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Are hybrid networks the most cost-effective solution for enterprise customers?

5 May 2015

New data from TeleGeography’s Enterprise Network Pricing Service reveal that while IP VPN remains the most pervasive enterprise network service globally, it is not always the most cost-effective solution for every network site. While not perfect substitutes, replacing IP VPN with Dedicated Internet Access (DIA) or Layer 2 Ethernet VPN (EVPN) at some sites can result in significant cost savings.

The majority of MPLS IP VPN sales occur between 2Mbps and 10Mbps. At capacities of 10Mbps or above, or in more remote geographies where VPN is priced at a premium or is not widely available, DIA services can provide an economical alternative. For example, in Q1 2015, the median price of a 10Mbps DIA port in London was USD398 per month, or 36% lower than the USD626 monthly price of a comparable IP VPN port. Similarly, in Chicago, the median DIA port price was USD387 per month, or 28% below the USD536 per month charged for IP VPN. Price disparities in farther-flung markets are even more apparent. In Q1 2015, median 10Mbps DIA prices in Sao Paulo and Sydney were USD922 and USD704 per month, respectively, or 43% lower than the price of IP VPN in both cities.

EVPN services appeal to customers requiring high-capacity multipoint-to-multipoint connections with guaranteed Class of Service levels. At the 10Mbps capacity level, EVPN is priced higher than DIA and IP VPN. However, at 50Mbps and above EVPN becomes increasingly cost-effective. In Q1 2015, the median monthly price of a GigE EVPN port in Chicago was USD6,200 per month, or 40% lower than the USD10,400 monthly price of a comparable IP VPN port. At USD22,802 per month, the median GigE EVPN price in Tokyo was 8% lower than that of comparable IP VPN service.

While DIA or EVPN services can provide a cost-effective alternative to IP VPN, they are not always appropriate for every network site. ‘For sites with latency sensitive requirements, IP VPN services are able to prioritise and manage traffic, while DIA offers no such traffic differentiation,’ said TeleGeography analyst Brianna Boudreau. ‘EVPN services do provide the same traffic prioritisation as IP VPN, but have more limited geographic availability and are most cost-effective at sites with significant capacity requirements, such as company headquarters or data centres. For many enterprise customers, a hybrid solution that combines all three technologies may be the best option.’

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

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