Strategic collocation

Jan 18, 2002 12:00 PM

In today's contracting economy, collocation arrangements must be viewed as more than just rack space for equipment and cross-connects between multiple carriers. They must be viewed in terms of platforms for distributed operations, market entry, value creation and revenue generation--activities that can make or break service providers and enterprises in competitive markets, especially in this time of shrinking budgets, thinning headcounts and dwindling demand for telecommunications equipment and services. 

Collocation arrangements can be categorized in several ways. There are carrier-neutral and carrier-specific arrangements. Both provide secure, environmentally controlled space that is leased in the form of cages, cabinets and racks into which service providers place their own equipment and pay a fixed monthly charge for the space, plus power and backup. A carrier-neutral collocation arrangement, also known as a "carrier hotel," provides a convenient way for service providers to interconnect with each other on their own terms and at less cost than going through an ILEC.

A carrier-specific collocation arrangement entails leasing equipment space that is owned by a carrier, such as an ILEC or CLEC. This type of arrangement is advantageous when a service provider or enterprise customer wants to have a presence in multiple markets. In addition to collocation space, this type of arrangement provides access to a local Sonet/DWDM fiber ring for providing services in the metropolitan area as well as access to a fiber backbone for interconnecting the local systems. The collocation provider monitors the entire network infrastructure, freeing the service provider or enterprise customer to focus more of its resources on core business operations.

Rack space and full service arrangements are other ways to categorize collocation. With rack space, a service provider or enterprise customer leases space for their equipment and manages it remotely. The collocation provider's on-site technicians provide physical management of the site, performing such tasks as installing new racks and cable, upgrading network systems, replacing faulty hardware components, and escorting visitors to their space. Visiting privileges allow technicians from customer organizations to enter the collocation site to install or upgrade equipment, swap out faulty components, and do extensive hardware troubleshooting. If the customer organization does not have a field technician available, the collocation provider's technicians can provide first-level support. A full service collocation arrangement also includes remote monitoring and network management services from a 24/7 network operations center.

The combination of the two--carrier-specific and full service--offers ISPs, ASPs and enterprise customers compelling advantages as they seek to refine business models, retool internal processes, rethink disaster recovery preparedness, refocus on core competencies, and reposition themselves--all within the boundaries of diminished human resources and disinterested capital markets.

Why consider collocation?

There are a number of reasons for considering collocation. Cost savings come from not having to invest capital for network infrastructure, recruiting and keeping qualified technical staff, and acquiring network management platforms and tools.

Collocation also offers access to complementary services, such as direct connection to a metro fiber ring built with Sonet and DWDM technologies, and access to a national data backbone capable of handling IP, frame relay and ATM traffic, as well as voice through local central office switches to the public network.

Another complementary service is an optional managed firewall. Physical security is the responsibility of the collocation provider, but a firewall in the collocation space can protect customers' e-commerce, Web, application and database servers from hacker attacks on the Internet by defining rule sets that filter out unwanted traffic, detect intrusions and report suspicious activity.

Collocation provides direct connections to the backbones of multiple carriers for traffic load balancing and network redundancy. These objectives are achieved by meeting at a digital cross-connect system, but also can entail traffic being handed off further down the line at network-network interfaces, Internet peering points and the points-of-presence (POPs) of various IXCs.

With collocation sites available nationwide from the same provider, POPs can be set up easier and faster with less capital and human resources. On-site technical support, offered by the collocation provider, allows immediate response to trouble conditions, resulting in less downtime for services and applications, and less inconvenience to a service provider's subscribers or enterprise customer's employees.

Strategic business advantages

Instead of investing time and capital in duplicative infrastructure that operates at OSI layers 1-4, which lack differentiation among service providers, the focus should be on speeding market entry, pursuing sales and capturing market share through differentiated offerings at OSI layers 5-7. Collocation arrangements from a carrier-specific, full service provider make this possible in less time and at less cost than building duplicative commodity infrastructure.

Risk is minimized as well. For example, by not having to duplicate infrastructure there is less risk of running out of capital when it is needed most--for turning up service to customers, expanding local markets and adding feature/function sets to further differentiate services. Risk is further minimized by leveraging the collocation provider's infrastructure for use as a test bed for new services on a localized basis before a full product rollout. This gives service providers a chance to run, and thoroughly test, all functions and features in a live environment with pilot subscribers.

Collocation also provides a platform for value-added services, such as VoIP, streaming applications, storage area networking and network caching for content delivery--all without unnecessary investment in supporting infrastructure.

