Grow Revenue Without Paying for It

By Scott Sumner, Accedian Networks

There are a couple of clear trends emerging in this financial meltdown. The first is that no one can get out of the office anymore. I’ve been trying to get C-Level execs to speak on a panel at the COMPTEL Spring show and keep hearing there’s no travel budget. (Forget the private jet, chances are your company president can’t even fly coach these days.) The second is that service providers are skeptical to undertake new capital intensive projects, even if this ultimately drives revenue and positions them for growth when the economy recovers. So you’ve got to find a way to grow revenue without paying for it. Should be simple enough? I think there’s a way.

Analysts I talk to agree that there are some bright spots during this downturn — hosted and managed services is one, and another is Ethernet/IP business access. With more meetings being held over the Web, increased outsourcing and IT departments being squeezed in all directions, it’s this combined wave of pressure that’s finally driving mass adoption of packet-based communications. Using Ethernet-versus-T1 pricing I found on the Web, Ethernet costs up to 25-times less in a cost-per-bit comparison. That’s compelling. But that doesn’t help service providers make money.

Let’s look at this from the operator’s perspective. GigE pricing actually is dropping year over year. Telegeography said it dropped by 65 percent over the past three years, although it seems to have stabilized around 10$/Mbps per month. Hardly seems like an opportunity. But it can be. A similar survey showed that differentiated (SLA-backed) Ethernet services bring in as much as 65 percent greater revenue than a best-effort connection. This is the bronze, silver, gold approach the larger operators are delivering at sweet profits. So it’s clear that by moving from best-effort enterprise connectivity to QoS-guaranteed packages you can drive up revenue and margin quite easily.

Why would an enterprise be willing to pay a premium these days? Because having connectivity with guaranteed performance is required to move to hosted VoIP, off-site backup, emulated T1s and video conferencing. All of these services reduce their internal burn, decrease the travel budget and make the CIO look brilliant. But read between the lines: once you’ve got an SLA-grade service in place, they’re asking for applications — hosted and managed services — to further save them money. This is the “dozen play,” the gravy, the profit-rich services that make residential triple-play, churn reducing bundles look like a paper route by comparison.

The trick is to do all this without spending a dime.

First, take comfort that anyone can do this. You don’t need to be a Verizon to win this kind of business. A survey conducted annually by Atlantic-ACM concluded that network performance and QoS are more important than price when people pick their Ethernet provider. They also pointed out that the operator itself (their name and reputation) has been the last consideration for the last 14 years. So you can take on the big guys.

Sharpen your pencils. Here’s the plan.

While operators are at different stages of deploying Carrier Ethernet gear and moving to next-generation networks, this doesn’t mean any of this is required to deliver premium Ethernet services. A “recession-inspired” alternative would be to leave your network alone, forego expensive, time-consuming upgrades, and simply adapt the edge of your network as customers come knocking. What will you need to make this work? According to a recent survey by Ovum, customers will demand: (1) performance SLAs, (2) QoS optimization (shaping/rate limiting), and (3) 24/7 monitoring (proof of performance) — all on a per-application basis. All of these capabilities can be found in a variety of intelligent, low-cost switches and demarcation devices that combine service assurance and advanced networking functionality in ~$1K units. This means shaping, per-flow monitoring, aggregation and MEF-certified services can be deployed simply by installing a box at the customer. They’re like the set-top box of Ethernet services.

And that’s how this “pay as you grow” plan works: add it to your catalog, wait for an order, buy and deploy the edge device, turn up the service and start counting your money. It’s all “just in time” — or put another way, you match capex to revenue so no new budget iss required. Opex also should stay put –— customer-site optimized networking appliances usually are simple to provision, and normally a customer can do the install and the rest is done remotely — no techs, no trucks. I’ve even heard of operators selling the edge units to their customers like you’d buy or rent your set-top box at home. How you spin this is up to you.

Once you’ve got the “premium pipe”, build your “dozen play” using wholesaled services you re-label, or host them yourself: VoIP, SAN extension, remote backup, data center mirroring, stateful firewalls, video conferencing and so many other services are available from partners that you can add them to your portfolio in short order.

Might sound a bit too easy, but some of the biggest players are doing just this — on a global footprint. It might be time to take them head on. They might be surprised you decoded their secret sauce.

Scott Sumner is vice president of marketing at Accedian Networks, which provides Packet Performance Assurance solutions that enable carrier-grade, packet-based applications over wireless and wireline networks.

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