US MPLSIP VPN Services Market Update 2010

8/7/2019 US MPLSIP VPN Services Market Update 2010

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U.S. MPLS/IP VPN Services Market Update 2010

Focus on Convergence,Telepresence and Network & Application

Performance Management

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October 2010


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Disclaimer

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Executive Summary 8

Research Scope 9

Key Definitions 10-11

Market Overview and Trend Analysis

Market Engineering Measurements 13-14

Market Drivers 15-16

Market Restraints 17-18

Market Trend Analysis 19-24

Market Revenue and Ports Forecasts

Market Revenue Forecasts 26-32

Market Ports Forecasts 33

Market Migration Trends by Access Technologies 34

Pricing Analysis

Pricing Analysis 36-38

Competitive Landscape and Market Share Analysis

Competitive Landscape 40

Competitive Analysis 41-43

Market Share Analysis 2009 44

Market Share Comparison 2008 and 2009 45

About Frost & Sullivan 46-50

Table of Contents


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List of Figures

Total MPLS/IP VPN Services Market: Market Drivers Ranked in Order of Impact (U.S.), 2010-2014 16

Total MPLS/IP VPN Services Market: Market Restraints Ranked in Order of Impact (U.S.), 2010-2014 18

Total MPLS/IP VPN Services Market: Pricing Trends by Port Speed (U.S.), 2009 38

Total MPLS IP/VPN Services Market: Comparison of Common SLAs for Leading Service Providers (U.S.), 2010 41

Total MPLS/IP VPN Services Market: Comparison of Service Offerings for Leading Service Providers (U.S.), 2010 42-43


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List of Charts

Total MPLS/IP VPN Services Market: Market Engineering Measurements (U.S.), 2009 13

Total MPLS/IP VPN Services Market: Market Drivers Ranked in Order of Impact (U.S.), 2010-2014 15

Total MPLS/IP VPN Services Market: Market Restraints Ranked in Order of Impact (U.S.), 2010-2014 17

Total MPLS/IP VPN Services Market: Revenue Forecasts (U.S.), 2008-2014 26

Total MPLS/IP VPN Services Market: Revenue Forecasts Comparison by 2009 Study vs. 2010 Study

(U.S.), 2008-2013 27

Total MPLS/IP VPN Services Market: Percent Split in Revenues by Wholesale vs. Retail (U.S.), 2008-2014 28

Wholesale MPLS/IP VPN Services Market: Revenue Forecasts (U.S.), 2008-2014 29

Wholesale MPLS/IP VPN Services Market: Revenue Forecasts Comparison by 2009 Study vs. 2010 Study

(U.S.), 2008-2013 30


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List of Charts (Contd)

Retail MPLS/IP VPN Services Market: Revenue Forecasts (U.S.), 2008-2014 31

Retail MPLS/IP VPN Services Market: Revenue Forecasts Comparison by 2009 Study vs. 2010 Study

(U.S.), 2008-2013 32

Retail MPLS/IP VPN Services: Ports Forecasts (U.S.), 2008-2014 33

Total MPLS/IP VPN Services Market: Market Migration by Access Technologies (U.S.), 2009 and 2014 34

Total MPLS/IP VPN Services Market: Market Share Analysis (U.S.), 2009 44




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Executive Summary

The U.S. MPLS/IP VPN services market is the growth stage of product lifecycle with demand for the service increasing

across verticals. Revenues for the U.S. MPLS/IP services market exceeded $5,523.2 million in the year 2009, and are

expected to reach $10,784.4 million in 2014, growing at a compound annual growth rate (CAGR) of 14.3 percent. The

market grew at a higher rate than forecasted in our 2009 study owing to gradual market recovery from recession.

Continuing enterprise focus on convergence is the single most important driver fueling adoption of MPLS VPNs, ascustomers realize the cost benefits of moving their voice, data and video applications to a single IP-based network as

compared to running three different expensive networks for each of these applications. As the market migrates to MPLS

VPNs to take advantage of the networks ability to support traffic prioritization through class of service, there is a growing

focus on network and application performance monitoring tools. Both these tools are critical for the success of MPLS VPN

implementation as customers make the move to a converged architecture and demand more control over the applicationsthey wish to run on the network.

Following is a summary of other key trends in the MPLS/IP VPN services market:

Traditional TDM services continue to dominate the access space but, alternative access technologies such as

Ethernet and 3G wireless are gradually gaining traction.

Integration of video applications such as TelePresence is expected to drive spending on MPLS VPN services.

Layer 2 Ethernet-based VPNs (VPLS) are complementing layer 3 MPLS VPNs.

Hybrid networks are seeing growth even as VPLS gains traction.

Ability to support multicast is fast emerging as a key competitive differentiator.


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Research Scope

Multiprotocol Label Switching/Internet Protocol (MPLS/IP) Virtual Private Network (VPN) as defined in this research

represents VPN services enabled over a carriers private MPLS network. The VPN service is necessarily a site-to-site

connection with the service provider managing the end-to-end network. A private IP VPN uses the infrastructure of a single

network provider. A public IP VPN (or Internet VPN) carries data across multiple and non-specified IP backbone

infrastructures. Since a private IP VPN carries traffic across a single infrastructure, the provider can deliver greater and more

standard security, manageability, and connectivity service attributes than a public service that relies on disparate network

infrastructures. In view of the fact that traffic is fully managed end-to-end, private IP VPNs can also offer higher quality of

service (QoS) guarantees supported by contractually binding SLAs.