Collocation represents a key component of disaster recovery planning, offering opportunities for power protection, network redundancy, carrier diversity, physical security and distributed operations that can help service providers and enterprise customers withstand a natural or man-made calamity in one city by having resources fully available in other cities. Users in the distressed location can be serviced from resources available from non-affected locations by such means as traffic rerouting and node re-homing under control of the collocation provider's network operations center.

The bottom line is that collocation loosens resource constraints, allowing management to target its efforts on core business operations--a critical concern in the current slow-growth economy, characterized by a bleak outlook for the telecom sector and shrinking capital markets.

Commodity vs. value

In an effort to cope with current business conditions, service providers and enterprises of all types and sizes are encouraged to examine collocation within the context of the traditional seven-layer OSI reference model; specifically, by noting the difference between the "commodity" and "value added" layers (Figure 1).

The commodity layers in Figure 1 comprise the necessary foundation upon which businesses are built. Here there is very little differentiation, which is largely due to the use of international standards and open protocols--cable is cable, access is access, routers are routers, and flow control is flow control. The result is that one product or service is as good as another's, so buying decisions are based mainly on price. Very little money is to be made at this level, yet this is where service providers and enterprise organizations continue to direct much of their capital. Any service provider that spends too much of its resources here is burdened with a low-margin "pennies" business like DSL for Internet access and long-distance voice over the pubic network.

The value layers in Figure 1 comprise the actual offerings of the service provider, and there is a lot of competitive differentiation here. Companies that focus on these layers are engaged in a high-margin "dollars" business, such as applications leasing, customization and management that an ASP might offer. Or the implementation and management of streaming content that a national ISP might offer. Or the online tools an e-commerce hosting firm offers to customers, enabling them to build their own catalogs, as well as order entry and tracking systems in a secure transaction environment.

For these types of businesses, the supporting network infrastructure is a commodity that can be obtained through collocation instead of resource-intensive duplication. This is a concept even the investment community is beginning to understand. Many venture capital firms will no longer invest in companies that intend to use the capital for commodity-level infrastructure, which is increasingly viewed as wasteful and a sign of inept management.

The "Collocation Value Chain" illustrates how realigned business processes achieve value-added impacts (Figure 2).  As shown in Figure 2, leasing commodity-level functions (outsourcing) enables businesses to leverage their core competencies (focus) to distinguish themselves in the markets they serve (payoff). With collocation, service provider and enterprise customers can outsource facilities, connections, hardware, security and network management. This leaves them with more resources to focus on product development, testing, feature enhancement, marketing, billing and customer service--which differentiate them in competitive markets. The payoff comes in the form of increased sales, low overhead, market share and competitive advantage.

Market success is dependent on differentiated offerings--not the physical, data link, network and transport infrastructure upon which the offerings are provisioned. Therefore it makes more sense to lease that set of commodities and put capital into the core business operations where value opportunities can be more readily realized.

Network access

In terms of network access, collocation offers many advantages. Often, there are no monthly local loop charges--only an initial setup fee. On a T-1 access line, this translates into a national average minimum savings of $200 per line, per month.  For T-3 and OC lines, savings on local loop charges can amount to thousands of dollars per month.

Cross-connects make for quick and easy move, add and changes--an important ingredient for being able to respond in a timely manner with more or less bandwidth according to fluctuations in market conditions, and for spreading traffic among multiple carriers as a hedge against disaster.

A full service collocation provider offers integrated services via local fiber rings that support IP, frame relay, ATM and gigabit Ethernet, plus access to its national backbone for both voice and data traffic (Figure 3). Service providers can choose from among several transports to serve their subscribers, which can differ per market, per subscriber or subscriber application.

Collocation from a full service provider that is also a national ISP offers expedited traffic flow to the nearest network access point (NAP) on the Internet backbone. Multiple paths along high-capacity fiber routes ensure that IP traffic will flow around potential congestion and link failures. Multi-megabit IP traffic is handled via ATM virtual circuits that are configured for constant bit rate service, ensuring maximum throughput and minimum delay.

A collocation provider that offers facilities-based access means that a service provider or enterprise customer does not have to depend on the ILEC's schedule for service delivery or make do with the ILEC's standard service offerings. A facilities-based collocation provider can work within a company's schedule and customize services to meet critical requirements. For example, it is possible to completely install, test and cutover a 3-node metro Ethernet for customer traffic within five business days of order submission and approval.

A collocation arrangement gives a service provider or enterprise direct connection to local fiber rings, and instant access to multiple carriers and services at a cross-connect system (Figure 4). In this arrangement, data traffic is separated out at the cross-connect and passed to a router. Pure IP traffic leaves the router and goes to the nearest peering point for transit through the Internet backbone. ATM, frame relay and encapsulated IP traffic is passed from the router to an ATM switch for transit over the collocation provider's national data backbone.

