Speaking at an investor conference on Tuesday, Cogent Communications CEO Dave Schaeffer said the MPLS market for telco carriers was in the process of imploding due to SD-WAN's emergence, and that Cogent will reap the benefits of that implosion.
In the mid 1990s, Schaeffer said, telcos started deploying MPLS-based services to their business customers, but MPLS is "a very difficult technology to deploy, very expensive and very rigid." One of the early promises of SD-WAN was that it would be a MPLS killer, since it costs less to deploy.
"In the past few years SD-WAN has become standards-based and become popularized," Schaeffer said during an interview at the Credit Suisse 21st Annual Communications Conference. "Dozens of vendors make equipment, standards have been deployed and the equipment is sufficiently robust that it can be used as an MPLS replacement. When a corporate user migrates a bit (Megabit) from an MPLS network to an over the top solution they see an equal or better performance and a 15x reduction in their cost per bit."
Since it was founded in 1999, Cogent Communications has been focused on selling dedicated internet on its IP-over-WDM (wave division multiplexing) network. Cogent offers two VPN services; SD-WAN and virtual private LAN service (VPLS) to a range of small business and Fortune 100 customers. It also sells internet access to "net centric" companies such as carriers, service providers, application providers and content providers.
"SD-WAN is an encrypted based technology and VPLS is an encapsulation technology, but to a lay person it's the ability to take an internet port and isolate your traffic from the view of the public internet," Schaeffer said. "It can pass over that common pipe with the same degree of ubiquity and resiliency.
"That $45 billion North American MPLS market, that $100 billion annual global MPLS market, is beginning to implode. So every major enterprise telecom service provider in the world has negative revenue growth today, and that's just going to get worse. The attrition continues, and now MPLS is being eviscerated with SD-WAN and VPLS."
Schaeffer said Cogent is the beneficiary of MPLS' demise because all it sells is internet access and "that has allowed us to capture this over the top business very profitably and save our customers a lot of money."
While Schaeffer is predicting the death of MPLS, telcos, for the most part, are saying SD-WAN and MPLS are co-existing for the time being.
"What we're actually seeing with respect to MPLS and SD WAN is what I've been saying for the past year, which is they go together, that our SD WAN customers are wanting to buy MPLS," said CenturyLink CEO Jeff Storey on his company's first quarter earnings call, according to a Seeking Alpha transcript. "And some very high percentage of those SD-WAN customers are buying two or three of our products at the same time."
There's no doubt that telcos have invested a lot of time and money into their MPLS services, and that they would hate to lose the MPLS-based revenues. One way of insuring that MPLS continues is to price SD-WAN along the same lines as MPLS, but enterprise customers also want the flexibility that SD-WAN can bring to their branch locations.
As businesses supplement their internet access with private networks, which benefits Cogent, SD-WAN will eventually become the dominant platform for location-to-location private networking, but the demise of MPLS is going to take some time.
Cogent's network
When Schaeffer founded Cogent in 1999, he focused exclusively on providing internet access instead of competing against telco and cable companies across ATM, MPLS, frame relay, voice, and wavelength services.
Cogent has 928 amplifiers on its network and 187 central offices. In addition to the SD-WAN and VPLS VPN services, it also offers colocation in its 52 data centers. Schaeffer said Cogent has 6,000 routers at the network edge to deliver services to its customers.
With over 57,400 route miles of intercity fiber and more than 33,600 metro fiber miles, Cogent offers its services in North America, Europe and Asia. The company provides its services to more than 202 major markets and interconnects with over 6,660 other networks.
"It looks like a cooperative LAN on steroids," he said. "That architecture is fundamentally more efficient than a cable network, a mobile phone network or a telephone network, which gives Cogent a sustainable advantage."
Cogent also benefited from buying distressed companies in the 2001 to 2004 time frame. Schaeffer said Cogent paid a total of $600 million for assets that were previously worth $14 billion. In its early days, Cogent also focused on using its own capital to extend its network only to locations that had high volumes of traffic.