Users bent on VPN spending spree - Industry Trend or Event

CommunicationsWeek International, Oct 23, 2000 by David Molony

Businesses in Europe are getting set to provide virtual private networking for an increasingly mobile customer base.

European businesses are preparing a wholesale switch from leased-line networking to Internet-based networking during the next four years. And service providers are re-engineering their national networks to deal with the expected onrush of managers to get flexible access for their increasingly mobile users.

A new report from consultancy Infonetics Research Inc., of San Jose, California, says that businesses want to standardize on Internet Protocol services and that secure virtual private networking over the Internet or other IP-based public networks will replace leased-line connectivity from site to site.

Better understanding

Analysts say European users are catching up with their counterparts in the United States, who already are extensive users of VPNs. "User understanding of VPNs is better," said Peter Judge, analyst at Infonetics Research Europe Limited, of Newbury, England. "They are satisfied that VPNs are more secure."

Infonetics estimates that spending on IP-based VPNs in Europe will increase from $972 million in 2000 to a total of nearly $12 billion in 2004. The report defines VPNs as either: corporate-managed systems based on customer premises' equipment, hosting a tunneling or encryption technology such as IPSec or L2TP; or network-based systems from a service provider using similar encryption technology.

Management of CPE-based VPNs can be done either by the user company or outsourced to a service provider. According to Infonetics' survey of corporate users, German companies are inclined to self-managed CPE networks, French companies to fully-outsourced VPNs from service providers, while U.K companies

prefer CPE-based VPNs, but are as likely to outsource the management of them as to do it in house.

"German organizations average fewer sites," said Judge. "U.K. respondents are evenly divided... [but] network-based VPN adoption will grow, especially in large organizations, when their availability becomes greater."

Service providers are hurrying to push out new forms of VPN service, even on the leased-circuit based networks that have been reliable revenue sources. This month, BT announced that existing users of its frame relay network will be able to switch end-users between frame relay and IP-based VPN connectivity on the same contract.

"We are offering a new class of [private virtual circuit]. Frame and cell... users will have an option to use IP-VPN," said Barry Hinton, vice president of Internet services at BT Ignite, the broadband division of BT which runs the switched multi-megabit data service (SMDS) network. "It's on a per-application basis--they can decide which application to direct into the IP-VPN cloud."

Analysts say service providers have resisted converting users from more expensive leased circuits to pay-for-use VPNs. But operators claim they can do this now without wrecking their revenues, because corporate users still have substantial needs for leased capacity between major sites.

"We are seeing very high growth in the VPN market," said BT Ignite's Hinton. "Companies in finance and retail are not going to move today to IP-VPNs.

"They need bigger connections between data centers. Many customers use IP-VPN to bring traffic onto their own network then hub that traffic through their own router."

Hinton said corporates are buying 200% more circuits than a year ago, especially because small and medium-sized enterprises buy network now. "We have doubled the size of our network," he said. "A corporate network used to be 20 or 30 sites, now it's hundreds of sites."

Encryption

Infonetics itself is a recent convert to an extended VPN, which serves 40 or 50 analysts and staff in the U.S. and Europe. The company uses what its own analysts define as a CPE-based network; running networking software on its own server, with managed connectivity outsourced to a service provider.

Infonetics Europe's Judge said that Internet dial-up remote access had been reliable. Like many VPN users, he uses the network as much from outside the office as in it. His only complaint is the time taken to load security software, which has to be done each time a remote access session is set up.

"Any encryption is bound to slow things down," said Judge. "What we don't know is whether the encryption really has been working while we have been in that online session. We can't tell at the time if someone did break in and see what we were doing."