NETWORK WORLD NEWSLETTER: JIM DUFFY WITH VIEW FROM THE EDGE 09/23/04 Today's focus: IP: Invisible Profit?
Dear [EMAIL PROTECTED], In this issue: * Vendor CEO says current business model a money loser * Links related to View from The Edge * Featured reader resource _______________________________________________________________ This newsletter is sponsored by Nokia NW Special Report: Preparing an Infrastructure for Mobile Applications. Mobility, properly done, increases productivity and decreases operating costs. So get up to date information about building a mobile infrastructure, dealing with security issues, the latest networking options, connectivity alternatives and operational support enhancements. http://www.fattail.com/redir/redirect.asp?CID=81464 _______________________________________________________________ DOWNLOAD THE LATEST SPECIAL REPORTS FROM NETWORK WORLD Focused reports on compelling industry topics, Network World Special Reports are available online at Network World Fusion. Network World Special Reports on Mobility, IP Telephony Security, the State of Wireless LANs and more are currently available. Download any or all of our Special Reports at: http://www.fattail.com/redir/redirect.asp?CID=81407 _______________________________________________________________ Today's focus: IP: Invisible Profit? By Jim Duffy Let's face it, IP is hot. Carriers are spending billions on the technology to transform their networks in order to save money via packet networking efficiencies and make money on new converged services. And enterprises are said to be clamoring for services like IP VPNs and VoIP. In-Stat/MDR says the $2.45 billion market for IP VPN services in the U.S. will grow at a compounded annual rate of 20% over the next five years, to $6.1 billion in 2008. So what are the prospects for making money on IP? Not much, according to Mukesh Chatter, CEO of Axiowave, a maker of core routers that claims set itself apart from the router pack through an ability to churn profits from IP by guarantee ATM- and TDM-like SLAs on premium (priced) services. The combination of billions in capex, lack of QoS, and 15% to 20% annual price declines in business data services will render IP a break-even-at-best proposition despite growing demand, Chatter says. "The corresponding capital expenditure required to support that growing volume is going to be a far bigger expense because of the price decline," he says. Currently, retail data services contracts are being renewed every two years at 1/3 the price of the previous contract, Chatter says. Wholesale pacts are 80% to 90% cheaper with each renewal, he says. "New business is coming in at $20.00 per megabit per month," Chatter says. "You can't afford to pay salesman a commission at $20/meg/month. It's below the cost of capex, forget about opex." Axiowave is paying $300 per month for each of its T-1s right now, Chatter says. Two years ago, the cost was $800 per month. That's quite a drop considering it took frame relay 10 years to see 66% of its price erode, according to Vertical Systems. T-1 ports average about 1/3 of the price charged a decade ago, when fewer than 4,900 customer ports were installed in the U.S. At that time, the price of a T-1 port averaged $3,487 per month, according to Vertical. In 2003, the average cost is $1,196 per month and customer port installations exceed 1.4 million. Chatter says the price declines for IP are more dramatic because service providers have to create demand in order for users to deconstruct their point-to-point frame relay networks. With economics like this, it sounds like it will take more than an ATM-grade IP router to rework IP's business model. RELATED EDITORIAL LINKS Axiowave touts debut router as key to turning IP profits Network World, 06/07/04 http://www.nwfusion.com/news/2004/0607axiowave.html Breaking IP services news Network World, 06/07/04 http://www.nwfusion.com/edge/topics/ipservices.html IP services hot; IP spending not Network World, 01/06/03 http://www.nwfusion.com/news/2003/0106ipeconomics.html _______________________________________________________________ To contact: Jim Duffy Jim Duffy is managing editor of Network World's service provider equipment coverage <http://www.nwfusion.com/edge/>. He has 18 years of high-tech reporting experience, including over 12 years at Network World. Previously, he was senior editor at Computer Systems News and associate editor/reporter at Electronic News and MIS Week. He can be reached at <mailto:[EMAIL PROTECTED]>. _______________________________________________________________ This newsletter is sponsored by Nokia NW Special Report: Preparing an Infrastructure for Mobile Applications. Mobility, properly done, increases productivity and decreases operating costs. So get up to date information about building a mobile infrastructure, dealing with security issues, the latest networking options, connectivity alternatives and operational support enhancements. http://www.fattail.com/redir/redirect.asp?CID=81463 _______________________________________________________________ ARCHIVE LINKS Archive of the View from the Edge columns: http://www.nwfusion.com/edge/columnists/index.html _______________________________________________________________ Information Management and Open Storage Management See how open software adds value to ILM by simplifying, automating, and centralizing management of your heterogeneous networked storage environment. Take a look at open software in action during this exclusive EMC webcast. http://www.fattail.com/redir/redirect.asp?CID=81480 _______________________________________________________________ FEATURED READER RESOURCE GETTING AHEAD OF SARBANES-OXLEY The Sarbanes-Oxley Act of 2002, which was passed in the wake of accounting scandals at firms such as Enron and WorldCom, is one of the greatest challenges to companies' corporate reporting and compliance efforts. Find out how Thermo Electron's Michael Kamens is meeting the requirement for having a properly audited system of internal controls and processes is in place by November. Click here <http://www.nwfusion.com/news/2004/092004yourtakethermo.html?ts> _______________________________________________________________ May We Send You a Free Print Subscription? You've got the technology snapshot of your choice delivered at your fingertips each day. Now, extend your knowledge by receiving 51 FREE issues to our print publication. 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