VPN/Firewall Vendors Look to Wireless

Wireless carriers are expected to increase spending on infrastructure over the next few quarters, and IP VPN/firewall vendors will be prime beneficiaries.

“If you look at wireless infrastructure business, you will see that spending is increasing relative to where it has been,” says Erik Suppiger of Pacific Growth Equities Inc. Suppiger and colleague Sandy Harrison say the ongoing movement of U.S. wireless carriers toward 3G networks, which support new data services, is a key driver for the VPN/firewall market. “It probably won’t eclipse spending from wireline providers on VPN/firewall gear, but it’s definitely a major market opportunity.”

Several VPN/firewall companies, including Cisco Systems Inc. (Nasdaq: CSCO), NetScreen Technologies Inc. (Nasdaq: NSCN), Nortel Networks Corp. (NYSE/Toronto: NT), and Nokia Corp. (NYSE: NOK) are poised to benefit from the ongoing buildout of 3G networks worldwide.

“Wireless carriers need to protect their networks if they’re going to run data services," says Joel Conover, principal analyst at Current Analysis. There’s no reason, he points out, that hackers can't use data-enabled phones to attack carrier or customer networks.

IP VPN/firewall devices filter traffic to protect the carrier network. They also provide network address translation (NAT) capabilities, which help expand the use of IP addresses. This is especially important among U.S. wireless carriers, since most of their existing infrastructure hasn’t yet switched to IP version 6, which accommodates more addresses than IP version 4, which most wireline carriers use today.

Wireless carriers can benefit from IP VPN/firewalls in other ways as well. They can leverage the VPN functions of these devices to set up secure tunnels for exchanging traffic between carrier networks. VPNs also are used to rolling out managed corporate intranets and extranets. And they can secure transmission of backhauled wireless traffic.

In Asia, 3G rollouts are well underway, and companies have already sold a significant amount of gear to wireless carriers. Netscreen, for instance, has done well with Asian providers (see IDC Japan: NetScreen Tops in Security). Since entering the wireless market in mid-2002, the company claims it has sold product to at least 30 of the largest wireless carriers worldwide, according to Suppiger.

As the 3G wave heads toward North America, Netscreen's gaining traction there, too. Although it hasn’t been officially announced, Suppiger says that Sprint PCS (NYSE: PCS) is using Netscreen gear and was a significant contributor to the company’s last quarter.

There's plenty of opportunity for other vendors, too, as AT&T Wireless Services Inc. (NYSE: AWE), Verizon Wireless, and VoiceStream, as well as Sprint PCS, roll out services.

Cisco, which offers IP service blades for its Catalyst 6500, could get a boost. Nortel with its Alteon switch that is optimized for the Check Point Software Technologies Ltd. (Nasdaq: CHKP) firewall product, should also be a contender. And Nokia, which also licenses Check Point’s firewall technology, has its cap set for the North American market.

“It’s difficult to break out what the exact market opportunity is,” says Suppiger. “But the wireless market will be one of two primary drivers for this market in the carrier space.”

The other major market opportunity for IP VPN/Firewall equipment comes from wireline carriers offering managed IP services (see Service Providers See Green in SSL and VPNs à la Carte).

— Marguerite Reardon, Senior Editor, Light Reading

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