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With ISPs (Internet Service
Providers) struggling to differentiate their service offerings,
Internet access has remained a low margin business. However, all
ISPs have the ability to introduce new services and service enhancements
that can increase their margins as well as the profitability of
services and network assets.
A key to increased ISP profitability is an understanding
of the distinct wholesale and retail ISP business models. To date,
vendor equipment has lacked the ability to distinguish between
wholesale and retail traffic, forcing ISPs to develop inefficient
infrastructures to compensate for these shortcomings.
ISP wholesale services (a.k.a. transit) are defined
as bandwidth sold to other ISPs that is then resold to end users.
Wholesale services are very bandwidth intensive. Due to the large
amount of aggregation within their networks, retail ISPs tend
to fill whatever size interfaces they purchase from their wholesale
provider. It is therefore likely that a T1 transit link will run
at 1.5 Mbps all day, everyday. Because of this, ISP wholesalers
are forced to provision backbone bandwidth with minimal oversubscription
to meet demands. If applied to retail Internet services, this
provisioning model will render the service unprofitable due to
high infrastructure costs.
In contrast to the "use what you buy"
model of ISP wholesale services, the key to a profitable retail
Internet service (sold by ISPs for end user consumption) is oversubscription.
Few businesses consistently utilize the full capacity of their
Internet connections. The bandwidth is needed periodically to
speed up network-intensive transactions such as file transfers
and loading web pages. As a result, an ISP can oversubscribe their
backbone many times over, perhaps provisioning as little as 15
Kbps per T1 line sold.
This creates a dilemma for the ISP that sells
both retail and wholesale services. They either:
· Oversubscribe their network and fail to meet the
intense bandwidth utilization of wholesale requirements, or
· Over provision their network and fail to generate
profit on retail services.
The solution is to utilize sophisticated traffic
management in their edge routers to allow different subscription
rates for retail and wholesale customers. This greatly simplifies
infrastructure planning for both retail and wholesale provisioning
by enabling service providers to apply different policies for
retail and wholesale customers within the same network.
The ST™200 Service Edge Router includes
sophisticated traffic classification and rate limiting features
that for the first time enable ISPs to differentiate retail and
wholesale services at the network edge without introducing complexities
in the backbone. Incoming traffic from customers may be classified
as "retail" or "wholesale" based on the interface
on which it arrives. On trunk links to the core the retail portion
of the traffic may be sent through a separate rate queue that
limits the amount of retail traffic allowed to enter the backbone.
This allows the retail traffic to be assigned a different oversubscription
rate than wholesale traffic.
More sophistication may be applied to this service
model by utilizing ECI's BGP Policy-driven classifiers and counters.
The simple classification technique described above is sufficient
for handling the load going onto the network, but it does not
take into account other dynamics that may be present. If usage-based
billing is used on wholesale links, it might be beneficial to
allow traffic arriving on a retail customer link to access the
full trunk bandwidth for traffic destined to a wholesale customer
of the same ISP.
To account for these complexities, more
sophisticated classification techniques may be applied to align
the over subscription rate with the relative cost or value of
the traffic. To do so, each customer link must be assigned a BGP
community that corresponds to the type of customer. For example,
there may be four types of links: "retail" for a retail
customer, "wholesale" for a transit customer, "peer"
for an ISP peer that exchanges traffic with another ISP at no
cost and "transit" for a purchased wholesale link to
another ISP. An import BGP policy assigns the appropriate community
to each destination IP prefix learned on a link. Separate policies
for each customer type are used to classify all incoming traffic
into its oversubscription class as described in the following
table:
| From |
To |
|
|
|
| Retail |
Wholesale |
Peer |
Transit |
| Retail |
Max |
Min |
Min |
Max |
| Wholesale |
Min |
Min |
Min |
Max |
| Peer |
Min |
Min |
Min |
Max |
| Transit |
Max |
Max |
Max |
Max |
Figure 1: Example Oversubscription
Policy for a Retail / Wholesale ISP
This policy utilizes oversubscription to limit
traffic between edge interfaces that generate the least revenue
per bps while not restricting bandwidth between interfaces that
generate more revenue per bps. In this example, maximum oversubscription
is applied to all traffic to and from transit links because
transit is often very expensive. If the price charged to wholesale
customers is higher than the cost of transit, it might make
sense to reduce the subscription rate between wholesale and
transit links. The remaining to and from peering sites and wholesale
customers are unrestricted because peering relationships often
require a certain amount of bandwidth and wholesale customers
in this example are billed on a usage basis. Other traffic is
subject to maximum oversubscription because it generates low
revenue and/or represents high cost.
Creating Incentives To Attract Customers
From Other ISPs
Usually a low margin business requires
high volume to be profitable. The best way to grow a commodity
business is to attract customers away from competitors utilizing
incentives. This approach has been used extensively in the wireless
voice business where it takes the form of "unlimited weekend
or evening minutes" or "free nationwide calls."
A similar approach may be used by ISPs to attract customers
by offering value where it has minimal impact on the ISP's overall
cost.