This study includes analysis and provides market forecasts for layer 3 VPN services that are provisioned for site-to-site

connectivity where the service provider manages the routing tables. Traditional layer 2 VPNs (ATM/FR/PPP based VPNs)

where the customers retain routing control either through rented or owned Customer Premises Equipment (CPE) are not

included in this analysis, as those services are declining rapidly, and also do not support any-to-any connectivity. Ethernet

based layer 2 VPN services such as Ethernet virtual private line (EVPL) and Ethernet Virtual Private LAN service (VPLS) are

not included in the market size. Frost & Sullivan tracks the Ethernet services market separately, hence revenues earned

from it by service providers are counted in our Ethernet analysis. Revenues earned from sales of remote VPN clients are not

included in this study.

Furthermore, the study does not include analysis of Internet VPNs that are provisioned on public IP networks using tunneling

protocols, such as Internet Protocol Security (IPsec) or Secure Sockets Layer (SSL). Interviews with service providers

indicate that carriers do overlay IPsec tunnels over MPLS networks to provide additional security to VPN services, as and

when requested by a customer. However, this study does not include revenue earned by provisioning IPsec over MPLS

networks.


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IPsec versus MPLSInternet Protocol Security (IPsec) is a standard providing comprehensive privacy and authentication in the IP networks. IPsec

has grown to be the preferred choice for providing secure VPN communications over the public Internet. IPsec, particularly

when run over the Internet, is generally much less expensive than other network types. This is probably a major contributing

factor to its popularity, especially among the smaller enterprise segment.

Multiprotocol Label Switching (MPLS) is a standards-approved technology for speeding up network traffic flow and making it

easier to manage. MPLS involves setting up a specific path for a given sequence of packets, identified by a label put in each

packet, thus saving the time needed for a router to look up the address to the next node to forward the packet to. MPLS is

called multiprotocol because it works with the Internet Protocol (IP), Asynchronous Transport Mode (ATM), and frame relay

network protocols. It is also being touted as an ideal migration path for enterprises with existing Layer 2 private VPN services

that are looking to move to the full IP services on Layer 3.

MPLS VPNs do not encrypt traffic. With reference to the standard model for a network (the Open Systems Interconnection, or

OSI model), MPLS allows most packets to be forwarded at the layer 2 (switching) level rather than at the layer 3 (routing)

level. In addition to moving traffic faster overall, MPLS makes it easy to manage a network for QoS. For these reasons, the

technique is expected to be readily adopted as networks begin to carry more and different mixtures of traffic. This may enable

the network to handle the data in a more specific way but it does not offer the same Wide Area Network (WAN) security asprovided by the IPsec. For firms that have security as a greater priority than high bandwidth and scalability, IPsec VPNs

remain a popular choice. IPsec can be layered on top of MPLS though, to add encryption if it is required. Also, MPLS works

best as a site-to-site technology, whereas IPsec can handle both site-to-site and remote access.

MPLS based IP VPNs offer inherent privacy of the customers content through traffic segmentation while IPsec offers content

privacy through encryption. Finally, MPLS provides QoS support for multiple classes of service while Internet-based IPsec

VPNs do not support QoS.

Key Definitions


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CPE versus Network-based

VPNs can be set up in several ways but CPE-based and Network-based are the most common methods. Essentially, the

difference lies in the network architecture. In CPE-based VPNs, the routing intelligence resides at end-user sites

whereas in the network-based VPNs, routing intelligence resides at the providers edge from where it can be extended

out to many end-user locations.

Network-based VPNs require no CPE except for a standard router equipped to support traffic prioritization. This enables

the service providers to store routing intelligence and VPN functionality in their own networks without setting up and

managing expensive CPEs. Network-based VPNs are mainly targeted at large clients that must deal with hundreds of

customers and hundreds of thousands of tunnels. As the number of locations and the degree of meshing grows, so too

does the complexity in managing a CPE-based VPN. CPE is a good solution for smaller providers or those providers that

have to manage other sophisticated devices on the customers premises.

With the availability of high-speed Internet connections, there has been a significant interest in the deployment of CPE-

based VPNs that are capable of being operated over the Internet. This has been driven primarily by the ubiquity and the

distance insensitive pricing of the Internet connectivity that are typically resulting in significantly lower costs than those of

dedicated or leased line services.

