IP holds the key: IP-based services provide an excellent opportunity for ISPs and CLECs seeking to differentiate themselves in an increasingly competitive market

The line between Internet service providers and competitive access providers is blurring. As these providers expand into new service areas, and as some of the leading ISPs and CAPs merge, a new type of service provider is emerging.

The primary driver of the converging markets is the incredible opportunity presented by advanced Internet protocol-based services-services that take advantage of Internet technology but offer customers greater value than mere access to the Internet. Advanced IP services such as intranet, extranet and Web-hosting services are an increasingly important aspect of corporate networks, and they account for a growing percentage of the money spent on IP services. Not coincidentally, advanced IP services are critical to the competitive strategies of some of the most forward-thinking CAPsand ISPs.

Capitalizing on data Originally, CAPs offered two types of service-bypass voice service, in which the CAP provided an alternate route to connect businesses to their long-distance carriers, and private-line services, in which the CAP linked business locations via leased T-1 or T-3 lines. As CAPs' service offerings became more sophisticated to encompass the full range of switched services, the industry adopted the term competitive local exchange carrier because it more accurately reflected the providers' market position-they had become the "other local phone company."

In today's cut-throat environment, CLECs that focus solely on voice will find it very difficult to compete. State public utilities commissions have authorized more than 200 entities to provide local exchange service, and this number is continually increasing. Value-added data services can provide a differentiation strategy.

The Telecommunications Act of 1996 has thrown the Bell regional holding companies into a frenzy trying to protect their existing voice business and gain entry into the long-distance voice market. Competitors have an opportunity to pursue value-added data services while the giants are preoccupied.

Although the growth rate of voice traffic is leveling off, data traffic is growing by leaps and bounds. In response, the more progressive CLECs are offering suites of services such as frame relay and transparent local area network service.

IP traffic is quickly becoming the predominant form of data traffic. IP traffic comprised 37% of traffic generated on the LAN in early 1997, and by 1998 it will be 62%, according to Sage Research. Cutting-edge CLECs are turning their attention to IP data services, such as Internet access and advanced IP services.

Another factor contributing to the appeal of the data services market is the current outsourcing trend. Networks are becoming too expensive for companies to manage themselves, but companies won't outsource their entire network overnight. Instead, they will likely turn to outside expertise for assistance with certain networking tasks first, including connections between two separate organizations, functions involving the wide area in general as well as new technologies such as IP or asynchronous transfer mode. The latter is especially important now that it has become such a challenge for corporations to hire and keep information technology personnel with expertise in the latest technologies.

Once again, the factors point to IP-based services, specifically those that link one organization to another-value-added, advanced IP services such as intranet and extranet offerings.

Reaching beyond access As advanced IP services have become more attractive to CLECs, industry forces are driving ISPs to expand beyond Internet access to remain competitive (Figure 1).

Just a couple of years ago, ISPs' service menus consisted of one item only: Internet access. Basic Internet access, however, is becoming a commodity. With unlimited connect time to the Internet going for $19.95 a month in the consumer market, and similar price pressure occurring in the business market, it is difficult to squeeze a profit by delivering only Internet access. And with the onslaught of new entrants-ISPs, RHCs and interexchange carriers offering Internet access services-the competition is fierce.

RHCs and IXCs have a few cards stacked in their favor. They enjoy the advantages of an established customer base and have deep pockets to advertise their Internet offerings.

Unlike many ISPs, telcos own the infrastructure that they use to deliver Internet access service, so it is less costly for them to deliver service. They can offer price breaks to their voice customers to win the Internet access business. And with a much larger installed base of customers than the ISPs have, telcos can realize greater economies of scale from infrastructure investments. These large carriers can afford to offer unlimited service at rock-bottom prices.

While basic Internet access is a fairly easy service to deliver and therefore fits in well with the RHCs' cookie-cutter approach to service delivery, offering advanced IP services requires a more IP-sophisticated staff and a more tailored approach to network design. These services are well-suited to ISPs' strengths.

According to a recent Forrester Research report, AT&T and the RHCs aren't taking a serious interest in advanced IP networks and have not tackled the security and quality-of-service issues that are key concerns of companies exploring intranet service options. Once again, a window of opportunity exists for forward-thinking providers to capture market share while the larger carriers' attentions are focused elsewhere.

As intranets and extranets become more important to corporations, advanced IP services are capturing a greater percentage of the money spent on Internet services. In 1996, 60% of money spent on IP services went toward Internet access. By 2000, intranet access and other advanced IP service revenue will account for the majority of money spent on IP services. Of course, this will be a larger slice of a larger pie.

