Virtela Expands Into MPLS

Service provider Virtela Communications Inc. is playing the middleman again, this time hoping to provide Multiprotocol Label Switching (MPLS) services in addition to its IP VPN products.

Virtela's trick is to lease lines from multiple carriers' networks, creating an enormous logical network. This lets the company reach all around the globe, covering the bare spots that particular carriers might leave out. It also gives Virtela plenty of redundant pathways, so that if one carrier's network becomes unreachable, the company can reach out to some other carrier. The whole operation is made possible by the OSS that Virtela puts atop the network.

The company is led by chairman Vab Goel, a former VP from Qwest Communications International Inc. (NYSE: Q), and announced its IP VPN service in 2001. It has picked up a total of $86 million in funding from investors including Norwest Venture Partners (see Virtela Emerges From Stealth and Virtela Scores $11M for VPN Net).

The company has since moved into SSL services as well, including network-based security tools such as firewalls and intrusion detection systems. Now it wants to add MPLS networking to its menu.

"MPLS does not allow network-to-network interfaces. They don't exist in the standards committees, and carriers are loath to connect their network to others," says Ian Dix, Virtela senior vice president of marketing.

The problem isn't likely to be patched up soon: "The standards for interconnect of MPLS networks are, in my view, wholly inadequate," says Tom Nolle, president of consultancy CIMI Corp. Among the issues is the fact that IP and MPLS standards tend to get formulated in the Internet Engineering Task Force (IETF), which of course is Internet-centric – but doesn't apply to everything carriers do today. Projects such as the AT&T Corp.'s (NYSE: T) "Concept of One," which aims to converge multiple protocols onto one IP/MPLS backbone, aren't intended to be part of the Internet.

"As a matter of practical reality, IP and in particular IP/MPLS are separating from the Internet," Nolle says. The new issues sprouting with that trend are being discussed by the MPLS Forum and by Juniper Networks Inc. (Nasdaq: JNPR) in its Infranet initiative, he notes.

To make its model work for MPLS, Virtela has to translate among different carriers' ideas of class of service. "Some carriers, such as MCI, have three classes of service. AT&T has four or five, depending on how you read their literature," Dix says. "We re-mark the bits based on the previous carrier's class of service." The marking happens at regional centers that funnel Virtela's traffic from network to network.

Virtela's market tends to be the multinational enterprise, one that would like a single carrier for disparate global operations. But "multinational" doesn't necessarily mean "big."

"We used to think of 'multinational' as the Procter & Gambles of the world, but the fastest-growing segment we have is the venture-funded companies in California," Dix says. "Because of the outsourcing they do to India and China, they're multinational."

With MPLS – and any other service – Virtela faces an uphill battle, as pricing continues to crush carrier margins. "The margins on all these services are so thin, it's hard to see how someone is going to get much of a spread between wholesale and retail," Nolle says. "They're depending on carriers to leave these gaps in their services in perpetuity – when in fact, all [the other carriers] would have to do is expand their networks or cut a deal with other carriers."

— Craig Matsumoto, Senior Editor, Light Reading