Key Definitions (Contd)


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Market Overview and Trends Analysis


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Measurement Name Measurement Trend

Market age Growth Increasing

Revenues (2009) $5,523.2 million Increasing

Potential revenues (2014) $10,784.4 million Increasing

Base year market growth rate (2009) 14.0 percent Increasing

Forecast period market growth rate (CAGR) 14.3 percent Increasing

Price sensitivity Medium Stable

Customer demographics (product site number and types)Medium & Large

Distributed Enterprises

across verticals

Stable

Competitors (active market competitors in base year) 40+ Stable

Degree of competition 8 Increasing

Degree of technical change Medium Increasing

Customer satisfaction 9 Stable

Customer loyalty 9 Stable

Market concentration (percent of base year market controlled by top fourcompetitors)

88% Decreasing

Market Engineering Measurements

Total MPLS/IP VPN Services Market: Market Engineering Measurements (U.S.), 2009

Note: All figures are rounded; the base year is 2009. Source: Frost & Sullivan


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Market Summary

Price Range/Sensitivity

Price sensitivity was medium in 2009, owing largely to market domination by a handful of Tier 1 carriers. The degree ofcompetition is medium-high, which is higher than the previous year due to Tier 2 service providers in the market continuing toexpand Ethernet access to their MPLS networks (as predicted in the 2009 report N5AE) . The MPLS/IP VPN market, so far,has been dominated by the traditional Tier 1 carriers largely due to the extensive access/local loop network assets they own,which gives them an edge over competitive carriers who need to buy these access networks to offer an end-to-end VPNservice. With service providers expanding their Ethernet access networks to connect customers to the MPLS core, we expectcompetition to heat up in the MPLS VPN space.

Customer satisfaction among providers of MPLS/IP VPNservices is high, at 9 out of 10, and continues to improve.Service providers are using longer-term contracts as well asbetter SLAs and bundled offerings to retain customers for alonger period of time. Loyalty is at 9 on a scale of 10, ascustomers adopt MPLS VPN for multi-point interconnection tolink branch offices on a national as well as global level.

Revenues for this market, including both retail and wholesale segments, totaled $5,523 million in 2009. Revenues areexpected to reach $10,784.4 million in 2014. Traditional layer 2 VPN services such as ATM and Frame Relay are in thedecline stage of the product lifecycle, giving layer 3 MPLS VPN services a boost. Layer 3 VPNs enable customers to build afully meshed network supported by strong SLAs and Class of Service (CoS) to handle the convergence of voice ,data and

video applications, thus driving market migration to lP-based networks.

Market ConcentrationCustomer Satisfaction

The market concentration (as a percent of the base yearmarket controlled by the top four competitors in 2009) wasat 88 percent. This percentage is slowly decreasing asTier 2 service providers take away market share from Tier1 carriers; however the percentage points change isminimal.

Market Engineering Measurements (Contd)


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Market Drivers

Source: Frost & Sullivan

Market Migration

from ATM & FR

Cost-competitivenessof Layer 3

MPLS VPNs

Vertical SpecificDemand Retail

& Healthcare

Emergence OfEthernet Access as aCost-effective High-

speed AccessTechnology

Support forConvergence VoIP, Data and

Video

Support for TrafficPrioritization

by Applying CoS toBandwidth

Total MPLS/IP VPN Services Market: Market Drivers Ranked in Order of Impact (U.S.), 2010-2014


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Market Drivers

Rank Driver 1-2 Years 3-4 Years 5 Years

1

Increasing demand for network services to support convergence

IP Voice, Data, Video, Unified Communication, and multimedia

applications are fueling adoption of MPLS VPN services

High High High

2Support for traffic prioritization by applying Class of Service (CoS)

to bandwidth is a key factor driving MPLS adoptionHigh High High

3Cost competitiveness of Layer 3 MPLS VPN service makes it an

attractive choice for multipoint-to-multipoint connectivity

High High High

4

Emergence of Ethernet Access as a cost-effective alternative to

traditional access technologies even while supporting higher access

speeds is driving adoption of MPLS VPN services

High High High

5

Vertical specific demand for interconnecting distributed

offices/branch locations - specifically retail, healthcare, financialservices and government - drives adoption of MPLS VPN services

High High High

6

Market Migration from expensive ATM & Frame Relay networks to

MPLS IP network owing to its support for convergence of

applications and managed services. drives market spending

High MediumMedium

Total MPLS/IP VPN Services Market: Market Drivers Ranked in Order of Impact (U.S.), 2010-2014



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Market Restraints

MPLS not Suitable forPt-to-Pt Connectivity

Traditional AccessTechnologies Emergence of VPLS -Layer 2 VPNs

Preferred due toRouting Control

Capabilities

Sunken Investment inATM & FR Networks

Total MPLS VPN Services Market: Market Restraints Ranked in Order of Impact (U.S.), 2010-2014



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Market Restraints

Rank Restraint 1-2 Years 3-4 Years 5 Years

1MPLS does not provide the best SLAs for point-to-pointapplications; it is more of an any-to-any kind of application, thus

reducing the overall market spending on MPLS

High High High

2Traditional TDM services still rule the access space in the US, thus

restraining customer migration to higher bandwidth portsHigh High High

3

Emergence of Layer 2 Ethernet VPN or Virtual Private LAN service

eating into layer 3 VPN revenues for multipoint-to-multipoint

connectivity

Low Medium Medium

4 Sunken investment in traditional layer 2 services such as ATM &Frame Relay delays adoption of layer 3 VPN services

Medium Low Low

Total MPLS VPN Services Market: Market Restraints Ranked in Order of Impact (U.S.), 2010-2014



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Integration of Video Applications such as TelePresence Expected to Drive Spending on MPLS VPN services

TelePresence(TP) is an MPLS application that is gaining tremendous traction in the market. Leading service providers have

rolled out managed TP solutions eliminating the need for enterprises to invest in in-house IT expertise dedicated to

TelePresence solution management, which has in turn lead to a greater adoption rate. AT&T, BT, Tata Communications and

National Lambda Rail (NLR) have rolled out TP exchanges that support inter-company TelePresence using Ciscos

Exchange solutions. For example: Any 2 companies that are AT&Ts customers can use AT&Ts gateway to establish inter-

company TP. Verizon, XO and tw telecom are the other service providers offering managed TP solutions on their MPLS VPN

network. Global Crossing recently announced its partnership with Teliris for TP solutions.