Voice is separated out at the DCS, passed to a GR-303 concentrator and then to the local 5ESS central office switch. Interexchange calls, including international calls, as well as calling card calls, get passed to appropriate carriers over the public network.

From a central operations center, the collocation provider can monitor network equipment and lines for impending fault conditions and take corrective action before a failure actually occurs and disrupts service. This capability translates into high network availability and throughput for all customers--service providers and enterprise organizations.

From the network operations center, the collocation provider also monitors the environment to ensure proper temperature and humidity. Battery banks are monitored to ensure that they are properly charged and ready to kick in during a commercial power outage to protect network systems. After 10 seconds or so, a diesel-fuel generator kicks in to supply power.

Managed servers for Web site and e-commerce hosting, firewalls and routers can also be included in this power protection arrangement. Collocation customers may install their own UPS equipment to protect their own systems against momentary power interruptions.

When monitored systems reach pre-defined thresholds, alarms go off at the network operations center so corrective action can be taken before the condition reaches a critical stage.

Disaster planning

Another key advantage of carrier-specific collocation is that it provides geographic diversity to protect IT assets against the effects of earthquakes, fires, floods, weather, brown-outs and rolling blackouts, as well as terrorist attack and workplace sabotage.

The more a company can distribute its IT assets, the greater protection it will have against disruption to business processes and service delivery to customers. Collocation arrangements in each market can provide this protection.

A key aspect of disaster planning is guarding against hacker attacks from the Internet. A collocation arrangement can include a managed security service (Figure 5), which entails defining rule sets for a firewall that filter traffic according to parameters decided by the customer. A firewall managed by the collocation provider offers the first line of defense, protecting customers' e-commerce, Web, application, and database servers from unauthorized access. A dialup connection enables certified security engineers to update firewall rule sets if the dedicated connection is out of service.

For example, an ASP might want to specify the domain names that are allowed access to its application servers. This would prevent access from any other source. A hosting company might want a DMZ firewall configuration to protect its internal network where back office processes reside to support the e-commerce applications of its customers. The firewall is fully managed by the collocation provider and includes a service level agreement that guarantees the proper functioning of the various rule sets.

Through the use of a router that supports the border gateway protocol, a collocation customer can have path and carrier diversity by "load-balancing" Internet traffic between two carrier networks (Figure 6).

With "per-destination load balancing," different paths to the same location (i.e., the Internet) are available. BGP chooses the single best path for reaching that destination based on such metrics as next hop, administrative weights, local preference, origin of the route, and path length. Once the path is selected, all the traffic goes out over that path. In "per-packet load-balancing," individual packets would be distributed equally between the two links as they leave the source router.

In either scenario, if the link to one carrier goes down, the link to the other carrier takes the extra traffic load. When the failed link is restored, traffic load is automatically balanced across both lines.

Value-added services

Collocation sites can be viewed as platforms for a variety of value-added services, including:

• Storage area networks for real-time backup of mission-critical data and to facilitate data access from distributed locations

• Virtual private networks for economic and secure transport of data through the Internet, extending the reach of services to a company's distributed locations

• ASP networks for economic and secure access to applications nearer to the points of delivery without the need for multiple data centers

• Content delivery networks for delivering streaming content on a demand or scheduled basis from the source closest to the destination for the fastest response time

• VoIP networks can leverage the voice and data infrastructure of the collocation provider for the placement of IP/PSTN gateways

• Telemetry services provides collocation space for servers that gather data from numerous monitoring devices in the local area for batch processing at a central data center.

Storage area networks are suited for data-intensive environments like those used for video editing, pre-press, online transaction processing, data warehousing, storage management and server clustering applications.

The collocation service provider not only offers geographic diversity for the storage servers, it can accept Fibre Channel inputs over the metro ring to the ATM backbone switch, in effect extending the reach of Fibre Channel nationwide. Other transports for storage area networking can be accommodated as well, including IP and gigabit Ethernet. Regardless of the type of transport selected, the collocation service provider offers 24/7 network surveillance of the links.

National ISPs can use collocation to extend voice-over-IP services by putting their IP public network gateways between a service provider's nationwide backbone network and local 5ESS switch (Figure 7). VoIP could be positioned as a standalone commercial service, or as a value-added component of a local or regional ISP's Internet access service.

Collocation provides content delivery networks with an opportunity to extend content delivery to new markets. The arrangement allows caching servers to be positioned closest to points of demand. In this way, traffic load is distributed to expedite the delivery of popular digital content. The resulting geographic diversity also protects information assets from server failures. Multiple paths between the switches in the collocation provider's backbone network offer protection against congestion and link failures.

