Carriers go farther with a little outsourced help

As Internet traffic continues to double every six months, it's the Internet service providers that ultimately feel the pressure.

Millions of business users have placed heavy demands on their ISPs for protected, ubiquitous and reliable global communications. Telecommuters, branch offices and the small office/home office market continue to clamor for the 24-hour availability and high-speed access required for bandwidth-intensive applications as consumer demands for Internet access also escalate.

This market wants the convenience of television, the reliability of the telephone and eye-catching graphics, vibrant colors and special effects. To satisfy these expectations, ISPs must be able to make hundreds of different components and connections work together seamlessly and transparently. These include client applications, data conversion algorithms, modems and servers that transmit information and last-mile infrastructure such as fiber optic cable and copper wire.

As the demand for increased scalability, manageability and performance continues to grow, service providers are struggling to manage the requisite technology upgrades and system re-engineering activities associated with quality enhancements and performance boosts. This difficulty is compounded by the dynamic nature of the Internet services market, which continues to render cutting-edge technologies obsolete almost overnight. The frantic pace of product development can take even the most sophisticated, skilled information technology department to the breaking point.

Furthermore, ISPs that build and maintain their own networks are forced to undergo continual, costly equipment upgrades to keep pace with industry innovation. Many of these upgrades result from changes in modem technology, access equipment and network transport systems. As the complexity and frequency of these transformations increase, addressing diverse user needs becomes even more time-and resource-intensive.

As a result, many ISPs want to outsource their network management responsibilities to third-party wholesalers so that they can remain focused on their core competencies: customer service and on-line content.

The trend toward wholesaling While many large companies continue to manage both the network and content components of their Internet services, others are deciding that these functions are too vast, complex and specialized to manage simultaneously. Many companies are discovering that their information technology limitations are compromising the quality of their product and service offerings-and vice versa. Companies with strategies that address every layer of Internet capability-from backbone technologies to application delivery vehicles-may find their internal resources exhausted and their market position weakened. This is because each of these multiple layers requires considerable investments of capital, brain power and other operational resources.

This resource drain helps explain why many ISPs and corporations are beginning to outsource their network management functions to wholesalers-in effect, divesting their infrastructure business so that they can focus on their core product and service offerings. These wholesale agreements let ISPs reduce their capital outlay, eliminate costly equipment upgrades, develop and deliver value-added services, improve reliability and capability by leveraging co-located equipment, and reduce network access costs by capitalizing on the economies of scale offered by wholesalers.

The trend toward outsourcing is supported by both performance and profitability measures. A recent survey of ISPs by Business Week found that Mindspring, EarthLink and America Online delivered better performance to investors than powerhouses such as Dell and Microsoft. This performance can be linked to the fact that those providers rely either primarily or exclusively on outsourced access. Another indicator of the value of ISP specialization is that outsourced ISPs tend to realize a higher valuation per subscriber than "do-it-yourself" ISPs, as indicated in Table 1. Also, an enhanced financial position provides ISPs with an additional incentive to outsource access services.

A win-win situation Both wholesalers and retail ISPs are benefiting from the wholesale Internet access model. On the wholesaler side, carriers are discovering that these services help them obtain greater revenues from their existing infrastructures-in essence, serving a greater number of customers through a focused technology investment. Sharing deployment, development and maintenance costs among a large, diversified subscriber base helps ease the financial burden of that technology investment.

In some respects, the benefits for wholesalers represent the flip side of those for service providers, in that wholesaling Internet access lets them concentrate on technology issues without expanding into costly-and often unfamiliar-content and customer service functions.

This model is particularly attractive to large carriers such as Sprint and MCI WorldCom, which have the breadth of in-house networking expertise needed to deliver reliable, scalable network services. Because these carriers are grounded in infrastructure development, deployment and maintenance, they have a deep understanding of the technological and economic factors driving the industry. In addition, these carriers are familiar with the wholesale Internet access model because many had to make similar strategic decisions during the growth and deregulation of the traditional voice-based telephony market. For carriers with experience in selling wholesale voice access to providers of co-located Centrex and premises-based PBX services, a wholesale network offering for data communications constitutes a logical next step.