Ciscos (1300 & below) range of solutions can run speeds as low as 1.5Mbps (T1/E1) when optimized to 720p, a key feature

that is expected to drive adoption of these solutions among the SMB segment that does not necessarily have high-speed

connectivity at all its company locations. Even in places where the customer has access to high-speed connectivity the cost

of leasing these high-speed circuits are most often detrimental to implementing a TP solution. The low speed solutions do not

offer a great picture quality, however, customers can get a decent TP solution running using 3-5 Mbps speed circuits and

move to higher speed solutions when they are ready to make the necessary network investment. The CTS 1300 & CTS 500

cost $89K and $33.9K, respectively, as compared to a CTS 3000 that costs $300K. Comparing the price of the different TP

solutions one can easily understand the reasons for adoption of the solution by the SMB segment.

Market Trend Analysis (Contd)

CTS 1100CTS 500 CTS 3200


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Layer 2 Ethernet-based VPNs (VPLS) are Complementing Layer 3 MPLS VPNs

An interesting trend in the WAN transport space today, is that customers are asking for a combined private IP layer 3

solution and layer 2 Ethernet solution for their fully meshed connectivity needs. Customers do not want to differentiate

between layer 2 & 3., Instead they are increasingly looking to solve their business problem with a combination of

services. For network connections that they are used to managing themselves e.g., HQ location to data center or

between data centers, where they are running very specific applications - they are asking for layer 2 Ethernet. Forbranch locations, they are asking for layer 3 VPNs, thus encouraging layer 2 and layer 3 VPNs to coexist in a

complementary fashion in the market.

Market trends also indicate that as customers get comfortable with layer 2 VPN and get involved in enhanced traffic

shaping, they cannot do all of that on the Ethernet switches they use today, and they are looking at carriers to provide

some enhancements. If the IT staff is not able to provide any kind of CoS treatment before the traffic goes to the WAN

link, then they are not going to get the desired performance. Service providers are seeing this as an opportunity to sell

their managed services along with the VPLS service offering.

Hybrid Networks are Seeing Growth Even as VPLS Gains Traction

As explained in the earlier section VPLS is gaining traction in the VPN space, and increasingly public IP VPNs based on

IPsec or Secure Socket Layer (SSL) are being used to connect remote company locations to the service providers IP

cloud. DSL-based IP VPNs using IPsec are also seeing greater adoption as a back-up option to MPLS, thus driving

market spending on IP VPNs. Going forward, the market trend is clearly toward more hybrid networks, where MPLS

VPN/VPLS/IP VPNs co-exist, as the ultimate purpose of implementing a VPN network is to support any-to-any

connectivity and service providers will use a combination of technologies to support inter-networking between distributed

company locations.


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Customers are Experimenting with Multiple Back-up Options

Customers are increasingly experimenting with multiple services for back-up or secondary circuits. 3G wireless access

and DSL-based IPsec tunneling are seeing good growth as back-up circuits. Satellite is sometimes preferred for back-up

but is most often used for providing access to locations where other alternatives are not available. 3G wireless access is

also fast becoming a preferred method of primary circuit to connect remote locations to MPLS networks.

The option of usage-based billing has led customers to prefer to lease the secondary/back-up circuit from the primary

circuit provider. In usage-based billing the customer just pays a nominal port fee until the time the circuit gets fully utilized

(in case of primary circuit failure) upon which the customer pays for the BW utilized on the port. Increasingly, wholesale

customers are utilizing usage-based billing to buy MPLS ports and offer it as a back-up option to customers that ask for

carrier diversity for their MPLS circuit.

Bundled Offerings Continue to Gain Traction in the SMB Space

Bundled products such as offering Voice + Internet + VPN for data transport continue to see a great amount of success

in the SMB space, owing to 2 key benefits seen by the customer: 1) Cost savings due to price discounts offered by CSPs

on bundled solutions, and 2) Ease of dealing with a single provider for multiple communication services. VoIP/SIPTrunking continues to be an integral part of MPLS VPN offerings, as the SMB customer segment continues to focus on

converging its voice and data infrastructure. The ability of MPLS networks to support multiple CoS is the primary reason

for VoIP adoption. Managed services such as managed router and managed security services (CPE-based Firewall,

web content filtering, DDoS) are some of the other services that are being increasingly bundled along with VPN offerings.


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Ability To Support Multicast Is Fast Emerging as a Key Competitive Differentiator

Multicast is simply the ability of a network to support one-to-many type of information sharing/distribution. Since MPLS

VPNs are predominantly a transport service targeted towards any-to-any type of connectivity, the ability to share

information from a single source with multiple receivers can have multifold benefits in some key applications. Since most

large enterprises deploying MPLS VPN infrastructure intend to converge its applications, support for IP multicast can goa long way in driving adoption of MPLS for media-rich collaboration services.