Offer Reduced Prices for Regional
Traffic: This allows the ISP to effectively reduce prices
in an effort to attract or retain regional customers, or customers
that perceive a large volume of their traffic is regional. Since
regional traffic traverses fewer network elements and lower-cost
links, it represents lower cost to the ISP. By offering reduced
prices just for this portion of traffic, the ISP keeps costs
aligned with revenue. This enables ISPs to maintain solid margins,
while attracting and retaining customers. The ST200 Service
Edge Router's BGP Policy accounting feature may be used to implement
such an approach by applying separate packet-by-packet hardware
counters for regional and out-of-region traffic.
Offer Free Premium Delivery of Traffic Between
Directly Attached Customers: Applied to traffic that does
not go to a peer or a transit link, this creates customer loyalty
and encourages customers to purchase Internet service for all
sites from the same ISP. ECI's BGP Policy classification, policing
and marking features may be used to implement such an approach.
Reacting To Competitive Threats With New
Services
Private peering between Tier 2 ISPs moves traffic
off of Tier 1 ISP networks and presents a competitive threat
to Tier 1 providers offering transit services to Tier 2 providers.
There are several ways for Tier 1 ISPs to react. They might
reduce transit prices in an attempt to prevent customers from
negotiating private peering arrangements. However, this devalues
the transit service and reduces revenue across the board. A
better approach is to offer a new service specifically targeting
customers who have negotiated private peering arrangements -
Distributed Internet Peering.
Distributed Internet Peering: This
is essentially a Layer 2 packet transport service that allows
two ISPs to establish a direct peering relationship. Using the
ST200 Service Edge Router's Layer 2 switching features, an ISP
can create Layer 2 switched tunnels across their existing network.
This service may be bundled on the same link as an Internet
transit service, but metered and billed at a different rate.
So long as the cost of the service is similar to the cost for
the Tier 2 ISPs to interconnect via other means such as a private
line, it will be attractive and effective at retaining the customer's
traffic.
Expanding The Service Portfolio to
Include Network Based Layer 2 and Layer 3 VPNs: Many ISPs
have invested significantly in creating world-class networks
optimized for packet transport. However, they often struggle
to generate revenue because their service often represents lower
value to the customer than other services. Enterprises often
place higher strategic value on their private networks than
they do the public Internet. In fact, some businesses restrict
access to the Internet for fear that it may reduce productivity.
Using the right technology, ISPs can exploit their infrastructure
investment to offer private networking services that exceed
the best available services in the market.
Private data networking services may be offered
at either Layer 2 or Layer 3 in the form of a VPN. Some ISPs
already offer Layer 3 VPNs as a managed service utilizing CPE
(customer premise equipment) routers to create tunnels across
the Internet. An alternative that represents the same value
at lower cost to the ISP is a network-based VPN. Instead of
creating the VPN on many costly CPE routers, the ISP can create
a VPN from provider edge routers by creating secure routing
protocol instances with associated secure routing tables. These
are interconnected via secure connections between their own
edge routers.
Many ISPs that have recognized the value of
network-based VPNs by have shied away due to scalability fears.
Their own testing has revealed that a typical Internet router
may only support a few dozen VPNs before exceeding capacity
and degrading service. The ST200 Service Edge Router incorporates
VPN features into its underlying hardware and software architecture.
This allows the ST200 to create thousands of VPNs per device
without any effect on throughput or service quality, greatly
changing the ability of ISPs to offer profitable VPN services.
The other approach to private data networking
is the Layer 2 VPN. Layer 2 VPNs have been available in the
market for some time in the form of X.25, Frame Relay, and ATM
switched services. All of these services offer security in the
form of dedicated connections between customer sites. Prior
to the introduction of the ST200 Service Edge Router, an ISP
would have been forced to use different edge devices to create
a Frame Relay or ATM service. With the ST200, both routed and
switched services may be offered on the same edge platform utilizing
a common backbone network. Each interface on the ST200 may be
configured for both routed and switched services allowing the
creation of a compelling Layer 2 VPN service portfolio. When
configured for a switched service, the ST200 offers precise
QoS that matches that of a traditional ATM or Frame Relay switch.
Any-to-Any Service Interworking: A unique
benefit of Layer 2 services via the ST200 is interworking between
ATM, Frame Relay and Ethernet Private Line services, so that
customer sites can be connected regardless of access network
type. Supported Layer 2 service modes include: Frame Relay PVC
and port modes; ATM AAL5-SDU VCC mode, VCC cell relay mode,
VPC cell relay mode and transparent port mode; cell relay services
including cell concatenation; Frame-to-ATM service interworking
(FRF.8.1); High Speed Frame Relay; Ethernet port mode; 802.1q
VLAN; IP services (any-to-any IP interworking for improved efficiency
between IP, ATM, Frame Relay, Ethernet).
Conclusion
ISPs have the ability to expand their service
portfolio while increasing the efficiency of their network infrastructure
to increase profitability, attract new customers and retain
existing customers. With the ST200, ISPs can move to optimized
infrastructures for retail and wholesale traffic in a single
platform. They can also begin to align their offerings with
their cost structure with the ST200's BGP policy accounting
feature. Expanding their service portfolio is now possible to
include a complete range of switched and routed service offerings
over their existing backbone.
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