According to The Yankee Group, $169 million was spent on intranet access in 1996. Intranet access revenue will total $1.5 billion in 2000, Yankee Group analysts predict.

It is critical for ISPs look for ways to differentiate themselves. At the end of 1996, about 4400 ISPs existed. Forrester estimates that within five years, that number will dwindle to about 100. Successful ISPs will expand beyond access-only services and develop a specialization based on the more promising advanced IP services.

The right nuts and bolts To deliver advanced IP services economically and efficiently, providers should invest in the correct infrastructure.

CLECs that already deliver voice or data services would benefit greatly by using a single infrastructure to support their existing services and new IP-based services. An infrastructure that can support multiple traffic types would enable CLECs to take advantage of economies of scale and maximize return on infrastructure investment.

ATM is the only infrastructure designed to support voice, data and video traffic. It can support CLECs' existing services, today's IP-based services and tomorrow's services.

For ISPs, the most important concern is aggregation. To serve customers with T-1 or fractional T-1 Internet/intranet access, ISPs can use frame relay to aggregate T-1 pipes to a DS-3.

But for today's bandwidth-hungry users, frame relay is not enough. Customers are demanding higher-speed Internet/intranet access, and ISPs need to be able to aggregate higher-speed pipes. ATM is the only technology available today that can aggregate in the 2 to 50 Mb/s range. ATM is well-positioned to be the access technology to support IP services.

Another advantage of ATM that is important to both CLECs and ISPs is the quality-of-service capability that allows providers to offer service level guarantees to their customers. With ATM, data is handled in small, uniform cells that give the network very fine-grained service controls, allowing providers to offer service level guarantees to ensure that their customers are receiving the service they ordered.

Additionally, ATM is a scalable technology, which means providers can offer their customers the bandwidth they need today and can easily increase the bandwidth as customers' needs change. And because ATM allocates bandwidth on demand, service providers can oversubscribe the network. The bandwidth customers need is available when they need it and what they don't use is available for other customers.

ATM is a complex technology, and corporations have not embraced it. But it is possible to reap the benefits of ATM without exposing customers to the complications-providers can deliver services that require the end user to work only with familiar technology.

Because companies are most comfortable with LAN technology, service providers should install infrastructure at the edge of their networks that can deliver services directly to customers' LANs. Providers can offer flexible, high-speed services tailored to fit their customers' needs and can adapt to changing requirements. For example, a customer with fast Ethernet LANs can subscribe to an intranet service with 15 Mb/s of bandwidth today and in the future can subscribe to a 30, 50 or 100 Mb/s solution.

To ensure successful service deployment, providers that are developing advanced IP service offerings should aim to satisfy several criteria.

Install the right infrastructure. ATM provides a solution for providers interested in delivering very high-speed services and consolidating many services over a single infrastructure.

Deliver a broad range of services. When more services are offered over a single infrastructure, more revenue is generated and the return on investment is better.

Provide services rich in features. Delivering feature-rich services-high-performance, scalable IP services with service level guarantees-can be the cornerstone of a provider's differentiation strategy. Furthermore, service providers offering feature-rich services are in a position to earn more revenue because users will be willing to pay more for guaranteed bandwidth and security.

Provide flexible services that can be tailored to fit customers' needs and can adapt to changing requirements. Customers will be most interested in subscribing to services that suit their exact needs.

And by enabling customers to change the bandwidth and features of services, providers can help ensure that today's customers remain loyal in the future.

Make it easy for customers to receive services. By offering services that allow customers to realize the benefits of the latest technology while shielding them from the complexities of that technology, service providers can provide value to their customers and differentiate themselves from the competition.

Four years ago, American Communication Services Inc. began offering businesses alternative local access to carriers' networks. ACSI quickly carved a niche for itself-focusing on serving second-tier cities across the southern half of the United States, including Birmingham, Ala., New Orleans and El Paso, Texas.

Having established a successful alternative local voice business, ACSI investigated new opportunities. The company recognized the growing importance of data and also realized that the companies in second-tier cities often had few alternatives. ACSI viewed this as an opportunity to leverage the presence it already had established in those markets.

The company chose to deploy an asynchronous transfer mode network to support data services because it needed an infrastructure that could grow as well as support multiple services and multiple traffic types. In September 1996, with a coast-to-coast ATM network in place, ACSI began offering data services, including dedicated Internet access, frame relay and native ATM services. By the end of 1996, ACSI offered voice and data services in 21 cities and had 42 data points of presence across the country.

