Usage-based pricing is a catchy tune

Equant has outmaneuvered MCI and Sprint to win a five-year, multimillion network outsourcing deal from Universal Music Group, thanks to the ISP’s usage-based pricing approach.

Equant has outmaneuvered MCI and Sprint to win a five-year, multimillion dollar network outsourcing deal from Universal Music Group, thanks to the ISP’s usage-based pricing approach.

UMG previously managed its own IP network, which spans 48 countries and has 9,500 users. UMG, one of the world’s leading music companies, decided to outsource its network operations two years ago and ran a competitive procurement to select a managed services provider.

This month it selected Equant to operate its entire communications infrastructure, including global WAN and LAN, data and voice services, as well as mobility and Web hosting.

Equant officials say the UMG deal was significant because it is one of the ISP’s first successes with utility-based pricing.

“We offered utility and usage-based pricing on the WAN, LAN and for VoIP,” says Gene Chao, senior vice president of outsourcing for the Americas at Equant. “We won them over with . . . the way we financially engineered our approach.”

Scott Belmont, executive vice president and CIO at UMG, says he hopes to save 10% to 20% of his annual network operations budget as the result of Equant’s usage-based pricing. UMG spends $20 million a year on its communications infrastructure.

“Overall, we’re looking at savings in the low double digits, under 20%,” Belmont says. “It’s the result of the combination of usage-based pricing and not being saddled with fixed investments on our balance sheet.”

Belmont says Equant’s usage-based pricing was very significant in UMG’s award of the contract.

“This offers the kind of flexing of network capacity that we need,” Belmont says. “We have a lot of pretty heavy digital content being passed around all of our countries. . . . Our usage varies depending on the time of the year and where we might be releasing [music] geographically.”

As part of the deal, Equant will migrate UMG to an MPLS-based IP VPN, which will offer converged voice, data and video services. Equant also will provide its Business Everywhere suite of remote access solutions.

“The most important part of this deal is around how we are going to be doing the invoices,” Chao says. “Traditionally, companies buy bandwidth. But this deal is much different. It’s usage-based for the data network and voice. We will take a look at the applications that run over the network and scale the bandwidth on the back end to support those applications.”

Equant’s usage-based pricing is available globally for IP data and voice services. It says the pricing is designed for companies that use variable amounts of bandwidth, such as music and entertainment businesses that see a spike in traffic with the release of new albums or movies.

Usage-based pricing is ideal “if an organization is dynamic, either opening or closing offices, or has a business model that needs a lot of flex to it,” Belmont says. “Fast-food chains that are multiplying might find this useful. Whereas, if you have really static traffic this is not something you need.”

Equant hired 15 members of UMG’s network management staff as part of the outsourcing deal, which will replace several dozen network contracts that UMG previously administered itself.