Figure 1 depicts a typical architecture for deploying wholesale Internet access. The service provider assumes responsibility for connectivity to the Internet backbone and for the components traditionally associated with modem outsourcing. This includes public network connectivity, dial-in switches and connections to the ISP's resources. Traffic bound for the Internet is routed via the service provider's links, bypassing the ISP's resources altogether. ISP-bound traffic created either by end users accessing e-mail or as a result of user authentication functions directed to the ISP's authentication, automation and accounting server is routed normally. Because an estimated 90% to 95% of dial-in user traffic is destined for sources on the Internet (and not the ISP's network), this architecture significantly reduces an ISP's required Internet access bandwidth.

This model allows wholesalers to provide a dedicated, transparent network to ISPs and their customers. End users still dial into their ISP and are unaware of the network service provider's involvement. For the wholesaler, dial-in users appear as part of the service provider's network, thus enabling the wholesaler to monitor usage and service more effectively. This "Internet direct" architecture also allows the wholesaler to offer enhanced services to an ISP without requiring the complex mechanisms of a traditional ISP architecture. For example, a wholesaler can offer Web hosting services while allowing the ISP to maintain control over content. The wholesaler can also extend its services to include Internet fax capabilities or enhanced voice-over-IP services such as Internet call waiting that the ISP can offer to its end user base, thereby generating additional sources of revenue.

Implementation considerations Because an ISP's success depends heavily on the quality of service it delivers, an ISP looking to relinquish its network development and management responsibilities still needs to maintain control over its customer contacts. The ISP relationship with the end user cannot be diminished or compromised as a result of the wholesale relationship. Direct customer service activities must be conducted through the ISP so that it can deliver seamless, transparent network access to its subscriber base. Wholesale ISP capabilities must also enable the network service provider to differentiate its customers and services effectively. Applying various service policies to different customers allows the provider to cater to the evolving needs of an ISP while maintaining control over its network resources.

This need to retain critical forms of control for both the ISP and wholesaler necessitates a feature-rich network access solution with robust functionality-one that is capable of satisfying end user, ISP and wholesaler requirements. Today's carrier-class network access servers, in conjunction with policy management software, provide the critical layer of network intelligence and management necessary to deliver the strategic solutions that today's high-density, high-volume Internet services market requires. This technology addresses these requirements on a number of levels.

Port allocation. Wholesale network access solutions can maintain a view of all calls, as well as enforce an ISP's total port quota across the network. This ensures that the ISP optimizes usage for all virtual modem ports, while preventing overuse of the network.

Overflow quotas. Quotas enable ISPs to exceed their base subscribed port limit temporarily and generate additional revenues through the premium charges associated with those events. Overflow capability allows users to define an overflow quota for individual phone groups or across multiple phone groups.

Authentication and authorization. Wholesale network access solutions can be configured to allow individual ISPs to have different authentication and authorization servers. As each user dials in to the network access server, the network access server sends a Radius authentication request to the Internet protocol address corresponding to the ISP's primary Radius server.

Accounting. Wholesale network access solutions can also help streamline the ISP's end user accounting function. Each network access server can be configured with the ISP's account server information, enabling the network access server to generate "accounting start" and "accounting stop" messages to the IP address during start-up and release activities.

IP address allocation and pool management. Wholesale network access solutions offer many options for IP address allocation and pool management, including assigning IP addresses from a global network access server pool, the ISP's IP pool or other servers.

The explosion in Internet usage has complicated the maintenance and management of home-grown networks. Constant upgrades, new product releases and limited resources have made it increasingly difficult for ISPs to deliver the proper balance of content and service to their users. The outsourcing of these network functions enables ISPs to focus on their core competencies-service and content-and gives telco service providers the opportunity to generate additional revenues by leveraging their in-house networking expertise. In an Internet market increasingly driven by specialization, the wholesale ISP model, when effectively implemented, provides a mutually advantageous solution to both the wholesaler and the retail ISP.

The trend toward wholesaling, which is causing a radical re-evaluation of the traditional Internet service provider model for delivering Internet-based services, also has significant implications for the world of virtual private networks.

In many respects, the concerns of corporate customers mirror those of ISPs-namely, the need to provide both networking infrastructure and critical services such as remote access for the end user. This multifaceted complexity is one reason why corporations have been relatively slow to incorporate VPN capabilities as part of their information technology infrastructures.

Corporate information technology departments face many of the same issues as their ISP-based information technology colleagues: increased user demands, limited resources and a seemingly endless cycle of deployments, enhancements, upgrades-and obsolescence. Similarly, companies seeking outsourced VPN capabilities from third-party telcos can focus on serving their internal customers, rather than dealing with constant transformation and troubleshooting.