SINGAPORE: 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," says Frost & Sullivan industry analyst Krishna Baidya. "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."

New analysis from global growth consulting company Frost & Sullivan, Growing WAN Services Market in Asia Pacific, finds that this market - covering 13 major Asia-Pac economies - earned revenues of US$17.41 billion in 2005 and is likely to reach US$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 the 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 Asia-Pac.

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 52.0 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," says 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 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, says the study.

© CIOL Bureau