VPNs carve into telco business

Ah Thanksgiving! I've always loved Thanksgiving, and that wonderful fairy tale idea of "there's always enough."

Back when I was growing up, it was no fairy tale. No matter how hungry I was, or how many people showed up for dinner, I could eat 'til I dropped, take a nap and still there'd always be enough turkey left over to pick at all weekend. It seemed to defy the law of physics. For days on end, my grandmother's turkey seemed to grow back juicy, white meat as soon as I closed the refrigerator door.

But today, thinking "there's always enough" can cause trouble-especially in the phone business. Until recently, the Bell regional holding companies and long-distance carriers seemed to have a gentleman's agreement. So long as each business stayed on its own side of the street, many executives seemed to think both would have enough business.

With deregulation, the gloves are off, and many an RHC and IXC are gearing up to lay the technology and file the paperwork to get into each other's business. Lost, perhaps, in this clash of the titans is a third competitor that may cause the pie to shrink dramatically-and for good. It's a secure, easier-to-manage version of the Internet known as a virtual private network.

Basic VPNs offer businesses a way to link to each other over a connection just as secure as a private line, but at a fraction of the cost. This new form of connectivity has the potential to erode market share for both local and long-haul carriers, as businesses discover how to make the Internet a safe and reliable highway for end-to-end communications.

Only a year ago, VPNs were a flight of fancy for even the most enthusiastic Internet advocate. But that was then. Today, the biggest names in networking-both hardware and software-have cracked much of the technology puzzle.

Cisco Systems, Microsoft, Lucent Technologies, Bay Networks, 3Com, Ascend Communications and Check Point Software all have begun shipping products that on their own-or in combination with each other-can allow even the largest businesses to reduce their reliance on, or even unplug, their T-1s and frame relay connections. As a result, some of the biggest corporate telecom service users are starting to test VPNs as a replacement for leased lines.

Ford, General Motors and Chrysler are funding a pilot project that would provide a super-secure VPN to link the Big Three auto makers to dozens of parts suppliers. The VPN will carry just about any kind of design and purchasing traffic that now goes over private lines-including e-mail, complex CAD designs and even data for electronic data interchange. Some execs figure that if their VPN pilot-christened the Automotive Network Exchange-works, it could mean we'll see a wholesale unplugging of hundreds of T-1, frame relay and even satellite connections in the next few years.

CSX Corp., the giant transportation company, operates TWSNet, a VPN that lets customers check the status of shipments from a Web browser. TWSNet even lets customers manage and track individual items in their inventory. The project is working so well that CSX expects some 3000 corporate users by year's end.

Kinko's Inc., the office services chain, is also building a corporate-wide VPN. The company already provides Internet services to customers as part of its overall offerings. Because each of the 850 Kinko's stores has-or soon will have-several Internet connections, the next logical step is to get more out of that investment by linking all the stores together-and to corporate headquarters-over a secured VPN.

For telcos, a greater concern than the arrival of VPNs is the fact that hardware vendors are working closely with regional ISPs to put end-to-end VPNs in place. Phone companies often are shut out of the process.

As traditional carriers sit down to their Thanksgiving turkey this year, they are advised to eat until they get enough. If telcos don't pay attention to VPNs, this new business will be carved up without them.