The massive growth in European managed IP VPN services, which grew 23% in 2004, will end next year, according to a study by IDC.
The report, Western Europe IP VPN 2003–2009 Forecast, found that the managed IP VPN services market was worth $4.3bn (£2.3bn) in 2004 and predicted growth to $5.8bn in 2009, with over 80% of that growth taking place this year and next.
Total spending by customers on IP VPN services from network service providers is still increasing at a rapid rate, but in 2006 growth will slow to 8% and in 2007 to 3% because of price erosion, spending shift, market saturation and Layer 2 VPN services.
James Eibisch, research director of IDC's European business network services research, said, “2004 was another high-growth year for IP VPN services, with DSL and the mid-market the hot areas. However, as we are now seeing, providers of all sizes targeting companies of all sizes need a proposition much broader than 'just IP VPN'.
“Applications and value-added services such as voice/video, storage, mobile integration and professional services will provide long-term growth, not MPLS switching on its own. The start of 2005 has seen several providers launch IT outsourcing initiatives, particularly for the SME market, which demonstrates the direction these companies need to go in."
IDC predicts that of the three main types of IP VPN used by companies, network-based IP VPN services (predominantly based on MPLS) will continue to grow strongly, DIY internet VPNs (predominantly IPsec, managed in-house and routed over the public internet) will grow only slightly, and IP VPNs using equipment on customer premises (predominantly IPsec but managed by an external service provider) will go into marked decline.