Typical application scenarios of IP multicast include: delivery of financial market data and stock ticker values data stream

to multiple end users, enterprises using IP video streaming to broadcast their CEOs speeches to employees, distance

learning, and primary video distribution networks in the media and entertainment vertical. The content provider segment

is increasingly asking for multicast capabilities to distribute content using the MPLS network. Providers are typically

looking to transmit very large video files using intelligent techniques, but they would also need caching and contentdistribution services, which we expect will drive further demand for CDN services offered by some communication

service providers.


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Market Revenue and Ports Forecasts


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Market Revenue Forecasts

Total MPLS/IP VPN Services Market: Revenue Forecasts (U.S.), 2008-2014

Revenues for the U.S. MPLS/IP services market totaled $5,523 million in the year 2009, and are expected to reach

$10,784 million in 2014, growing at CAGR of 14.3 percent. The U.S. MPLS/IP VPN services market is in the growth stage of

the product lifecycle, with demand for the service increasing as end users are convinced of the benefits offered by migrating

to IP-based networks. As discussed in detail in the trends section of this study, numerous factors are contributing to the

growing demand for MPLS/IP VPN services, with convergence and increasing uptake of managed services leading the way.

0.0

2,000.0

4,000.0

6,000.0

8,000.0

10,000.0

12,000.0

12.5

13.0

13.5

14.0

14.5

15.0

Revenues ($ Million) 4,843.0 5,523.2 6,323.6 7,263.5 8,329.5 9,514.8 10,784.4 14.3%

Growth Rate (%) 14.0 14.5 14.9 14.7 14.2 13.3

2008 2009 2010 2011 2012 2013 2014 CAGR(2009-14)

--

Revenues($M

illion)

GrowthRate(%

)



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Total MPLS/IP VPN Services Market: Revenue Forecasts Comparison by 2009 Study vs. 2010 Study (U.S.), 2008-2013

Market Revenue Forecasts (Contd)

The chart shows revenue forecast comparison of the 2010 study with revenue estimates from the 2009 study. The

MPLS/IP VPN market grew at a slightly higher rate than predicted, due to market recovery in 2009 that fueled

greater adoption of MPLS VPN services. Frost & Sullivan expects the market to sustain this momentum throughout

the forecast period.

Note: All figures are rounded; the base year is 2008 for 2009 study forecast & 2009 for 2010 study forecast. Source: Frost & Sullivan

1,500.0

3,000.0

4,500.0

6,000.0

7,500.0

9,000.0

10,500.0

2009 Study Revenue Forecast ($ Million) 4,843.0 5,448.3 6,183.9 7,080.5 8,142.6 9,323.3


0.0

Revenues($

Million)

201320122011201020092008


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Total MPLS/IP VPN Services Market: Percent Split in Revenues by Wholesale vs. Retail (U.S.), 2008-2014

The chart shows the revenue distribution between the wholesale and retail segments. The retail market is expected to represent

a major percentage of the total revenues throughout the forecast period, largely due to service providers reluctance to

wholesale the service to competitors for reselling purposes. The dominant wholesale customers are system integrators,

international carriers, content providers and to a lesser extent carriers that buy services from each other for back-up options.



Wholesale Revenues (%) 12.0 11.2 10.4 9.7 9.0 8.4 7.9

Retail Revenues (%) 88.0 88.8 89.6 90.3 91.0 91.6 92.1

90.0

0.0201320122011201020092008 2014

80.0

70.0

60.0

50.0

40.0

10.0

20.0

30.0

PercentSplitRevenues(%)


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Wholesale MPLS/IP VPN Services Market: Revenue Forecasts (U.S.), 2008-2014


Wholesale market revenues for the year 2009 were $618.9 million, much lower than forecasted in the 2009 study. Serviceproviders reported lower wholesale MPLS VPN revenues owing to slower than anticipated growth of the content provider

segment. System Integrators(Sis) and International carriers continue to drive wholesale revenues. Frost & Sullivan expects

carrier neutral exchange providers to represent considerable demand in the future as these providers start offering end-to-end

circuits to their carrier customers instead of just the tail circuit. A carrier/SI wanting to connect between NYC and Chicago can

now buy both the tail and long haul pieces from the exchange provider, as compared to buying the long haul piece from a

carrier separately. This creates an unique opportunity for Tier 2 or even Tier 1 MPLS providers to sell their transport networks

to exchange providers as long as they do not represent competition to their direct carrier sales.

150.0

300.0

450.0

600.0

750.0

900.0

5.0

5.3

5.6

5.9

6.2

6.5

6.8

7.1

Wholesale Revenues ($ Million) 581.2 618.9 659.2 704.0 753.3 802.2 852.0 6.6%

Growth Rate (%) 6.5 6.5 6.8 7.0 6.5 6.2

2008 2009 2010 2011 2012 2013 2014

CAGR

(2009-14)

0.0

--

WholesaleRevenu

es($Million)

GrowthRate(%)



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Wholesale MPLS/IP VPN Services Market: Revenue Forecasts Comparison by 2009 Study vs. 2010 Study (U.S.), 2008-2013

As shown in the chart above the wholesale market revenue growth in 2009 was less than forecasted in our 2009 study. Thereason is lower than expected uptake of MPLS VPNs by content provider market. Despite a greater interest from this

segment compared to earlier years, the interest has not materialized into comparable market spending due to concerns

regarding video quality on IP-based networks. A limited number of point-to-point IP-based networks are in use today;

however, content provider uptake of MPLS/IP VPN for video distribution is still in the early stages. Today, the wholesale

market demand is largely sustained by international carriers and system integrators. As the content provider segment for

MPLS evolves, Frost & Sullivan will revise the forecasts, accordingly.