For service providers engaged in telemetry businesses like building environment, security and utility monitoring, collocation offers an economical way of consolidating measurements and readings at a collection server via IP or frame relay. These measurements and readings can be viewed in real-time at a local operations center, or collected on a scheduled basis from each location for batch processing and report generation at a national data center. Collocation lowers the cost of market entry for telemetry service providers, because capital does not have to be used for building the support infrastructure--namely, the controlled environment for collection servers in each market.

Collocation offers ASPs an opportunity to economically extend enterprise applications to new markets. This arrangement allows powerful multiprocessor application servers to be positioned closest to customers without having to build a data center in every market (Figure 8). This arrangement also improves application response time for customers. All customization and upgrades of the enterprise applications can be done at the ASP's data center and thoroughly tested there before being loaded to the remote application servers for customer access.

With the right collocation service provider, even the data center capabilities can be leased. If an ASP needs data center capacity and resources, even on a standby basis, some collocation service providers offer "hardened" data centers that provide critical amenities:

• Multiprocessor servers for the applications

• Carrier-class routers

• Robotic tape library (terabytes capacity)

• Supercomputer processing capacity

• Redundant fiber links to Internet NAPs

• High-speed links to remote collocation facilities

• Multi-level power protection

• Environmental controls

• On-site technicians and application experts.

The ASP can contract for data center capacity and resources to incrementally supplement its own data center, as a backup data center for disaster recovery, or as its "virtual" data center. In the virtual data center scenario, the ASP's programmers, application maintenance staff and other support personnel can work from any location via secure VPN links. This allows the ASP to recruit specialists from any location to further reduce its infrastructure costs, while drawing from the talent pool in any city. A project manager coordinates the activities of programmers, quality assurance and software maintenance staff.

VPNs are essentially private connections over the Internet. ISPs, ASPs and content providers can use VPNs to deliver services to customers as well as support internal operations. Security is provided through the use of authentication and encryption, which are provided by the tunneling protocols or added at the endpoints via firewalls or routers with firewall capabilities.

VPNs can be built with IP for economy, or with frame relay and ATM for performance. Some collocation service providers can support all three, allowing ISPs, ASPs and content providers to choose an appropriate transport for service delivery to customers and another for internal business processes--or move from one to another, as business needs change.

Strategic impacts of collocation

Leveraging the network assets and skill sets of an integrated communications provider allows a business to achieve substantial value-added impacts by:

• Lowing the cost of market entry

• Starting services quickly

• Containing ongoing operating costs

• Minimizing risk

• Enabling incremental expansion of the customer base and market as well as business growth

• Exploiting unique or fast-breaking market opportunities without the delay inherent in setting up networks and local infrastructure

• Testing new services in select markets before official rollout. This allows a company to tweak service features and functions as well as price points.

Top 10 Reasons to "Collo"

To determine if collocation arrangements are right for a particular service provider or enterprise, the following questions should be considered:

1. Is the organization running out of space for servers and network equipment?

2. Is off-site storage and distributed operations part of the organization's disaster recovery plan?

3. Is the organization paying too much for local access?

4. Is the organization worried about network security but lacks the in-house expertise to set up and maintain a firewall?

5. Is the organization having trouble hiring and retaining qualified support staff in any of its markets?

6. Has the organization ever been a victim of theft or vandalism?

7. Do internal departments require faster response to carrier change requests?

8. Does the organization need to reduce operating costs to stay competitive?

9. Does management appreciate interconnection with other carriers for traffic load balancing as important to service availability?

10. Has the organization ever quantified the losses that could accrue from a major network outage, act of sabotage or terrorism, or prolonged commercial power outage?

If the answers to two or more of these questions point to sources of inflated costs or potential disruption of business operations, serious consideration should be given to a carrier-specific, full-service collocation arrangement in critical markets.

Collocation space is contingent on availability in each market and the monthly price is determined by market, type of space and power requirements. Other charges include those for installation/setup; site visits after business hours; cross-connect move, add and changes; and first-level maintenance assistance. Space providers offer 1, 2, or 3-year term plans but generally do not lease space on a month-to-month basis.

For service providers and enterprises that have not previously considered collocation, or have been disappointed with carrier-neutral arrangements available in the marketplace, it is worth the time to determine if carrier-specific, full-service collocation arrangements are a better fit. This type of arrangement offers a number of infrastructure capabilities that economically address a wide range of strategic business needs and act as a hedge against virtually any kind of disaster scenario.

Nathan Muller is Sr. Technical Consultant with e.spire Communications, a nationwide integrated communications provider in Herndon, Virginia. 

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