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The high cost of wide area networking

Given the combination of the economic malaise and the sensationalism that surrounds topics such as cloud computing and server virtualization, it is possible to surmise that nothing of significance is happening in the networking space. Nothing could be further from the truth.

Venture capitalists and others have been funding significant investments in a wide range of networking technologies and the results of those investments are beginning to hit the market. In many cases, these new networking technologies are targeted at reducing the relatively high cost of wide area networking that will be described in this newsletter.

As we all know, the combination of technological advances and a competitive marketplace have greatly reduced the price that IT organizations pay for most of the major components of IT including processing, memory, data storage, and LAN bandwidth. For example, Jim bought his first PC (actually a Mac) almost 25 years ago. At that time, he paid $500 for an external hard drive that held 200MB. He recently spent $60 for a 32GB memory stick. That represents an improvement in the price/performance ratio of memory that is well over a thousand.

There is no doubt that the price/performance ratio of wide area networking has improved over the last 25 years. There is also no doubt that the improvement in the price/performance ratio of wide area networking is nothing close to the price/performance improvements that we have seen for storage or for processing. However, some new WAN technologies hold the potential to change that.

In order to quantify the possible WAN price/performance improvements it is important to identify the current price/performance of WAN services. That task is somewhat difficult because the price that IT organizations pay for WAN services varies based on a number of factors, such as how much revenue the IT organization commits to the WAN service provider. That being said, today it is common for IT organizations in the United States to pay roughly $1,200/Mbps/month for Frame Relay service and $800/Mbps/month for MPLS. It is also common to pay $500/Mbps/month for Internet VPNs via a Tier 1 ISP if the IT organization uses a T-1 and not DSL for access.

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