0.0

300.0

600.0

900.0

1,200.0

1,500.0

2009 Study Revenue Forecast ($ Million) 581.2 681.0 803.9 955.9 1,140.0 1,351.9

2010 Study Revenue Forecast ($ Million) 581.2 618.9 659.2 704.0 753.3 802.2

2008 2009 2010 2011 2012 2013


Revenues($

Million)


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Retail MPLS/IP VPN Services Market: Revenue Forecasts (U.S.), 2008-2014

The retail market revenues totaled $4,904.3 million in 2009, and are expected to reach $9,932.4 million in 2014, growing at aCAGR of 15.2 percent. We expect the year-over-year growth rates to peak in 2011 and decline marginally thereafter, owing to

price compression over a period of time, as expected with any growing market. Demand for higher bandwidth speeds would

sustain market spending, as customers continue adding voice and video applications to their VPN networks. However, the

overall cost competitiveness of migration to an IP network is expected to result in price depletion leading to reduced overall

market revenues. Carriers are advised to manage this revenue decline by effectively marketing managed services and hosted

services to customers to ensure a steady stream of revenues.

0.0

1,500.0

3,000.0

4,500.0

6,000.0

7,500.0

9,000.0

10,500.0

13.0

13.5

14.0

14.5

15.0

15.5

16.0

Retail Revenues ($ Million) 4,261.8 4,904.3 5,664.5 6,559.5 7,576.2 8,712.6 9,932.4 15.2%

Growth Rate (%) 15.1 15.5 15.8 15.5 15.0 14.0

2008 2009 2010 2011 2012 2013 2014CAGR

RetailRevenues

($Million)

GrowthRate(%)

--


(2009-14)


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As shown in the chart, market revenues for 2009 exceeded our 2009 study forecast owing to a steady market spending

recovery as compared to 2008. Growing focus on convergence of applications (voice + data + video) and the need for

reliable networks for implementing a fully meshed network connectivity among distributed enterprises are some of the

factors driving adoption of MPLS/IP VPN services. Managed services (managed security, managed router) and growing

focus on network and application performance management tools are expected to contribute significantly to the market

revenues in the MPLS/IP VPN space.

Retail MPLS/IP VPN Services Market: Revenue Forecasts Comparison by 2009 Study vs. 2010 Study (U.S.), 2008-2013

0.0

1,500.0

3,000.0

4,500.0

6,000.0

7,500.0

9,000.0

10,500.0



201320122011201020092008


Revenues($M

illion)


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Market Ports Forecasts

Frost & Sullivan estimates an installed base of 790,955 retail MPLS ports in 2009, and expects the port count to increase to

916,022 in 2014, growing at a CAGR of 3.0 percent. The ports growth grate is expected to gradually decline beyond 2011 as

we expect market migration from multiple low speed ports to fewer higher speed ports. That is, a single 10 Mbps or 100

Mbps physical Ethernet port will be shared among multiple locations (by creating multiple logical VLANs), instead of each

location using a separate physical port. This will result in a port count decline with fewer ports being sold., However, the high

speed ports sold will command a higher price, resulting in higher per port revenue.

Retail MPLS/IP VPN Services Market: Ports Forecasts (U.S.), 2008-2014

0

200,000

400,000

600,000

800,000

1,000,000

0.0

0.4

0.8

1.2

1.6

2.0

2.4

2.8

3.2

3.6

4.0

Ports Forecasts 767,917 790,955 816,265 844,018 869,339 893,680 916,022 3.0%

Growth Rate (%) 3.0 3.2 3.4 3.0 2.8 2.5

2008 2009 2010 2011 2012 2013 2014 CAGR(2009-14)

--

PortsForecasts

GrowthRate(%)



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Migration Trends by Access Technologies

The chart shows market migration trends by access technologies for the years 2009 & 2014. T1 speeds continue to dominate

the access space, with a steady growth in Ethernet access being adopted. Traditional ATM/FR access are clearly on a

decline but not completely retired, yet. DSL continues to hold its share due to a sustained market demand from the cost

conscious small business segment, and distributed verticals such as retail. EVDO or Wireless access as a primary link is

increasing, as opposed to being limited for back-up circuit applications in the past. Satellite access continues to see uptake

from terrestrial service providers to connect customer locations that are beyond the wireline network footprint.

Retail MPLS/IP VPN Services Market: Market Migration by Access Technologies (U.S.), 2009 and 2014

2%

4%

10%

65%

6%

3%

5%

2%

3%

1%

2%

8%

55%

2%

2%

22%

4%

4%

0% 10% 20% 30% 40% 50% 60% 70%

ATM

Frame Relay

DSL

T1/Frac T1

T3/Frac T3

SONET (OCx)

Ethernet

EVDO

Satellite

2009 2014



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Pricing Analysis


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Class of Service Pricing

It is common to see most carriers offering 4-6 levels of CoS in the MPLS VPN space. Real Time, Interactive, Mission-critical,

Priority and Best-effort are some of the CoS options available for VPN service. The various VPN service pricing options

available in the market today are as follows:

Flat-rate charge (as a percentage of port charge): Service providers charge a flat-fee based on the ratecustomers pay for the port. For example, if a customer pays $400 per month for a DS1 port, the CoS fee is 10

percent of the port fee, which is $40 in this case. The fee does not vary based on access, with a flat rate of 10%

of the port fee being charged as CoS fee.

