Business Case for Remote Ethernet Testing This white paper examines the substantial financial impact that the remote Ethernet testing solution from ADC and EXFO can have on service providers offering Ethernet services to enterprise customers. WHITE PAPER Introduction As revenues from traditional circuit-switched voice lines steadily decrease, service providers recognize that Ethernet access and related services represent the future. As a result, they are shifting investment away from legacy data services such as ATM or Frame Relay and towards flexible Ethernet access solutions. But service providers face a variety of technical challenges when deploying Ethernet networks, and these issues can cause significant increases in operational expenses. In particular, Ethernet commissioning and maintenance have been expensive endeavors compared to traditional alternatives. A lack of deployed remote test solutions frequently results in on-location troubleshooting and maintenance. This time-consuming activity adds up to high support costs. The recent ratification of the IEEE 802.3ah Ethernet in the First Mile (EFM) testing standard offers significant opportunities for service providers to reduce operational expenses and more quickly deploy Ethernet services. Test solutions based on the 802.3ah guidelines address all of the key challenges commonly encountered with Ethernet service deployment: reliability, performance, Quality of Service (QoS), SLA assurance, and network troubleshooting. To address these critical issues, ADC and EXFO have created a two-component 802.3ah-compliant remote testing solution using the ADC Ethernet Network Interface Unit (ENIU) and EXFO’s Packet Blazer™ Gigabit Ethernet tester. Remote testing using the solution from ADC and EXFO results in significant financial benefits for service providers—network downtime is significantly reduced, Service Level Agreements (SLAs) are assured, and customer retention is increased. This white paper examines these benefits in detail. Business Case for Remote Ethernet Testing Business Case for Remote Ethernet Testing Page 2 ROI Methodology and Highlights ADC and EXFO collaborated with an independent research organization which specializes in ROI and cost benefit analysis to perform an objective study of the financial returns generated by the deployment of their Ethernet testing solution. The scenario examines the results and return on investment for a service provider deploying 10 EXFO Packet Blazers™, each used in conjunction with 40 ADC Ethernet Network Interface Units (ENIUs), for a total of 400 remotely accessible customer installations. The ROI scenario scales with size, so larger deployments, for example, will realize greater gains. A detailed business analysis of the solution reveals the following highlights, based on a five-year study period: • The cumulative net value of the solution is projected in excess of $735,000, driven by operational (OPEX) savings and SLA penalty avoidance. • The cumulative OPEX savings are greater than $642,000. • The savings in avoided SLA penalties totals more than $330,000. • The return on investment will exceed 400%, with a payback period less than 16 months. Challenges with Deployment of Ethernet Services For service providers, the writing is on the wall—deploy Ethernet services or lose business and miss out on an expanding market. Customers are demanding more bandwidth at increasingly lower price points, and with Ethernet offerings from traditional carriers, multi-service operators (MSOs), cable and internet providers, there are plenty of competitive choices to choose from. Ethernet is the least-expensive way to offer low-cost bandwidth. It is a mature, plug-and-play technology that integrates easily into corporate LANs. Ethernet has other benefits for service providers in addition to its low cost. It allows carriers to easily scale bandwidth to the exact amount requested by customers—it can be charged in increments, and upgraded in increments as well. By way of contrast, legacy services are not easily scaled. T1 lines, for example, can only be incremented in multiples by installing and testing an additional line—a lengthy, expensive procedure. The growth of Ethernet services also represents a significant revenue opportunity for access providers. The expansion of metro Ethernet services will lead to extensions in WAN applications including Ethernet Private Lines, Ethernet Internet Access, and Virtual Private LAN Services (VPLS)—a pattern that fuels additional demand for infrastructure and services. Ethernet services are growing at a fast clip, with an estimated global market of $22 billion by 2009 1 . There are issues with Ethernet deployment as it moves from the LAN to the WAN via metro access networks. Ethernet is typically implemented as a “best-effort” service, and traditionally has not met mission-critical reliability. Yet customers migrating to Ethernet access lines expect the same availability and service guarantees as frame relay, ATM, T1, and other legacy