN services this year, according to market research firm IDC. Nearly two-thirds of that will be paid to hundreds of small carriers, outsourcers, local Internet providers, or specialty VPN providers. The rest goes to major carriers, with AT&T and WorldCom earning the largest chunk.
That number may grow. U.S. businesses this year will spend $6.8 billion on equipment for internally managed VPNs, IDC says. Consequently, major U.S. and global carriers are moving aggressively to convince businesses to hand over their VPNs by offering fully managed IP VPN services.
"More and more enterprises are going to move to IP-based services," Forrester Research analyst Jim Slaby says. Cost-savings can be sizable, though the trade-off may be quality, he says.
One big fan of IP VPNs is B. Lee Jones, CIO for Stratex Networks Inc., a maker of equipment for wireless broadband networks that was formerly known as Digital Microwave Corp. Stratex has 200,000 of its systems in operation in 95 countries. In July, Jones moved Stratex from a hybrid frame relay/IP network to an IP VPN service from Infonet Services Corp., which tripled or quadrupled bandwidth to 12 of the company's international offices and cut the network budget in half. "It has been wonderful," he says. "It was virtually a seamless transition. People saw that their network response was a lot better, and my CFO was happy."
Jones had three reasons for shifting to an IP VPN: better security, more bandwidth, and lower costs for connecting Stratex's 26 offices and eight data centers that span five continents. He also wanted to make the network less complex. Previously, Stratex used a mix of frame relay and IP, along with dedicated private lines, DSL, and dial-up access. "It really helps having one platform and having Infonet manage everything," he says. "It's a little intangible from a cost-savings perspective, but the difference is substantial. You only have one guy to point the finger at. Fortunately, we don't have to do that very often."
There are other benefits. Stratex uses the IP VPN for international videoconferences. "We have enough bandwidth where we can do videoconferences with no incremental costs," Jones says. "It's like we're all sitting in the same room, which goes a long way to helping the team. It's saved quite a few plane tickets."
The savings that IP VPNs offer can be substantial. To build a frame relay network that links 10 offices requires 44 permanent virtual circuits connecting each location to the others. An IP VPN needs only 10 lines to connect each office to a carrier's network. Routing software establishes and tears down virtual circuits between each office as needed. Specific savings for each company depend on a variety of factors, including the number of locations on the network and the port speed.
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