Flat-rate charge (varies by bandwidth): Service providers charge a flat rate based on the type of port

speed/bandwidth that a customer subscribes to. For example, a T1 link has a flat $100 rate allowing the customerto have service classes for T1.

Variable CoS fee (as applied to usage-based service): This is applicable to usage-based MPLS VPN services.

Each MB of packet sent into the network is segregated based on the CoS provided for that MB and the applicable

per MB price is applied to that BW.

Pricing Analysis (Contd)


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Pricing Analysis (Contd)

The figure shows pricing trends for various MPLS port speeds in the market. Please note the indicative pricing is for

MRC-based port or bandwidth. It does not include access fee, CoS charges or any other managed service offered with

the port.

Total MPLS/IP VPN Services Market: Pricing Trends by Port Speed (U.S.), 2009

Service Average MRC ($)

DSL $150-$200

T1 $300-$400

T3 $1,500-$2,500

OC-3 $6,500-$8,000

Ethernet-10 Mbps $500-$700

Ethernet-100 Mbps $2,000-$2,500

Ethernet-1 GigE $5000 & above



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Competitive Landscape and Market Share Analysis


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Competitive Analysis

Total MPLS IP/VPN Services Market: Comparison of Common SLAs for Leading Service Providers (U.S.), 2010

Key: NR = Not Reported.

Note: Qwest did not respond to our request for the above details, and is hence not included in the above table.

Availability MTTR Latency Jitter Packet LossService

Installation

On-netSLA

Off-netSLA Actual

On-netSLA

Off-netSLA

On-net& Off-

net SLA Actual

On-net& Off-

net SLA Actual

On-net &Off-net

SLA Actual

On-net &Off-net

(BusinessDays)

AT&T 99.95% 99.95% 99.99% 2 Hours 4 Hours 37 ms 34.3 ms < 1 ms 0.7 0.050% 0.010% NR

GlobalCrossing

100.00% 99.99% NR 4 Hours 4 Hours


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Market Revenue Forecast & Pricing Analysis

AT&T Verizon Sprint Qwest tw telecom Level 3 XO Global Crossing

Classes ofService

CoS1 (AF)CoS2 -In Contract

(AF31) CoS2- Outof Contract(AF32)

CoS3 - InContract(AF21)CoS3 -Out of

Contract (AF22)CoS4 (Default)

Real Time/Voice(EF Class)

Video/Priority Data(AF4 Class)

Mission CriticalData (AF3 Class)

Business Data(AF2 Class)

General Data(Default Class)

PremiumCritical

BusinessStandard

4 PriorityQueues

Real Time (EFClass)

Priority Data (AF4Class)

Mission CriticalData (AF3 Class)

Business Data(AF2 Class)

Best Effort (DefaultClass)

DefaultBulk Data

PreferredData

Critical DataInteractive

Voice VideoReal Time

Voice Video

Real-timeCriticalPriority

Standard

Premium Plus (EF+)Premium (EF)

Enhanced Plus (AF+)Enhanced (AF)Basic Plus (BE+)

Basic (BE)

IntegratedVoIP/SIPTrunking

Yes Yes Yes No Yes Yes Yes Yes

MulticastSupport

Yes Yes Yes Yes Yes (ICB) Yes Yes Yes

Telepresence Yes (Cisco) Yes (Cisco)

Yes

(Cisco)

Yes

(Supported)

Yes

(Cisco/Tandbergwith partners)

Yes

(supported) Yes (Cisco) Yes (Teliris)

Remote VPN Yes Yes Yes Yesvia Managed

Security ServicesYes (Q42010) Yes Yes

IPv6 Yes Yes 1H 2011 Yes Yes No No Yes

Mobile IP

Integration

Yes Yes Yes No No No No Yes

Competitive Analysis (Contd)

MPLS/IP VPN Services Market: Comparison of Service Offerings for Leading Service Providers (U.S.), 2010

C i i A l i (C d )


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AT&T Verizon Sprint Qwest tw telecom Level 3 XO Global Crossing

Application AwareVPN Tools

Web PortalAT&T Business

DirectVerizon Enterprise

CenterCompass

PortalNR

tw telecomMyPortal

Level 3 EnabledPortal

BusinessCenter

uCommand

NetworkPerformance

Yes Yes Yes NR Yes Yes Yes Network Integrity

ApplicationPerformance

Yes Yes Yes NRAvailable 1Q

2011Yes (by CoS) Yes Application Integrity

Dynamic IP BW Yes YesYes (Usage-based billing)

NRAvailable 1Q

2011Yes (Usage-based

billing)Yes Expected

Managed Services

Managed Router Yes Yes Yes Yes Yes Yes Yes Yes

Managed WAN Yes Yes Yes Yes Yes Yes Yes No

Managed Security Yes Yes Yes Yes Yes Yes Yes ICB

Competitive Analysis (Contd)