services which have extensive management tools available to assure service quality. Without remote test and monitoring, it is difficult for service providers to commit to and meet SLAs which can differentiate their offerings and assure customers that their Ethernet services are business-class. The Ethernet Testing Solution from ADC and EXFO Until recently, Ethernet commissioning and maintenance were expensive endeavors compared to traditional alternatives. The challenges faced by Ethernet service providers result in high operations and maintenance costs. The most common challenges are (Yankee Group, 2003): • Performance problems (latency, packet loss, decreased throughput, etc.) • Assuring the reliability of routers and other multi- service equipment • Maintaining QoS/assurance of SLAs • Element management and troubleshooting As with legacy services, these problems are best overcome with standards-based monitoring and remote test tools. The recent ratification of the IEEE 802.3ah Ethernet in the First Mile (EFM) testing standard offers significant opportunities for service providers to more quickly deploy Ethernet services and reduce their operating expenses. The 802.3ah standard was modeled after legacy service management, allowing test solutions based on these guidelines to be easily integrated into existing operational support and element management systems. ADC and EXFO have released a joint solution for remote Ethernet testing based on 802.3ah that offers significant benefits to service providers. Its remote troubleshooting abilities result in fewer truck rolls. Because it can perform single-ended testing, it allows faster turn-up and restoration of services. Its proactive network management can reduce network downtime and increase network availability. Finally, standards compliance allows easy integration into existing operational practices. 1 Infonetics Research (May 2005) The solution is made up of two components: the ADC Ethernet Network Interface Unit (ENIU) and the EXFO Packet Blazer Gigabit Ethernet test set. The ADC ENIU is installed at remote locations between customer LANs and access switch ports, defining demarcation points between a provider’s network and its clients. Typical ENIU installations are shown in the diagrams below. The ENIU supports remote loopback, remote alarm indication, media conversion, bandwidth provisioning and link monitoring. EXFO’s Packet Blazer offers a complete Ethernet test suite, including frame analysis, packet jitter, latency, throughput, and bit error rate testing. By activating an ENIU’s loop-back mode, the Packet Blazer can remotely test the provider’s network up to the given customer location. How the Solution Is Used When a customer reports a problem with an Ethernet service, the cause is often related to events or constraints within the customer’s network. Remote testing with the solution from ADC and EXFO allows service providers to quickly segment the network up to the customer premises and subsequently determine if a network issue is within the access line (service provider’s responsibility) or related to customer-side problems (no further support required). This technique significantly reduces truck rolls to customer premises and results in faster problem resolution. If the issue is found to be within the provider’s network, the Packet Blazer can be used to remotely diagnose the problem, speeding service restoration and minimizing on-site maintenance costs. Business Case for Remote Ethernet Testing Page 3 Metro Network X-Base-SX or LX Fiber X-Base-TX UTP Copper 10/100/1000 Mbps Ethernet Link 10/100/1000 Mbps Ethernet Link Enterprise Demarcation Point Provider Network Customer Network Carrier Provided Switch Customer Provided Switch ENIU GigE Access Link 200 Mbps 100 Mbps 10 Mbps Demarcation Point Carrier Provided Switch Customer 2 Customer 1 Customer 3 ENIU ENIU ENIU Typical ENIU installation on an Ethernet access line. Although this diagram depicts an optical network interface, the ENIU can be deployed with optical and/or electrical interfaces on the network and customer sides. As an alternative deployment, several ENIUs can be connected to a single carrier-provided switch to provide separate demarcations when there are multiple customers connected to a single access link. Business Case for Remote Ethernet Testing Page 4 In recent studies with North American multi-service operators, maintenance costs associated with Ethernet services were reduced by up to 50% when 802.3ah remote test solutions were implemented 2 . Remote testing can also be used for commissioning, monitoring, and SLA management. As an example, remote bandwidth provisioning is a unique, revenue-generating feature of Ethernet which can be greatly simplified using 802.3ah-based remote testing tools. When a customer requests additional bandwidth, the related ENIU is remotely instructed to increase throughput on the access link. The ENIU is then put into loop-back mode and remote Ethernet performance tests are conducted to ensure