Who is opting for IP VPN services?

IP VPN services are growing slowly in popularity, with the vast majority of customers for these services converting from WANs made up of dedicated lines, frame relay or ATM, according to Vertical Systems Group.

The growth is markedly slower than was the growth of the previous big new WAN service – frame relay – says Erin Dunn, an analyst with Vertical, citing one major reason.

Frame relay, which is installed widely today, saved businesses a lot of money compared to point-to-point private lines because it vastly reduced the number of circuits needed to create fully meshed networks. The savings from changing to IP VPNs from frame relay is real but less dramatic, she says, making the decision more difficult.

If customers want a fully meshed network that is easier to set up than frame relay and can be less expensive on international links if it uses the Internet, then they may want to switch to IP VPN service, she says. “There isn’t a no-brainer reason to move,” she says.

But for those new sites being added to frame relay networks or for new businesses just setting up their WANs and that have all-IP traffic, then she expects about 90% of customers to choose IP VPN services.

There aren’t that many new sites being set up, Dunn says, in part because businesses are still pinching pennies since the telecom downturn. Only 16% of IP VPN ports being sold are to these greenfield customers, she says.

As businesses have greater needs for fully meshed networks, which could be driven by more people working from home, these services will grow more rapidly, she says.