MPLS/IP VPN Services Market: Comparison of Service Offerings for Leading Service Providers (U.S.), 2010

Key: NR = Not Reported



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Market Share Analysis 2009

Total MPLS/IP VPN Services Market: Market Share Analysis (U.S.), 2009

AT&T leads the market with 33.2 percent market share, followed by Verizon (24.5 percent), Sprint (18.6 percent) and Qwest (12.6 percent)

in 2nd, 3rd, and 4th position, respectively. These 4 companies together, earn close to 88 percent of the market revenues. The next nearest

competitor, Global Crossing, has 3.0 percent market share, followed by Level 3 and XO at 1.4 percent each, and tw telecom at

1.3 percent. Tw telecom and XO have emerged out of the others category and are new entrants in our market share chart. The others

category represents 4.0 percent of the market revenues, and includes companies such as MegaPath, Paetec, New Edge, AboveNet,

CenturyLink, Hughes and many other small service providers in the U.S. MPLS/IP VPN services market.

Verizon

24.5%

Sprint

18.6%

AT&T

33.2%

Level 31.4%

tw telecom

1.3%

Global Crossing

3.0%

Qwest

12.6%

XO

1.4%

Others

4.0%



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Market Share Comparison 2008 and 2009

The charts show the market shares by revenue for leading industry participants in 2008 and 2009. As depicted, AT&T, Verizon and

Global Crossing increased their market shares marginally in 2009. Sprint and Qwest lost a few percentage points of market share,

however, in terms of absolute revenues, the companies captured a significant revenue share of the total market revenues. XO and

tw telecom are the new entrants in our market share chart, XO tied with Level 3 at 1.4 percent share and tw telecom with 1.3 percent

share. Embarq, post merger with CenturyLink, had revenues less than 1.0 percent, and hence is included the Others category.

AT&T

32.9%

Verizon

24.0%

Sprint

19.0%

Qwest

13.8%Global Crossing

2.6%

Level 3

1.4%

Embarq

1.3%

Others

5.0%

Verizon

24.5%

Sprint

18.6%

AT&T

33.2%

Level 3

1.4%

tw telecom

1.3%

Global Crossing

3.0%

Qwest

12.6%

XO

1.4%

Others

4.0%

Total MPLS/IP VPN Services Market: Market Share Analysis (U.S.), 2008 and 20092008


2009


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About Frost & Sullivan

Wh i F & S lli


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Who is Frost & Sullivan

The Growth Consulting Company

Founded in 1961, Frost & Sullivan has over 45 years of assisting clients with their decision-making and growth issues

Over 1,700 Growth Consultants and Industry Analysts across 32 global locations

Over 10,000 clients worldwide emerging companies, the global 1000 and the investment community

Developers of the Growth Excellence Matrix industry leading growth positioning tool for corporate executives

Developers of T.E.A.M. Methodology proprietary process to ensure that clients receive a 360o

perspective of

technology, markets, and growth opportunities

Three core services: Growth Partnership Services, Growth Consulting, and Career Best Practices

Wh M k U U i


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What Makes Us Unique

Exclusively Focused on Growth

Global thought leader exclusively focused on addressing

client growth strategies and plans Team actively

engaged in researching and developing of growth models

that enable clients to achieve aggressive growth

objectives.

Industry Breadth

Cover the broad spectrum of industries and technologies

to provide clients with the ability to look outside the box

and discover new and innovative ideas.

Global Perspective

Thirty-two global offices ensure that clients receive aglobal coverage/perspective based on regional expertise.

360o

Perspective

Proprietary T.E.A.M.TM

Methodology integrates all six

critical research methodologies to significantly enhance the

accuracy of decision-making and lower the risk of

implementing growth strategies.

Growth Monitoring

Continuously monitor changing technology, markets and

economics and proactively address clients growth

initiatives and position.

Trusted Partner

Working closely with client Growth Teams helping them

generate new growth initiatives and leverage all ofFrost & Sullivan assets to accelerate their growth.

T E A M M th d l


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T.E.A.M. Methodology

Frost & Sullivans proprietary T.E.A.M. methodology ensures that clients have complete 360 Degree Perspective from

which to drive decision-making. Technical, Econometric, Application, and Market information ensures that clients have a

comprehensive view of industries, markets and technology.

Technical Real-time intelligence on technology, including emerging technologies, new R&D

breakthroughs, technology forecasting, impact analysis, groundbreaking research, and

licensing opportunities.

Econometric In-depth qualitative and quantitative research focused on timely and critical global,

regional, and country specific trends, including the political, demographic, and

socioeconomic landscapes.

Application Insightful strategies, networking opportunities, and best practices that can be applied for

enhanced market growth; interactions between the client, peers, and Frost & Sullivan

representatives that result in added value and effectiveness.

Market Global and regional market analysis, including drivers and restraints, market trends,

regulatory changes, competitive insights, growth forecasts, industry challenges, strategic

recommendations, and end-user perspectives.

Gl b l P ti


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Global Perspective

1,700 staff across every major market worldwide

Over 10,000 clients worldwide from emerging to global 1000 companies

US MPLSIP VPN Services Market Update 2010

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