Carriers Can Create Competitive Advantage Through Application-Centric Services

By Thierry Grenot

TMCnet WAN Optimization Columnist

 

Selling connectivity is like selling sugar or crude oil; it has become a commodity. With no differentiation across the supply base, carriers currently face eroding margins as the cost of bandwidth steadily declines and clients migrate toward less costly TCP/IP-based networks such as Multi-Protocol Label Switching (MPLS) virtual private networks. Lower-margin data traffic is starting to overtake higher-margin voice networks and the rapid adoption of VoIP is further accelerating the trend by effectively transforming voice traffic into data traffic. If telecom operators intend to survive this market evolution and maintain revenues, they will need to start rethinking long-held strategies and developing service offerings that will enable them to move up the value chain.

 

To date, traffic increases have partly offset the price decline, allowing carriers to maintain their overall margins. However, the days of continual bandwidth capacity increases by enterprise customers are nearly over. They are weary of bandwidth upgrades and realize that such moves alone won’t solve all their problems. In a survey commissioned by Ipanema (News - Alert) Technologies, 75% of all businesses polled complained that bandwidth upgrades rarely solve the application performance problems they experience. Despite this, 57% of respondents admitted they still resort to this tactic; but this approach seems unlikely to last as the pressure to find an adequate solution and keep costs down increases. Finance executives cannot be expected to continue signing off on bandwidth increases, particularly when they do not put an end to performance problems.

 

This presents an opportunity for carriers. Fast, reliable access to applications is often business-critical, so it is extremely important that they are delivered as they were intended. However, during peak periods, networks will often become congested, resulting in poor application performance and slow networks. Real-time voice and video applications are most likely to suffer, as issues such as delay, jitter or packet loss impacts their performance more noticeably.  In addition, many applications were not specifically designed to travel over the long distances involved in WANs and their performance will suffer as a result. This will seriously impact the productivity and experience of end-users, who will look to network managers for a solution that will guarantee the performance of their most important applications. Carriers able to offer a service that will support this objective will demonstrate far greater value to potential customers and increase their margins.

 

Recognizing this, some service providers are leading the way by offering application-centric services that revolve around the delivery of critical traffic. According to the Ipanema-commisioned research, 93% of network managers are currently looking for greater visibility and control of the traffic over the WAN, and this forms the basis of offerings such as BT’s (News - Alert) Application Assured Infrastructure, Telindus’ Real-Time Application Control and SwissCom’s Application Performance Management. Cable&Wireless is another leading service provider to recognize the potential for this kind of offering, and is currently developing an application-centric service. Customers using the system will be able to dynamically manage, accelerate and prioritize traffic to meet their individual business needs.

 

These organizations are already ahead of the market, and in fact the European market seems markedly ahead of the U.S. in terms of recognizing the demand for application-centric services. Still, there is potential for service providers to go further, strengthening their competitive advantage. In order to do this, they need to recognize that application delivery and performance not only represents a good opportunity for building revenue, but is in fact a core priority for network managers to the extent that they will soon be looking for Service Level Agreements (SLAs) that offer them the guarantees they are expected to give their end-users.

 

Currently, networking SLAs tend to revolve around the performance of the network itself (for example uptime), as well as the support the service provider will provide in the event of problems such as downtime. As network managers become more focused on the end result of application performance, rather than the specifics of choosing one network over another, it is unlikely to be long before they start to expect carriers to demonstrate a corresponding shift in approach. Operators that are able to do so sooner rather than later by incorporating metrics on the performance of a business’ most critical applications in their SLAs are likely to have a competitive advantage in an increasingly commoditized space.