IP VPN prices fall as customers demand more capacity

12 Jun 2014

To address their growing network requirements, enterprise customers are increasingly purchasing higher capacity MPLS IP VPN ports. New data from TeleGeography’s Enterprise Network Pricing Service reveal that IP VPN prices for higher port speeds are declining around the world as carriers compete to meet this demand.

Between Q1 2013 and Q1 2014, sales of ports at capacities below T-1/E-1 decreased sharply, and now account for just 8% of global IP VPN sales, while sales of 2Mbps to 10Mbps ports soared, and now account for 51% of MPLS VPN ports sold. As sales volumes shift toward larger ports, carriers are implementing price reductions at these capacities to position themselves in the market. Between Q1 2013 and Q1 2014, median 10Mbps port prices decreased an average of 18% in major cities around the world.

The link between adoption of higher capacity VPN services and price erosion holds true across regions. In Asia, sales of capacities from 2Mbps to 10Mbps grew over the past year to account for 48% of all IP VPN ports sold. Over the same period, median 10Mbps prices in Singapore and Sydney fell 20% and 36%, respectively, to USD983 and USD1,589 per month. In Latin America and Africa, sales of 2Mbps to 10Mbps grew to account for well over half of all IP VPN ports sold, while median monthly 10Mbps prices in Sao Paulo and Johannesburg declined 11% and 27%, to USD1,735 and USD8,453.

In the most developed markets, the trend of growing demand and falling prices is also evident at even higher capacities. While ports at capacities from 2Mbps to 10Mbps still comprise just over half of IP VPN sales in the US and Europe, demand for larger ports is increasing, with 50Mbps to 100Mbps ports now accounting for 12% of sales in both regions. As demand for such capacities has grown, 100Mbps FastE prices have fallen far more rapidly than those of 10Mbps ports. Between Q1 2013 and Q1 2014, median 10Mbps prices in New York declined 9%, to USD608, while FastE prices dropped 34%, to USD2,073. In London, median 10Mbps prices declined 6%, to USD592 per month, while FastE prices fell 20%, to USD2,753 per month.

‘IP VPN port prices reflect both the level of competition in, and the relative cost of international bandwidth to, a city,’ said TeleGeography analyst Brianna Boudreau. ‘As end-user capacity requirements increase and the underlying cost of transport decreases, carriers will continue to adjust prices. Further price erosion for IP VPN services, particularly at higher capacities, can be expected.’

TeleGeography’s Enterprise Network Pricing Service provides detailed data and analysis of prices for international IP VPN, retail private line, and Dedicated Internet Access (DIA) services.

To speak with an analyst, please call +1-202-741-0047 or email press@telegeography.com.