that the expected bandwidth will be met by the backhaul/access network. A series of simulations are then conducted to ensure that revised SLA parameters will be met under various customer traffic conditions. With the new bandwidth assured and commissioned, the ENIU is returned to pass-through mode and the customer benefits from the upgraded link. The following figures illustrate three different possible ways the solution can be used. 2 Light Reading, Feb. 2004 Central Office Metro Network SONET/SDH/DWDM Ethernet tester Ethernet Switch Customer Premise ENIU Remote Management NOC Remotely troubleshooting performance on a link or provisioning bandwidth from a central office with customer-site ENIU in loop-back mode Business Case for Remote Ethernet Testing Page 5 ENIU Metro Network SONET/SDH/DWDM Ethernet Switch Ethernet Tester Ethernet Switch Customer Premise 1 (under test) Customer Premise 2 Central Office Metro Network SONET/SDH/DWDM Ethernet tester With ENIU discovery Ethernet Switch Customer A NOC Remote Management E E N N I I U U 1 1 Customer B E E N N I I U U 3 3 E E N N I I U U 2 2 Customer C Database Customer ENIU A 1 B 3 C 2 In a Virtual Private LAN or Ethernet Private Line, a portable Ethernet tester can be used to test performance or troubleshoot from one customer location to a second site where an ENIU is installed. If a large number of ENIUs are deployed in a provider’s network, discovery algorithms actively catalog their location and status to facilitate remote testing operations. Business Case for Remote Ethernet Testing Page 6 Business Case for the Solution from ADC and EXFO The combination of ADC’s ENIU and EXFO’s Packet Blazer provides a highly cost-effective Ethernet deployment and maintenance tool for service providers. This solution can significantly reduce operational expenditures while increasing network availability and reliability. Mean time to repair (MTTR), often a cornerstone of SLAs, can be substantially reduced when the solution is deployed. A business model created by ADC and EXFO in conjunction with an independent research organization examines the results and return on investment for a service provider deploying 10 EXFO Packet Blazers, each used in conjunction with 40 ADC Ethernet Network Interface Units (ENIUs), for a total of 400 remotely managed customer installations. The scenario is scalable up or down in size, so larger deployments, for example, will realize greater gains. A detailed business analysis of the scenario shows that the Ethernet testing solution from ADC and EXFO has the following bottom-line benefits over a five-year period: • The cumulative net value of the solution is projected in excess of $735,000, driven by operational (OPEX) savings and SLA penalty avoidance. • The cumulative OpEx savings are greater than $642,000. • The savings in reduced SLA penalties totals more than $330,000. • The return on investment will exceed 400%, with a payback period less than 16 months. An Examination of the OPEX Savings Operational savings are primarily due to a significant reduction in the cost of handling trouble tickets for service on an Ethernet network. Based on studies with U.S. multi-service operators (MSOs) 3 , the scenario assumes that on average, there would be three annual trouble tickets per location. It also assumes that technicians are paid $50 per hour, and that the mean time to repair is 4.5 hours. Without the solution from ADC and EXFO in place, resolving trouble tickets at each location would require an average of two truck rolls per location per year. Because of the ability of the solution to perform remote troubleshooting, the number of truck rolls can be cut in half, to one truck roll per location per year. This reduction in truck rolls adds up to significant savings over five years. When the numbers are calculated for the cumulative savings over five years for all locations, it results in cumulative five-year OPEX saving of more than $640,000. Although not quantified, an additional OPEX savings can be achieved during the service turn-up cycle. Since the system supports single-ended testing, the ENIU can be predeployed at the customer site. When the customer service contract is finalized, the Ethernet service can be turned-up, tested and commissioned remotely via the Packet Blazer at a central location. An operation which currently requires technicians at both ends of the circuit will only require one. Resource coordination is minimized and revenue-generating services are initiated sooner. An Examination of the SLA Savings The solution from ADC and EXFO also offers significant SLA savings because it helps service providers reduce SLA violation penalties. These penalties are commonly paid if a guaranteed level of service is not met. The most common SLA violations relate to lower than expected network availability. This remote Ethernet testing solution cuts down on the number of SLA penalties per year by providing quicker, detailed troubleshooting, resulting in reduced mean time to repair and a