IP services set for a fall

Market growth for services run over internet protocols will not grow at the rates predicted by the telecommunications industry over the next two years.

Those involved in the telecoms arena have been betting on high growth margins and eventually, IP-dominated global communication networks.

Yet research from venture capitalist firm Dresdner Kleinwort Wasserstein (DrKW) and consultancy Cap Gemini shows that the IP industry throughout Western Europe will experience sluggish growth over the next two years, from a $14bn market now to just $17.5bn by 2004.

Fred Destin, director of technology investments at DrKW, said: "The evangelical belief of the industry as a whole is that networks will be completely IP-based. That's been the founding principle behind companies such as Juniper. Telecoms companies have spent most of their money building core networks for IP but they've forgotten to build access networks to get services out to consumers.

"IP is a great leveller between players and because of that the margins on IP services are not that great. That's why, on balance it's a pretty depressing picture."

The research reveals that IP cannot be used successfully in the core of networks where there is heavy traffic because the protocols are unable to prioritise certain types of data so cannot provide a high enough quality of service.

Destin added: "The core of networks has traditionally been circuit switched which is far more reliable than IP. We see IP dominating the fringe of networks, but it's too costly and difficult to manage in the core. We also see Juniper having a very bleak future."

Alan Taylor, technical director for Europe at Juniper, disagreed with Destin: "I think our future is actually quite rosy. We're unique in that we're exclusively focused on IP transport in the core and don't overstretch ourselves by trying to deliver outside our competence, as others have.

"Service providers take IP as an automatic given in all networks. If you use IP with other protocols such as multi-protocol label switching (MPLS) plus other more established technologies, its fine and will become more established over time."

Johann Strauss, EMEA metro IP manager at Cisco, agreed with Taylor: "DrKW didn't understand the IP concept. As far as the growth figures go, I think you could probably double that figure."

Around half of the start-up companies in DrKW's portfolio are centred around IP services.