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8th Annual Well Connected Awards
F E A T U R E  
SERVICE PROVIDERS & OUTSOURCING

Service Providers Search for Silver Lining

  May 13, 2002
  By Darrin Woods


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Some xSPs Are Making Money
Service providers barreled into the 21st century with hapless abandon, multiplying and hatching ingenious new services to sell to hungry customers. But a sagging economy in early 2001 necessitated that most enterprises hold back on purchasing services.

Those providers that survived the long, cold winter are still hunkered down waiting for the sun to reappear. We've seen market forces at work here before--in the late 1990s mergers and buyouts in the dial-up business led to the emergence of the broader service-provider market. In 2001, however, there weren't any high-profile buyouts, just plain outs.

The Name Game

Last year we talked about the frantic search for letters to replace the "x" in xSP (see "Proliferation of Providers Leads to a Mixed Bag of Services"). But today many of the alphabet-soup services have diminished or disappeared. For example, storage providers have become almost extinct because most corporations are keeping storage and backup systems at their own sites.




But don't feel too sorry for the xSPs--they are busily devising new ways to make money. For instance, services that were once offered free are now being sold. Case in point: Yahoo, which recently announced it will move POP customers from free e-mail services to fee-based accounts.

One notable growth area is support services. As Linux becomes the server platform of choice for enterprise customers, some of the problems encountered in the OS go beyond what the typical IT person can handle. In our tests, Caldera gave us the best service and ably answered our questions (see "TEAMwork Pays Off for Linux"). If getting providers to take on some of the workload is an option at your company, EDS offers good managed Web-hosting services. And Loudcloud can bring a ray of sunshine to your outsourced B2C needs as well.

The Downs and Ups of DSL

Given the spectacular failures in the DSL market last year--Excite being the most high-profile--you might think DSL is dead. Excite started out as a search engine, but the company expanded into new markets as opportunities arose. The loss of Excite wasn't about DSL alone--it was about an entire portal business that offered access to chat rooms and news.

Don't lose hope for DSL, though. SBC has become the largest provider of DSL, with more than 1 million of us signed up, not including the customers of smaller Tier 2 providers that use SBC's networks to deliver DSL to their customers. To improve on the speeds SBC can provide, the company is spending $6 billion on its Project Pronto initiative (see "FCC Grants SBC Permission for Pronto Project"). Pronto pushes the DSLAMs closer to the customer by deploying fiber from the CO directly to a neighborhood. This can cut dry copper runs from miles to just thousands or even hundreds of feet, increasing transmission speeds dramatically.

Wanted: Cheap Technology

Service providers need inexpensive technology to stay alive. And we don't mean technology they can sell to their customers but technology within their own networks. SONET has been a mainstay of the carrier/service provider market and some enterprises for 18 years now. It has grown from 155 Mbps to 64 times that in operational systems with 10-Gbps speeds. Systems in development increase that another four times, to 40 Gbps. Still, while SONET has held its own against many new technologies, it may have met its match in RPR (Resilient Packet Ring).

RPR (IEEE 802.17) is designed to offer service providers that operate MANs an alternative to deploying SONET networks. A collection of customer switches placed in a ring around a city or metroplex, a MAN uses SONET to operate more efficiently than a traditional point-to-point network. But with SONET, MAN providers are locked into a relatively expensive nonpacket-based system. RPR creates a packet-based network that operates in a ring fashion and offers quick failover and better use of packet-based network bandwidth than SONET does.

RPR will replace Ethernet in many situations where failover is essential. Ethernet is capable only of failing over or switching to an alternate route with the use of Spanning Tree technology. If a connection goes down, it could take a Spanning Tree network several seconds to find an alternate route. RPR does it in 50 milliseconds or less.

The RPR standard is still a work in progress, but a few vendors, including Luminous, are creating products. When the RPR standard reaches its final form (projected to be by March 2003), metro providers will benefit greatly from the technology. Not to be left out, enterprise customers operating campus networks will find advantages in RPR because it offers Ethernet over a ring topology without the expense of SONET or packet over SONET.

Although packetized voice services continue to languish in the service provider world, they are not forgotten. A new breed of switch, the MSS (multiservice switch), is emerging from Cisco and other vendors. Although MSSs are being touted as the penultimate convergence device, they really aren't anything new--just IADs (integrated access devices) on steroids, with most supporting SONET OC-12 or higher interfaces to the core network, usually with extended protocol support. MSS products bring voice and data together in one box. But while IADs have traditionally been based around frame relay or ATM, the MSS will do both, plus SONET.

MSS equipment is well-suited for service providers that want to eliminate the multiple devices they need in their PoPs (points of presence). Most of these devices aggregate different Layer 2 protocols into a SONET or ATM stream. One box is easier to maintain and can provide more services to customers because voice services can be included with data.

Voice integration from soft switches is taking time to catch on, with enterprise customers looking instead to deploy their own IP PBXs. Although soft switches offer high-end PBX features to companies on tight budgets, they carry the stigma of being nothing more than Centrex systems that now use IP. Placing the PBX at the service provider seems like a reversion to the old days of Centrex systems, but these devices offer many more features and generally operate the same as a locally placed PBX.

Darrin Woods is a technology editor of Network Computing. Darrin has worked as a WAN engineer for a telecom carrier. Send your comments on this article to him at dwoods@nwc.com.



Heads Up: Service Providers and Outsourcing

Companies

Cable & Wireless: Recently made purchases that should bring additional services like content delivery to customers.

Caldera International: Need Linux support? This is the company for you.

Technologies

OC-768: Ratified in February, offers speeds four times those of today's OC-192.

Resilient Packet Ring (RPR): Combines ease of Ethernet with resiliency of SONET.




Web Links

"LoudCloud Updates Customer Management Portal" (InternetWeek, April 2, 2002)

"NetResults: Week in Review" (InternetWeek, March 29, 2002)

"Setting Standards for SLAs" (InformationWeek, Jan. 31, 2001)




Yes Virginia, Some xSPs Are Making Money

By Bruce Boardman

It's easy to find service providers who've gone belly up, ý la Exodus and Global Crossings, but not all xSPs are in such bad shape. In fact, a few are actually making money or are at least on track to profitability.

Application infrastructure providers, or AIPs, offer one bright spot. VeriCenter, a Houston-based AIP, continues to add clients and has seemingly dodged the dot bomb fallout. Its facilities have grown to include two live data centers and a disaster-recovery site. And, in addition to offering managed space and equipment, VeriCenter leverages its in-house talent to manage the systems they house.

Genuity, which also offers application and systems hosting, managed to eke out a 7 percent gross margin in its last reported quarter. This doesn't mean profitability has returned, but it is a consistent, continued positive growth in customer wins, thanks to such spark plugs as the Black Rocket network applications platform.

In the same space, but at the lower end of the AIP spectrum, Rackspace Managed Hosting offers hosting facilities and boasts not only one year of 100 percent network uptime but profitability to boot. A big deal in this economy for any business.

But doing that one better (or maybe I should say three better), Network Guidance Co., a managed service provider, has had three straight years of profitability offering proactive WAN and LAN management.

So when you look at the dismal landscape that is the aftermath of quick-buck service providers' schemes, don't let the wreckage trick you into believing that there aren't any good service providers.



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