higher quality of service. The scenario assumes that a single SLA penalty averages $1,250 and assumes that without the solution from ADC and EXFO in place, half of all locations will receive an SLA payment once per year. The scenario assumes that this solution will reduce the number of SLA penalties by 25%. This reduction in SLA penalties adds up to significant savings over five years— cumulative savings for all locations results in a SLA penalty cost avoidance exceeding $330,000. See page 9 for the detailed business case and associated charts. Other Savings and Benefits There are other benefits not quantified in this ROI analysis that accrue to service providers that use the solution from ADC and EXFO. The most prominent are: • Increased customer adoption rate • Expanded market potential through value-added services • Increased customer retention • SLA-based service upgrades 3 Light Reading, Feb. 2004 Business Case for Remote Ethernet Testing Page 7 Increased Customer Adoption Rate The compelling features of Ethernet, such as incremental bandwidth provisioning on demand, easy integration into corporate LANs, and low equipment costs, attract customer interest. But before replacing legacy data access, customers need to be convinced that Ethernet is carrier-class. By assuring network quality and availability through remote testing practices, providers can increase customer adoption by offering competitive SLAs with Quality of Service (QoS) rivaling legacy access technologies—but at a much lower cost. Expanded Market Potential through Value-Added Services Providers can increase revenues and market penetration by offering premium services over Ethernet access links. By bundling services, an Ethernet offering becomes more cost-effective and attractive to enterprise customers. These premium services include Voice over IP (VoIP), videoconferencing, remote storage, and Virtual Private LANs, all of which are experiencing significant growth and command a premium over ‘dumb-pipe’ access solutions. Without an 802.3ah-compliant remote testing solution assuring QoS, service providers that plan to provide critical services frequently prefer to offer them over legacy access technologies such as Frame Relay and ATM, which are comparatively more expensive and difficult to provision. Increased Customer Retention Ethernet service offerings constitute a rapidly growing, highly competitive market. Poor service quality is the principle reason customers switch service providers. In 2004, providers experienced customer churn in Ethernet services exceeded 20% 4 . Increased service quality through remote testing can help to reduce this turnover. Assuming annual churn can be reduced by 10 percent (from 1.8 percent per month to 1.5 percent per month), the average customer relationship increases from 56 months to 67 months. This translates into more revenue and a higher return on initial acquisition and equipment costs. Also, with fewer customers canceling the service, and the same number adopting the service, overall market penetration will improve. SLA-based Service Upgrades Customers with best-effort Ethernet services generate less revenue than those upgraded to premium SLA-based links. Remote testing gives providers increased confidence that premium SLAs can be maintained without penalty. As shown in the following chart, the monthly cost increment to offer a premium SLA is much less significant than the additional revenue which is generated. Figures shown are based on estimated monthly Ethernet access services offered by Tier-1 U.S. carriers. By persuading this customer to move from basic SLA to premium SLA, the service provider increases its revenue. By automating the move with the remote testing solution, the service provider incurs little additional cost in upgrading the link. Summary The remote Ethernet testing solution from ADC and EXFO consists of two components: ADC ENIUs installed at remote locations to define the demarcation points between the provider and customer networks, and the complete Ethernet test suite using EXFO’s Packet Blazer. This solution offers substantial benefits to service providers. It can greatly reduce operational expenditures while increasing network availability and reliability. Mean time to repair (MTTR), often a cornerstone of SLAs, can be substantially reduced when the remote test solution is deployed. The solution can significantly reduce operational expenses. In a scenario that examines savings for 400 locations, its reduction of truck rolls by 50% will result in an estimated five-year cumulative OPEX savings of over $640,000. It can also reduce the cost of SLA penalties by over 25%. This reduction in SLA penalties adds up to significant savings. When the numbers are calculated for the cumulative savings over a five-year period for 400 locations, it results in an total SLA cost avoidance exceeding $330,000. 