IP VPN Market Growing Despite Telecom Industry Slump

IP VPN Market Growing Despite Telecom Industry Slump

LONDON, December 21/PRNewswire/ -- Despite unfavourable conditions in the telecommunications industry such
as reduced demand for telecom services, growing pricing pressures and
increasing competition, the market for Internet Protocol Virtual Private
Network (IP VPN) services registered substantial growth during 2003 and 2004.
Demand for IP VPN is now on the upswing, indicating that this market is
taking a significant turn for the better.



The focus within this market is increasingly on the customers, as service
providers realise the need to provide superior services to them. On the one
hand, IP providers are waking up to the market potential of IP VPN; on the
other, companies are beginning to migrate their networks from Frame Relay and
Asynchronous Transfer Mode (ATM) to IP VPN, as they realise the diverse
benefits of these services.



New analysis from Frost & Sullivan (http://www.telecom.frost.com)
estimates the European IP VPN services market to be worth EUR2.73 billion in
2003. In 2008, it is estimated to be worth EUR8.56 billion, which suggests
that almost 70 per cent of the total potential market is likely to implement
an IP VPN solution by then.



"The biggest growth is occurring at present, as customers gain confidence
in the technology, trials reach completion and actual deployments and
replacements take place," notes Frost & Sullivan Research Analyst Ms. Lucy
Liu.



One of the primary factors driving IP VPNs is their outstanding global
reach, which enables seamless connectivity of branch offices as well as
mobile employees on a worldwide basis. They also provide additional
flexibility, scalability and cost benefits that increase their appeal
significantly when compared to traditional WAN technologies.



Further, as service providers shift from a carrier-centric to
customer-centric approach, the ability to provide superior service and
support is becoming a key differentiator. Providers are attempting to
distinguish themselves from one another through factors such as improving
quality of service as well as providing more value-added services, all of
which bode well for the end user.



The security of IP VPN services - always a major challenge - has also
improved considerably and is nearing the levels of private networks. This
makes them far more acceptable to enterprises and end users, who demand
extremely high security standards.



Untapped potential in the small and medium enterprise market (SME) is
another driving force for IP VPNs. SMEs are highly cost-conscious, and in
general, not as concerned with quality of service (QoS) as they are with
cost-effective networks. Service providers can, therefore, capitalise on the
requirements of SMEs for a single network that supports multiple services and
that can be accessed by the entire workforce anywhere, any time.



Between private and public infrastructure-based IP VPN technology, the
former accounted for 72 per cent of total market revenue in 2003. This
segment is expected to experience the majority of growth; in 2008, it is
expected to account for close to 85 per cent of total market value. However,
service providers are increasingly recognising the value of offering both
private and public services to connect sites of different sizes and
importance.



"Such a hybrid approach is an attractive proposition for a company
wanting a secure, private connection for large sites, transporting mission
critical data and applications, as well as requiring remote access for branch
or remote offices," says Ms. Liu.



While IP VPN services have a strong cost advantage over traditional WAN
services, the flip side of this is that they also bring service providers
less revenue. The solution to this problem could be to sell more customised
rather than standardised services for which providers can charge a premium.
They could also look at providing value-added services rather than the
infrastructure alone. This is likely to be a key revenue generator in the
near future.



The banking and financial services vertical is currently the largest
contributor to telecom revenues in many service categories. This vertical is
likely to continue increasing its telecom spending in future to keep pace
with growing demands for high-quality customer service and 24 by 7 access.



This vertical is also experiencing considerable change in terms of
regulations, online and Internet services growth and increasing
consolidation. With telecommunications set to play a critical role in these
developments, telecom carriers are realising the benefits of becoming more
customer- and industry-focused - satisfying the financial community and
increasing enterprise revenues.



While questions abound on whether IP VPNs will emerge as a total
replacement for Frame Relay and ATM, Frost & Sullivan believes that revenues
for this market will continue to grow over the forecast period (2004-2008).
IP VPN is expected to be the fastest growing service in 2004, with a 40 per
cent increase in revenues. Revenue growth rate is expected to be the highest
from 2005 to 2006.



If you are interested in a summary of this research service providing an
introduction to Frost & Sullivan's analysis of the European IP VPN services
market, please send an email to Kristina Menzefricke, Corporate
Communications at kristina.menzefricke@frost.com with the following
information: full name, company name, title, contact telephone number, email.
Upon receipt of the above information, the summary will be emailed to you.



Title: European IP VPN Services Market - Vertical Analysis



Code: B471



Background



Frost & Sullivan, a global growth consulting company founded in 1961,
partners with clients to create value through innovative growth strategies.
The foundation of this partnership approach is our Growth Partnership
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the world.



For further information, please contact:
Kristina Menzefricke
P: +44-207-343-8376
E: kristina.menzefricke@frost.com





Source: Frost & Sullivan

Kristina Menzefricke, P: +44-207-343-8376, E: kristina.menzefricke@frost.com



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