IP Landscape Littered With Hazards - Study calls for a "new sense of IP realism."
As if the collapse of a sector that once comprised one-seventh of the US economy wasn't real enough, analysts at Cap Gemini Ernst & Young and Dresdner Kleinwort Wasserstein have published an industry study that calls for a new sense of "IP realism."
The study suggests that the prospects for Internet Protocol (IP) Services restoring strong growth to the battered telecommunications sector in the near future are not all that bright. The study
does confirm that there are immense potential benefits for users and
providers in the long run. But it warns against the widespread faith within the telecom industry that its short-term fortunes will be revived through the growth of high-value IP services.
Services such as Voice- and Video-over-IP or IP Storage are expected to experience only mild growth over the next two years. In refuting industry claims that IP technologies are leading to a disruption in the telecom industry, the researchers identify two related challenges which are
blocking the path to future success:
- The difficulty in delivering "real-time quality of service"
- and high costs associated with complexity in some IP networks.
"We remain intimately convinced that IP Services, which play a critical role in Enterprise Networks today, are a key enabler for innovation and creative business models for carriers. However, having talked to end-users, service providers and vendors, we have become quite skeptical about the prospects of IP Services rescuing the sector from its high debt and over-capacity problems in the next two years", say the authors.
"We also do not foresee the emergence of a unified, converged IP network: the future is hybrid. Future networks are more likely be complementary ones, where routed and switched technologies coexist and enhance each other."
"IP technology initially met with great skepticism, only to be followed by near evangelical support. We hope this study will help move thinking to a next stage of IP realism where vendors, providers and customers focus on real delivered end-user benefits."
"What is exciting is the potential for IP in corporate LAN's and Enterprise networks: we are convinced that IP will dominate in this arena," said Tolga Uzuner, co-author and a Director with OM Technology Investments, a venture capital unit of DrKW. "It is already showing up in force in IP VPN's and IP-enabled videoconferencing this year."
However, co-author Fred Destin of DrKW warned: "There are strong parallels between IP Services and 3G
in the sense that both have questionable expectations attached to them that they will save operators from their current tribulations. IP Services technologies unquestionably work; the issue has really moved to how far they can work in concert across large, heterogeneous networks."
One of the most striking findings of the study is, despite many claims, that the outlook for IP Services growth remains low initially, with stronger uptake expected only after 24 months.
"We predict that the market for IP Services in Western Europe will grow slowly from $14 billion (USD) currently to only $17.5 billion in two years time," said co-author Kevin Keith.
"There are a lot of unrealistic expectations from analysts and vendors about the ability for telecoms companies to generate revenue by providing higher-value IP services, and our research overturns this conventional wisdom that IP will be a big catalyst for growth in the short-term," he says.
"IP has proven to be superior for small scale networks, and this is an arena in which its dominance is not in question. However, the introduction of quality of service along with IP, a technology not originally designed for time sensitive services like voice, is proving to be more complex and costly in service provider networks. This is especially true in core networks. The study predicts that unlike in the corporate environment where a single technology dominates, in the service provider world we expect to see the emergence of complementary networks, where IP and more traditional circuit switched technologies collaborate to deliver real-time services. Whether this collaboration takes place at the edge or in the core, these new networks present inevitable complexity that must be addressed before large scale real-time services can emerge. It will take some very intelligent software to reduce the complexity associated with enabling real-time IP Services, some of which is only just now becoming available."
The reduction and management of complexity is also a key challenge for enterprises. Co-author Kevin Keith said: "Our study suggests that a renewed focus by vendors and providers on simplifying end-users' interaction with technology in the workplace might drive future uptake. While the buyers of IP services are concerned about the hidden costs associated with managing the more complex IP services, end users are seeking workplace improvements to make their lives simpler: mobile working, easier to use services/devices, the ability to access services from anywhere."
The authors caution that telcos should roll out new services very carefully if they expect to make money out of them. "They can very easily cannibalize existing revenue," says Jawad Shaikh of Cap Gemini Ernst & Young, "making themselves worse off in the short term and potentially lead to a scenario where customers relegate the provider to a mere utility supplier seeking to tender each service individually in order to drive down cost - for example voice, e-mail, internet connectivity. Telecoms companies need to roll out IP services in such a way that this won't happen, with the aim of protecting margins by for example bundling various other services around the core provision of an IP VPN."
