Infonetics: Ethernet and IP MPLS VPN growth continues

Question: What's driving the increase?

Howard: Corporations are using more bandwidth, more graphic video content, more data services. That's one concept in the background. A second trend is that IP and Ethernet continue to be used more and more in carrier networks. This report measures the growth of IP VPN services and the growth of Ethernet services. These are revenues carriers take in from customers, most of which are corporate or government, and some of which are wholesale services. And basically, the main trends are that these services are displacing and replacing frame services, ATM and private services. This trend is worldwide really. It's slightly different in each quadrant of the world, but basically the trend is in motion all over.

Question: What are some of the trends you see, specifically?

Howard: Probably there are two main trends. One on the corporate side is that many corporations have had their branch offices connect to headquarters and then send traffic out to the Internet. The Internet connection is at the headquarters. One big change is that smaller offices are connecting both directly onto the Internet and to the private network of the corporation. Now the traffic coming into headquarters only is traffic intended for it or other branch offices. There are two ways to do that VPN: Roll your own [VPN], which puts the corporation in control, or buy a VPN service from AT&T, BT or whomever. In this case, the VPN usually doesn't go onto the Internet. It stays on the carrier's network.

Question: What's happening with carriers?

Howard: The trend on the carrier side is that they are revamping networks to be IP-centric. They are using a lot of Ethernet and IP as opposed to Sonet, SDH and ATM networks. They've gone to IP MPLS backbones. [Before it rolled out Embarq], Sprint told their customers they were going to keep offering frame relay for four or five years and then shunt them off. [That's a case of carriers] saying we need you to move to IP VPN services because we don't want to run both it and a frame relay ATM network. We want to run a single IP MPLS network. [I'm using Sprint as an example] because they are proactive. AT&T and others are encouraging customers to move because they want to get there as well.

Question: Is the major gain that IP networks are so much superior to legacy networks, or that great efficiencies are gained simply by not having to run two networks?

Howard: It has to do with them being packet-oriented. Almost all data networking now is packetized. It is IP. The frame relay and ATM networks are really TDM, time oriented. They weren't made to handle packets. The carriers want to get networks in tune with packetization.

Question: What other interesting trends showed up in the research?

Howard: One thing that is fairly new is the uptake of 10 Gigabit Ethernet — 10 GigE. It's still small but a lot of major corporate headquarters are connecting to the WAN using 10 GigE. We saw this about a year ago, around the fourth quarter of '05, the first quarter of '06. We saw a lot more router interfaces and optical gear interfaces being 10 GigE. The 10 Gig interface prices have fallen. That helps in a big way. This will continue because 100 GigE [is on the horizon] and that takes three years. When people can see next power of 10 coming, it gives them a comfort level and dissolves one of barriers to buying 10 Gig.

Question: A lot seems to be happening. Is there anything else you've seen?

Howard: The other trend that is pretty new is called mid-band Ethernet services. Most Ethernet services today are on fiber. But a lot of small offices — like our San Jose office with 10 to 15 people — use a single T1 or E1 or two Megs of bandwidth. These offices will not be connected with fiber for a long time. There's a set of services that BellSouth rolled out when it was still BellSouth and still is being offering by AT&T. It is a 2- , 4- , 6- or 8-Meg Ethernet connection over copper. They're actually using 4- or 8-pairs to connect offices.