Optical networking is making bandwidth plentiful and access cheap -- leaving service providers wondering how to turn a profit. The answer could lie in advanced IP services.

It stands to reason. If carriers can offer value-addeds like IP-VPNs, extranets, application hosting, VoIP, and video on demand, they can charge more for them. A lot more.

There's just one problem: in order to make their nut, they need to be able to differentiate traffic by customer, as well as application, and they need to do it fast and on the fly. Otherwise, how do they know who gets the bill?

Orchestream Ltd. http://www.orchestream.com, a network management software vendor, says it has a solution that will allow providers to automatically activate services, manage those services, and bill customers for them. Next week the company is announcing a new version of its product, the Provider Edition, which uses MPLS (multi protocol label switching) to establish connectivity over IP networks. Its previous service provider product only focused on QOS (quality of service) policy management.

"Service providers need to sell more than just bandwidth," says Richard Moore, VP of marketing for Orchestream. "Everybody does that. They need to sell services."

But there are some downsides. Some analysts say that Orchestream's approach relies too much on Diff Serv, an IETF framework for classifying traffic, as the mechanism for differientiating service. Also, MPLS another key component, has not been standardized. And Orchestream wil face stiff competition from equipment vendors that are developing their own management systems to do the same thing.