IDC Study Forecasts Robust Growth for Enterprise Network Outsourcing Services, But Not Without Challenges for Providers

FRAMINGHAM, MA – SEPTEMBER 20, 2006 – With increasing merger and acquisition activity and rapidly changing business models, enterprises are looking for ways to reduce overall network costs, cope with increasing complexity, and become increasingly adaptable. IDC says these demands will drive many enterprises to seek a third-party provider to manage their networking-IT infrastructure. Despite signs of robust market growth, a recently-published IDC study warns that network outsourcing service providers of all shapes and sizes will face challenges to their traditional operating models as a more diverse competitive landscape looks to capture their share of this market.

The market for network outsourcing is rapidly evolving and growing demand is expected across a number of industry verticals as well as companies of all sizes. Results from IDC's WAN Manager Survey indicates that respondents in the Banking/Finance and Insurance and Education verticals expressed the highest demand for network outsourcing services. Respondents in these verticals realized the benefits of reduced total network costs, improved network availability and reliability, as well as refocusing resources on the core business as a result of outsourcing the management of their network-communications infrastructure. IDC believes the demand for adaptive IT service delivery will accelerate the demand for new on-demand utility-like platforms. Unlike the traditional systems architectures of today, IDC says the utility-like model will increase a company's flexibility by turning traditionally fixed costs into variable costs.

IDC says that delivering outsourced network-IT services will prove increasingly challenging for all service providers. As the service delivery architectures standardize service providers will have to adapt their service delivery models to compete. Traditional systems architectures result in processes that are rigid, siloed, and monolithic. These traditional service delivery architecture clearly will not do. Customers now and increasingly in the future will require service delivery models that are shared, collaborative, and interoperable.

The strategic issues of this shift are more than just technical in nature, as they will alter the competitive landscape, in some cases changing the buyer profile and altering the company's mix of partners and suppliers," says Sean Hackett, research manager for IDC's Business Network Services. "We believe the telecommunications carriers have a new advantage in this market primarily because of the cost advantages of scale and their deep understanding of the network. But these carriers first have to raise their credibility in the marketplace as IT service providers."

The IDC study, Enterprise Network Outsourcing: Big Challenges Lie Ahead (Doc #06C4932), provides valuable insight into the changing dynamics of the market for Network Outsourcing. It analyzes the buying behaviors, adoption plans, and service provider selection criteria across a number of industry verticals and company sizes and uncovers insightful opportunities for service providers. This study answers the following questions:

— How big is the market for Standalone Network Outsourcing and how does it compare to the overall market for IT outsourcing?

— What is the size of the market for connectivity and value added services?

— How do customers make decisions on what type of service provider they select to manage their network assets?

— How will network outsourcing service providers have to adapt their strategy to capture a larger share of the broader market for IT outsourcing?

— Who is best positioned today to be a low-cost service delivery provider?

— How will service delivery models change in the future and what will be the likely competitive implications of this shift?

— How will Web-services firms, systems integrators, pure-play hosters, network operators, and virtual network operators position themselves in this emerging competitive landscape?

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