Management Alert: Gartner s 2003 Predictions for NSPs and Services
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1 IGG J. Pultz Article 27 November 2002 Management Alert: Gartner s 2003 Predictions for NSPs and Services In today s tumultuous telecom environment, enterprises must take steps to protect themselves and prepare for a new era of network services. Vendor selection is complicated by the issue of network service provider (NSP) financial viability. An enterprise s communications capability is vital to keeping its business operational, so network service providers (NSPs) must be used that can be depended on for network services. In today s tumultuous telecom environment, enterprises must take steps to protect themselves and prepare for a new era of network services. Vendor selection is complicated by the issue of NSP financial viability. The Telecom Turmoil Won t End in 2003 The financial viability of NSPs will remain the major issue for enterprises selecting NSPs through 2004 (0.8 probability). Enterprises should expect additional bankruptcies and other financial difficulties among their NSPs. Not enough time has elapsed for the NSP industry to overcome its fundamental problems, which are caused by too many NSPs with too much capacity. Moreover, Gartner expects the emergence of many NSPs from bankruptcy protection to delay the industry s eventual recovery, since demand is not robust enough to support so many vendors. Several years will be necessary for the industry to consolidate. Not only do the financial problems create enterprise concerns about whether many NSPs will survive, but also whether service quality will deteriorate, geographical coverage will shrink and NSPs will terminate critical services. Enterprises should develop multiple NSP strategies, come up with contingency plans and renegotiate contracts to address the continuing turmoil in this market. Gartner Entire contents 2002 Gartner, Inc. All rights reserved. Reproduction of this publication in any form without prior written permission is forbidden. The information contained herein has been obtained from sources believed to be reliable. Gartner disclaims all warranties as to the accuracy, completeness or adequacy of such information. Gartner shall have no liability for errors, omissions or inadequacies in the information contained herein or for interpretations thereof. The reader assumes sole responsibility for the selection of these materials to achieve its intended results. The opinions expressed herein are subject to change without notice.
2 Enterprises cannot rely on a single NSP to fulfill all of their requirements. Therefore, they should develop a multiple-nsp strategy to achieve the following: Protect against NSP viability issues Obtain all network services necessary, now and in the future Cover the necessary geographical areas Continue critical business functions in the event of disasters Leverage NSPs for maximum negotiating advantage Gartner recommends that no more than 70 percent of an enterprise s network service needs be met by any single NSP. Enterprises should renegotiate contracts to provide the flexibility to use multiple NSPs, and should revisit their NSP procurement strategies and decide how they will break up network services among multiple NSPs. Enterprises should have contingency plans with alternative NSPs. This Plan B would be implemented if a major incumbent NSP, in the enterprise s view, is no longer able to meet its contractual commitments. At a minimum, this alternative plan should extend to having a shortlist of potential NSPs determined, as well as preliminary proposals from those NSPs. As the NSP market contracts, the major surviving vendors will be in a stronger position to resist contract terms advantageous to the enterprise, including further price cuts, so enterprises should negotiate or renegotiate their NSP contracts now. The window of opportunity for such actions will likely close as early as mid-2003, so the renegotiation process should be initiated as early as possible. If your NSP refuses to amend your contract, take that into account the next time the contract is up for renewal. In addition, enterprises should look to move uncommitted and incremental business to alternative NSPs. Yes, Internet Protocol (IP), But Which One? At least 20 percent of large U.S. enterprises will have replaced their frame relay networks with broadband, enhanced IP services, such as Multiprotocol Label Switching (MPLS), by 2007 (0.7 probability). The reign of frame/asynchronous transfer mode (ATM) is passing, and the wide-area networks (WANs) in the enterprises of the future will be IP-based. However, they may not necessarily be today s virtual private networks (VPNs). For more than 10 years, frame relay has been a mainstay enterprise data service. The more sophisticated capabilities of ATM will continue to fill a niche in the near term. It s clear that frame
3 relay and ATM have passed their prime and that the future enterprise network will be based on IP. However, it will not be a single IP network and will not be only what enterprises consider a VPN today. Two related, IP-based offerings will comprise next-generation enterprise data services: VPN and enhanced IP. VPNs that use the Internet as a backbone typically cost significantly less than traditional data services, such as frame relay. VPNs will find application in home offices, remote sites and less-critical applications. Enhanced IP networks will provide numerous advantages: Address mission-critical needs Provide performance close enough to more traditional offerings Offer multiple classes of service, such as ATM Have the connectivity advantages of the Internet Cost somewhat less than frame relay or ATM when prices stabilize NSPs are focusing on using MPLS to implement these networks. Enterprises should plan and pilot new IP services including value-added services to get ready for larger-scale deployments in 2004 and beyond. Time to Get Serious About High-Availability Networking By 2006, large-scale network failures will have increased threefold over 2002 levels (0.7 probability). Enterprises can no longer rely on overengineering by NSPs to make networks sufficiently reliable. Before 1999, few enterprises were concerned about the total failure of an NSP s network. All that changed when AT&T s frame relay network was completely shut down for nearly 24 hours. Since then, other major failures of NSP networks have occurred. Gartner expects such shutdowns to increase significantly during the next five years, as the following occurs: NSP networks become more complex New and less-predictable approaches to NSP infrastructures (such as MPLS) are used NSPs stretch their capital investments to improve profitability that is, they will no longer be able to significantly overengineer their networks to mitigate against large-scale failures
4 To deal with this issue, enterprises will have to reintroduce network service and NSP diversity selectively. Finally, given the rash of bankruptcies, some of which have resulted in the liquidation of carriers, a multi-nsp strategy makes considerable sense in the current environment. Enterprises must develop backup plans to ensure mission-critical connectivity, even in the event of a major NSP service failure. It s a Buyer s Market: Negotiate Better Deals NSP troubles offer opportunities for enterprises to negotiate better deals if they know what to ask for and how to protect themselves from increased risk. Many NSPs are desperate for revenue and are ready to negotiate with enterprises. With the recession, enterprises should be able to adjust minimum annual commitments for business downturn. During the course of a long-term contract, enterprises will likely have to migrate to new technologies. Three-year contracts remain best (shorter contracts with less-viable players) if the contract has the following: Lower minimum annual commitments to hedge bets on NSP viability and reintroduce NSP diversity. Market-based pricing. In general, price decreases are moderating; enterprises also need to protect against potential rate hikes as the industry consolidates. Ironclad service-level agreements (SLAs). Seize the chance to work through NSP support and service problems. Flexible out clauses. Enterprises should be able to terminate without penalty for the following reasons: SLAs are not met The NSP exits key services or markets Significant NSP financial deterioration occurs The NSP is acquired Bottom Line Five key action items for dealing with network service providers (NSPs) are: Forget about developing a single NSP strategy it won t work.
5 Make sure you have an alternative plan to fall back on. Renegotiate your NSP contracts now. Plan and pilot new IP network services. Develop backup plans to protect against major network disruptions. Written by Edward Younker, Research Products Analytical source: Jay Pultz, Gartner Research For related Inside Gartner articles, see: CEO and CIO Alert: Implications of the WorldCom Crisis for Enterprises and Vendors, 31 July 2002 CEO and CIO Update: Assess All Risks If Your NSP Files for Bankruptcy Protection, 17 July 2002 CIO Update: How Enterprises Can Benefit From Telecom Provider Troubles, 5 June 2002
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