Private Lines, Public Sweat

Despite continued enterprise demand for dedicated high-speed point-to-point connections, price wars mean lower revenue from private-line business.

September 17, 2004

3 Min Read
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Even as enterprise administrators, service providers, and network providers extol the security and performance virtues of Virtual Private Networks, it turns out there is still plenty of demand for regular-old private-lines.

In many applications, the still-unmatched security and price-performance characteristics of leased private-line services make them more cost-effective than VPNs. That will remain true though the end of the decade, and probably beyond.

"While we are getting tremendous pick-up and buy-in from our business customers about our VPN offerings, the growth in that business has not cannibalized our leased-line offers," said Brett Theiss, director of IP services at SBC.

In fact, Theiss said, SBC continues to post record private-line sales. The reason: vertical industries that need to establish point-to-point dedicated networks to support intense levels of traffic and cannot even flirt with the possibility of a security breach.

Examples include point-to-point connections between data centers at financial institutions, hard links between hospitals in a community health network that must share sensitive clinical data (such as MRI scans) and other situations where business needs revolve around connecting a very limited number of points with a completely secure and high-performance network. (The advantages of maturing IP VPN technologies, on the other hand, are essentially undisputed on multi-point connectivity implementations.)Nevertheless, overcapacity in the private-line space has led to a price war that has stressed carrier profits, and could shrink the dollar size of the overall market. A new report from Insight Research predicts private-line revenue will decline by as much as 4 percent by the end of the year.

Another factor is MCI's emergence from bankruptcy. The company is spurring price-competition as it attempts to re-capture market share lost during its time in the bankruptcy penalty box.

Robert Rosenberg, Insight's president and principal analyst, projected an unusual situation with downward pressure on the prices for private-line services, even though demand remains steady, and perhaps even grow. "The reason for this is that there are a lot of companies, many of them who are in real trouble now, who are trying to stay in the business," he said.

It may take a couple of years for troubled private-line suppliers to consolidate. In the meantime, network administrators can look forward to a downward trend on prices as they make short- to mid-term private line investment decisions.

By the end of the decade, however, the Insight Research report predicts that new technologies such as Gigabit Ethernet (GigE) could completely reshape the local private line market, while the sale of wavelength services could radically alter cost-per-megabit at the upper boundary of the private-line market.Affordable IT: All-In-One Gateways - Networking Pipeline gateway appliances are hot for SOHOs that need broadband WAN/LAN rolled into one. But they're not so easy to manage. Learn what to watch out for and how to cope.

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