APAC WAN services market sees steady growth

DQW News Bureau Singapore, Sep 21

The promising economic outlook combined with a relatively stable political
environment is attracting a surge of foreign direct investments into Asia
Pacific, and creating favorable conditions for business expansion. This is in
turn driving the need for enhanced business connectivity and demand for
sophisticated WAN (wide area network) services across the region.

“Many multinational corporations (MNCs) have established regional bases in
Asia Pacific, while many Asian enterprises are also expanding beyond their home
markets,” said Krishna Baidya, Industry Analyst, Frost & Sullivan.
“These factors, as well as Asia Pacific's strong position as the preferred
destination for business process outsourcing (BPO) operations, are fueling the
demand for international WAN services in the region,” he said.

New analysis from global growth consulting company Frost & Sullivan,
Growing WAN Services Market in Asia Pacific, finds that this market-covering
13 major APAC economies-earned revenues of $17.41 billion in 2005 and is
likely to reach $18.57 billion in 2012, registering a compound annual growth
rate (CAGR) of 0.9 percent for the period 2005 to 2012.

China and India are leading the way in the growth of WAN services in the
region. Domestic and international connectivity needs in both countries are
rapidly increasing due to the fast growth of small and mid-sized enterprises (SMEs),
as well as the rising appeal of India as a priority destination for BPO
activities. These two emerging markets are expected to witness steady growth
throughout the forecast period, and by 2012, are likely to account for 18.1
percent of the total WAN services revenue in APAC.

While international private leased circuit (IPLC) and local loop circuit (LLC)
are currently the most popular services for WAN connectivity, this could change
with the rapid growth of IP-based virtual private network (IP VPN). In 2005, an
IP VPN service accounted for 31.4 percent of the total WAN services revenue, and
is expected to gain greater share as it steadily replaces legacy WAN services.
By 2012, IP VPN is forecasted to contribute close to 52 percent to total WAN
market revenues.

“IP VPN has gained significant momentum, as it offers similar
functionalities as legacy services at a more competitive price in a more
flexible manner,” said Baidya. “With technological maturity and security
concerns being addressed, IP VPN is increasingly driving the migration of
subscribers from legacy data services such as frame relay and ATM (asynchronous
transfer mode).”

A key challenge is the trend of declining prices for WAN services in Asia
Pacific, especially in deregulated markets. Although most countries in the
region are witnessing strong demand for enhanced business connectivity, the
overall WAN services market still remains highly price sensitive. As competition
mounts, this trend is only likely to intensify further, leading to a slower
growth rate for market revenue.

In particular, Japan and Hong Kong are expected to experience revenue decline
during the forecast period. Price decline in an increasingly competitive
environment is the key factor for the waning growth. Other relatively mature
markets such as Australia, New Zealand, Singapore and Taiwan are expected to
find it difficult to sustain the growth rate. The demand for WAN services in
these countries is currently driven by ongoing business expansion, and the need
for greater capacity to support bandwidth-intensive applications, particularly
amongst large enterprises.

However, intense price pressure in these deregulated environments is
eclipsing the effect of demand growth. Enterprises that have a well-established
WAN infrastructure need to justify the investments required to migrate to more
sophisticated services such as IP VPN, thus restricting large-scale migration to
IP VPN to some extent.