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.