SMB Segment Growth Compensates Revenue Erosion in the Corporate Segment for Data Communication Services, Finds Frost & Sullivan Dedicated IP is proving to be an affordable option and an important tool for market expansion
SAO PAULO, Brazil, Feb. 7, 2013 /PRNewswire/ -- The small and medium-sized business (SMB) segment has traditionally been a slow adopter of technology, but a desire for greater efficiency is hastening its shift to modernization. This scenario is driving the adoption of dedicated IP and multi protocol label switching virtual private network (MPLS VPN) in the SMB segment.
New analysis from Frost & Sullivan (http://www.ipcommunications.frost.com), Latin American Data Communications Services Markets, finds that the market earned revenues of $6.34 billion in 2012 and estimates this to reach $8.44 billion in 2017, mainly due to the positive economic outlook and higher demand for network services by local and multinational enterprises. It will also get a boost from the cost competitiveness of MPLS VPN service and the greater requirement for dedicated access among SMBs.
Medium-sized enterprises and some small ones, especially in the retail sector, are increasingly migrating to MPLS VPN service from legacy technologies. This is because the cost competitiveness of MPLS VPN service makes it ideal for the retail sector, which has a large number of sites that need to be connected. MPLS VPN facilitates the broad availability of data communications services.
"The market is clearly leaning toward more hybrid networks, as the ultimate purpose of implementing a VPN network is to support any-to-any connectivity," said Frost & Sullivan Information & Communication Technologies Research Analyst Otávio Martins. "Service providers will use a combination of technologies to support inter-networking between distributed company locations."
While the SMB end-user segment is flourishing, the corporate segment is reaching saturation, especially in significant markets such as Brazil and Mexico. Market participants in these markets compete on price, reducing the profitability of the total market.
"Nevertheless, the geographic expansion of companies and new multinationals entering the Latin American market will drive the need for connectivity in several locations," noted Martins. "Verticals such as finance, retail, logistics, and government, with numerous branches nationwide, will sustain the demand for data communication services."
Apart from general connectivity, data center consolidations and greater reliance on bandwidth-intensive applications are also fueling companies' bandwidth needs. However, as bandwidth is available at low prices, selling more bandwidth no longer generates sufficient profit.
To stay afloat, network operators have to monetize the data solution offering's value-added services such as telepresence, managed services, unified communications, software as service (SaaS), and cloud applications. This will allow them to remain competitive and make the most of the demand from the SMB market.
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