4 according to an independent study commissioned by Cisco in fall 2004 SLA Upgrade OPEX and Margins 0 500 1,000 3,000 4,000 3,500 2,000 2,500 1,500 Basic SLA Premium SLA Margin OPEX USD The solution also increases network availability and reduces network downtime. Because it can perform single-ended testing, it enables faster service restoration. Through 802.3ah compatibility, it easily integrates into existing operations by mirroring current maintenance practices for legacy access technologies. The solution offers other benefits as well. Because it can help operators ensure competitive SLAs with premium Quality of Service (QoS), service providers can attract new customers, reduce customer turnover, and attract extra revenue by selling higher-margin Ethernet services. Without the testing solution, service providers will frequently encounter difficulties managing premium services over Ethernet, often resorting to legacy access technologies such as Frame Relay, SONET, and ATM, which are comparably more expensive and difficult to provision. All these benefits create a compelling case for remote testing in first-mile Ethernet deployments. By providing a framework for competitive, scaleable Ethernet services, the solution from ADC and EXFO can form a key element in a service provider’s expansion into this profitable market. Company Overviews ADC and EXFO are partners in providing best-in-class remote test solutions for Ethernet access networks. ADC and EXFO sales and support organizations provide comprehensive global product and application support. Additional information about the joint-test solutions can be found at www.adc.com and www.EXFO.com. About ADC ADC provides the connections for wireline, wireless, cable, and enterprise networks around the world. ADC’s innovative network infrastructure equipment and professional services enable high-speed Internet, data, video, and voice services to residential, business and mobile subscribers. ADC (NASDAQ: ADCT) has sales into more than 100 countries. Learn more about ADC at www.adc.com. About EXFO EXFO is a recognized test and measurement expert in the global telecommunications industry through the design and manufacture of advanced and innovative solutions as well as best-in-class customer support. The Telecom Division, which represents the company’s main business activity, offers fully integrated and complete test solutions to network service providers, system vendors and component manufacturers in approximately 70 countries. One of EXFO’s strongest competitive advantages is its PC/Windows-based modular platforms that host a wide range of tests across optical, physical, data and network layers, while maximizing technology reuse across several market segments. The Photonics and Life Sciences Division mainly leverages core telecom technologies to offer value-added solutions in the life sciences, high- precision manufacturing and research sectors. For more information about EXFO, visit www.exfo.com. Business Case for Remote Ethernet Testing Page 8 Business Case for Remote Ethernet Testing Page 9 Following is the detailed business case and associated charts: Project Summary ROI 408% Payback Period 16 (in months) Cumulative $735,134 Net Value Project Costs Start Up Year 1 Year 2 Year 3 Year 4 Year 5 Equipment $200,000 Installation $38,880 Total Project Costs $238,880 $0 $0 $0 $0 $0 Benefits Start Up Year 1 Year 2 Year 3 Year 4 Year 5 Total OPEX Savings $120,960 $124,589 $128,326 $132,176 $136,142 $642,193 SLA Cost Avoidance $62,500 $64,375 $66,306 $68,295 $70,344 $331,821 Total Benefits $183,460 $188,964 $194,633 $200,472 $206,486 $974,014 Financial Analysis Year 1 Year 2 Year 3 Year 4 Year 5 Net Value ($238,880) $183,460 $188,964 $194,633 $200,472 $206,486 Cumulative ($238,880) ($55,420) $133,544 $328,177 $528,648 $735,134 Net Value Net Present $578,881 Value Payback Period 16 (in months) ROI 408% 5-Year Net Benefit = $735,134 34% 66% OPEX Savings SLA Savings Cumulative Net Benefit $800,000 $700,000 $600,000 $500,000 $400,000 $300,000 $200,000 $100,000 ($100,000) Year 1 Year 2 Year 3 Year 4 Year 5 $0 [...]... contacting our headquarters office in Minneapolis ADC Telecommunications, Inc views its patent portfolio as an important corporate asset and vigorously enforces its patents Products or features contained herein may be covered by one or more U.S or foreign patents An Equal Opportunity Employer 1326526 5/05 Original © 2005 ADC Telecommunications, Inc All Rights Reserved ...WHITE PAPER Web Site: www.adc.com From North America, Call Toll Free: 1-800-366-3891 • Outside of North America: +1-952-938-8080 Fax: +1-952-917-3237 • For a listing of ADC’s global sales office locations, please refer to our web site ADC Telecommunications, Inc., P.O Box 1101, Minneapolis, Minnesota USA 55440-1101 Specifications published here are current . sectors. For more information about EXFO, visit www.exfo.com. Business Case for Remote Ethernet Testing Page 8 Business Case for Remote Ethernet Testing. paper examines these benefits in detail. Business Case for Remote Ethernet Testing Business Case for Remote Ethernet Testing Page 2 ROI Methodology and Highlights