After evaluating its product portfolio against current industry trends, ACSI set its sights on the next great frontier-advanced value-added Internet protocol services. Last February, ACSI acquired CyberGate, the largest and oldest Internet service provider in Florida. A couple of months ago, ACSI marked its entry into the intranet/extranet market with its Espire family of services.

The Espire services are a one-stop shop for small and medium-sized businesses that want the increased efficiency that intranets and extranets provide, but don't know where to start. The Espire solution set packages Internet access, Web hosting, domain name registration, e-mail, news feeds, routers and firewalls. Essentially, all the customer needs to provide is the content, and the intranet or extranet will be up and running.

ACSI's success is rooted in its ability to continually re-evaluate its service offerings in light of market needs and industry trends. A bevy of indicators-including increased competition for local voice and data services, the growing importance of IP traffic and shrinking margins in thedial-up Internet access market-pointed toward a solution that would enable ACSI to provide even more value to its customers. ACSI serves as an experienced guide through the intranet/extranet maze for its customers.

In today's competitive Internet access environment, carriers must differentiate their services in order to gain market share. As a national provider of high-speed Internet services, Savvis Communications Corp. aims to provide large corporate users, Internet content providers and local and regional Internet service providers with superior performance and quality in high-speed Internet access and advanced IP services. By developing a private managed network, Savvis can provide high quality of service and performance guarantees to meet the demands of today's corporate Internet user.

When founding the company two years ago, Savvis' engineers examined the current state of affairs within the public peering model. This model centers around a set of national peering points-called network access points, metropolitan area exchanges or the Commercial Internet Exchange-that are the top of the food chain in the structural hierarchy of today's Internet.

The phenomenal growth of the Internet has caused the public peering system to become overloaded. The strain on this system is responsible for a substantial part of the data loss and latency within the Internet, as well as availability problems related to Internet brown-outs. Thus, Savvis decided that it needed to build a better mousetrap that would provide superior scalability, reliability and performance.

The company developed a twofold strategy for providing Internet access: It needed to bypass the metropolitan area exchanges and network access points and manage bandwidth within Savvis' network to reduce loss and latency.

To bypass the metropolitan area exchanges and network access points, Savvis developed a unique national network design that includes seven private network access points and 10 points of presence (POPs) in 17 major cities across the U.S. The network provides access to the Internet via direct, full-rate DS-3 connections with the three principal Internet backbone providers-MCI, Sprint and UUNet-at each private network access point.

Because these networks represent direct on-net connectivity to approximately 80% to 90% of worldwide Internet sites, Savvis customers do not have to traverse the metropolitan area exchanges and network access points for a majority of the traffic sent to and from the Internet. Additionally, the network flattens the Internet by reducing the number of hops between its customers and other network users.

To manage bandwidth requirements, Savvis chose asynchronous transfer mode as the core technology platform to avoid the scaling and operational problems associated with a router-only approach. Using ATM inside the network core gives providers a number of advantages.

For instance, Savvis uses "smart" permanent virtual circuits (PVCs) to connect its client's routers through its network to the private network access point router that interfaces to Sprint, MCI and UUNet. Smart PVCs allow Savvis to manage unmanned multiple-city POPs as if they were one "virtual POP" and reduce router hops. The PVCs accomplish this by creating a self-healing "silicon rope" between the customer's routers and Savvis' private network access point router that is bandwidth-managed to preserve the customer's purchased bandwidth contract.

Additionally, Savvis adopted ATM to simplify network management. By converting external protocols such as Ethernet and frame relay to ATM cells at the earliest possible opportunity, Savvis can adapt any edge protocol to ATM and interoperate these protocols using the quality-of-service capabilities of ATM wherever required.

By using switching wherever possible and IP routing only where necessary, Savvis can manage a large network with a smaller staff and with fewer opportunities for human error. This method reduces costs and makes network management more predictable.

Two customers using Savvis' advanced IP services are PointCast and Omron Electronics Inc. PointCast, based in Cupertino, Calif., collocates its Webcasting server in Savvis' St. Louis private network access point to take advantage of the direct on-net connections available with this unique network design. Additionally, companies such as Omron Electronics Inc. in Schaumburg, Ill., rely on Savvis' national ATM network for the development of its corporate intranet in conjunction with high-speed Internet access.

By bypassing the metropolitan access exchanges and network access points and managing bandwidth from the customer to the private network access points, Savvis can provide a robust, highly redundant Internet service building block for high-end Web collocation facilities, bandwidth-hungry ISPs and quality-conscious corporate customers.