What is more profitable: Internet or MPLS solutions?

In the age of modern technology, the use of data is an essential part of running any business. In a recent report, Gartner presents data on IT costs in the area of WAN (Wide Area Network) and their optimization. According to the report, the difference in size between the cost of the best and worst companies is as high as 80%. It should be noted that the costs in the area of data networks are approximately 10% of the total IT budget. [1]  Regardless of the size of the company, it is quite an expense for any business. Therefore, questions are immediately raised: How do companies deal with the optimization of these costs? Which solution do they choose most often?

Internet’s Turn

Internet - the overwhelming trend that is significantly revolutionizing the way companies operate. The Internet primarily means the unrestricted access to data and the possibility of working remotely  with a maximum reduction in costs. By deciding to build a WAN based on broadband internet, you gain independence from a single provider. The Internet is an offer for those who are not afraid to work with many local operators. The Internet means limitless possibilities and the presence of many local suppliers who are able to provide the service regardless of location. It should be noted that the construction of the WAN on the basis of several or even a dozen local suppliers can be quite a challenge for the internal IT departments. With each of these providers a contract has to be negotiated, the technical conditions checked and, during the term of the contract, SLA verified. The more local suppliers, the harder it is to maintain the same high level of service. Comarch meets these difficulties head on by providing its customers with integration of services and WAN management. Due to economies of scale and the professional management of the Network Operations Center, managing even dozens of local suppliers is not a challenge for us. Comarch NOC is a comprehensive solution that provides a single point of contact with the client (SPOC – Single Point of Contact), which ensures technical support for the monitoring of the complex IT environment and Service Desk. Regardless of the number of branches or local suppliers, in the event of any failure the customer always contacts only Comarch. We note that our customers often choose the Internet as the primary link for data transmission. Why is this happening? The most important reason is the reduction of costs. More and more local suppliers provide internet service, which increases the competitiveness of their bids. Companies "fight" for customers by offering more and more for less. Customers do not pass by such proposals because they can significantly optimize WAN maintenance costs, and ultimately release a large part of the IT budget, which in turn could be utilized on other previously postponed investments.

Are MPLS solutions off to land on a scrap heap?

An alternative to the Internet is the use of the MPLS (Multi- Protocol Label Switching)technology. MPLS provides great opportunities for businesses today and can become a stimulus that allows a qualitative leap in the field of data transmission. The principle is simple. Development of the company associated with the opening of new branches at the local or international level increases the need in the area of communication and data transmission within the company which reflects directly on the quality, efficiency and safety of the telecommunication lines. MPLS technology allows for combining multiple private LANs into a single WAN. This is often a key element of choice for geographically dispersed companies, because scalability allows for the guarantee of quality of communication and data transmission at a predetermined level. The choice of MPLS technology ties us firmly to one service provider. In the Polish case only selected operators are able to provide MPLS service for a multi-site company based on their own infrastructure. This may discourage customers who are increasingly opening their branches outside large urban areas and want to have the same level of service guaranteed there as in other branches. One of the most obvious benefits that can be achieved by building a WAN based on MPLS links is presenting network administrators with a number of tools that will allow them to manage traffic. MPLS network is the ability to prioritize traffic using QoS (Quality of Services), which ensures stable operation of critical business applications such as ERP systems.

It is true that MPLS is a more expensive solution, when we compare it to Internet connections, but it provides for many more additional features. A conscious customer who knows how to use these opportunities will choose just such a solution. Additionally, the parameters of the MPLS network (e.g. QoS) can be adjusted to the requirements of the application, which cannot be done in the case of Internet connections. Because of this, they work smoothly, and this directly translates to quality of work with clients. MPLS networks provide customers with a much higher level of SLA than in case of the Internet. On the one hand, Comarch’s experience in the implementation of such projects shows that it is much more difficult to convince customers who use the benefits of full MPLS solutions to switch to the Internet. For such a customer, the price, even much more favorable in the case of Internet connections, is not a key factor in the selection of the solution. On the other hand, at Comarch we see a trend associated with a significant decline in prices of MPLS solutions in recent years in Poland. This can be a stimulus to increase customer interest in these solutions.

Perhaps a compromise, or a few words about hybrid solutions

The idea becomes a reality and more and more customers are looking for hybrid solutions, i.e. those that will build a uniform WAN based both on Internet links and MPLS networks. One of the apparent trends in recent years is offloading traffic from the MPLS network by a business through the increasing use of the Internet. Gartner estimates that more than 50% of global companies use the Internet to transmit data from less critical applications and systems. MPLS links are still used for more critical traffic that decides issues that are more vital to our company. Hybrid solutions that will help to build a WAN based both on MPLS links and the Internet can lower the total cost down to as much as 30%. [2] This is a great solution and a significant compromise for companies that care about their data while thinking of optimizing costs.

From the point of view of the customer

What then should we be aware of when optimizing the WAN? Regardless of whether we choose the Internet, MPLS or hybrid solutions, it is worth remembering that in the case of a WAN we can optimize costs in many ways. We should start from the very beginning, which means preparing a tender procedure that will encourage many suppliers to submit a bid. In a word – we want to create a competitive situation. The more suppliers, the more bids and more room for negotiation. It is important to note the RFP document itself, which should not be just an element determining the technical requirements for the WAN being built, but also should have a modular form to allow the greatest number of suppliers to take part in the tender, even if they are not be able to bid on all the countries of interest to us or provide all the services. In this area, Gartner research has shown that companies that decided on an open tender, which was attended by various WAN solutions providers attained at least 15-20% savings compared to current contracts. Assuming of course,  that we are talking about a similar level of configuration and bandwidth.

What else? If you're a global company that  operates in many countries, use the services of global players that will be able to provide WAN not only in one country. In such situations, a popular model of collaboration is the choice of 3-4 providers who will ensure the delivery of services for several countries in the region. This should have a significant impact on the global optimization of maintenance WAN costs.

Another important issue is the bandwidth. Bandwidth used by a company depends largely on the size of the generated business. Generally, the larger the company, the faster the connection it uses. Based on the Telko Trends 2014 research, we can see that the WAN used by Polish companies doesn’t have a very impressive combined bandwidth compared to its Western counterpart. Over 40% of IT professionals surveyed said that their company uses a link with a capacity in the range of 5-10 Mb / s, and 24% in the range of 11-25 Mb / s. Majority of them are satisfied with the current level of bandwidth. [3] One visible trend in recent years is the drastic reduction of the cost of bandwidth in developed countries. As of now, doubling the bandwidth increases the total link costs by 25%. This trend is likely to continue in the coming years, and therefore savings should be sought out in other areas of the IT infrastructure. If you add to this the global trend for increasing the amount of data generated in enterprises and the popularity of cloud solutions, the needs in this area will definitely change.

There is no single best solution. Selection of the optimal solution requires tracking of trends and analyzing the current needs of the company. It is not prudent to lightly choose technology that will support our business for the next few years. It is worth the effort to spend time and carefully consider all the pros and cons before finally choosing the Internet or MPLS.

Małgorzata Zabieglińska, Product Manager, Comarch ICT

[1] Gartner, Drive Cost and Value Optimization for WAN Services, 6.10.2014

[2] Gartner, Drive Cost and Value Optimization for WAN Services, 6.10.2014

[3] Telko Trendy 2014: badanie dotyczące wykorzystania przez firmy usług telekomunikacyjnych i Data Center