Canadian networking’s mid-year report

Growth of networking technologies in 2002 was less than stellar but 2003 has seen a modest return to strength by most, driven by the business needs of customers and aided by the evangelizing of vendors. Led by sales of wireless LANs and IP telephony, most technologies have seen improvement in the first half of this year, with high-end switches and routers showing a less formidable drive, while the picture for Web services remains uncertain.

By almost any measure, 2002 was not a great year. “Last year, the overall sales of networking equipment in Canada actually shrank by about two to three per cent,” says Warren Chaisatien, an analyst with Toronto-based research firm IDC Canada Ltd. “It dropped for the first time in history.”

But even within that dark picture, the wireless LAN market continued to grow, although by how much is yet to be calculated. However, by the first quarter of 2003, IDC Canada reports that 18 per cent of medium-sized businesses (100-499 employees) had adopted wireless LANs, with the same technology being adopted by 32 per cent of large businesses (500+ employees). At the same time, 14.5 per cent of medium-sized businesses plan to adopt the technology, a move that exists in the plans of 20.8 per cent of large businesses, IDC Canada reports.

While most of the networking market was in the doldrums, wireless LANs grew by 35 per cent from 2001 to 2002, says Chris Bazinet, manager of Marketing for Product and Technology Services at Cisco Systems Canada. “These are big numbers but we have to be realistic,” Bazinet cautions. “Back in 2000 there was not much installed base and few access points.”

Now that access points have reached significant levels, Bazinet anticipates the growth in wireless LANs to be “in the 20 per cent range at least for the next 11 to 12 months.”

To situate wireless LANs’ place in the market, Paul Rozen, a principal at IBM Canada, cites Gartner Group’s “cycle of hype.” “Wireless LAN is on the slope of enlightenment,” Rozen says. “There are a number of organizations that see a real advantage in getting involved in that technology and they are doing so.”

This is to be contrasted to the related WiFi technology which Rozen situates on the “peak of inflated expectations” part of the cycle. “A number of organizations are interested but it’s not realizing the true value that they would like to see out of it,” Rozen says. “So not a lot of organizations are truly adopting it.”

IDC’s Chaisatien suggests that wireless solutions like WiFi are finding some favour in manufacturing and warehousing locations, as well as public sector campus-like locations, such as hospitals and universities. Indeed, as many as 54 per cent of medium-sized institutions and 68 per cent of large institutions are currently using some kind of wireless technology in its broadest sense.

Chaisatien suggests some perspective is in order, however. “When it comes to actual spending, wireless solutions still make up a very small portion of coppered IT investment,” Chaisatien says. “Wireless spending is capped at not more than 15 per cent of the overall telephone bill.”

And as you get to the smaller organizations, vanguard technologies like wireless tend to take up even less of the bill. “The smaller you are, the less you tend to spend on more exciting technologies like wireless, Internet connection and data communications,” Chaisatien says.

More traditional networking technologies such as switches and routers played an important role in the downward trend of 2002.

Switching technologies, down 15 per cent over the year, began to stabilize in January of 2003. One of the factors helping in the recovery is the continued migration from 10/100 fast Ethernet to Gigabit Ethernet. From a [Gigabit] perspective, at this time last year it was a little bit less than 10 per cent of the market and now we’re seeing it at about 16 per cent,” Cisco’s Bazinet says. “So as customers are looking at a new generation of switches, Gigabit seems to be the way to go.”

The move towards wireless LANs and IP telephony has also fuelled a move towards a powered line switch. “All of these technologies could use AC power but it’s a lot more clean and efficient if you use power through an Internet cable,” Bazinet says.

The routing market, which shared switching’s downward turn in 2002, recovered somewhat in the final quarter of that year. Bazinet expects the trend to be “flat to positive” throughout 2003.

The one bright spot for router technology is the gradual migration away from Frame Relay and Asynchronous Transfer Mode (ATM) towards site-to-site VPNs. According to Bazinet, this move will promote the use of branch or small office routers among customers while providers will have to increase the size of their edge routers, a move that will eventually affect the backbone. “We hope to see that happening in the very near future,” Bazinet says.

IBM’s Rozen sees a trend away from frame relay and ATM towards Multiprotocol Label Switching (MPLS). “But it will be a little bit of time before a lot of organizations adopt it because it’s a wholesale change to the Wide Area Network,” Rozen says. “It affords the organization the ability to support any kind of technology to provide them with the e-business on-demand capability.”

In addition to wireless LANs, IP telephony is the other technology now in emergence. According to IDC Canada, 10 per cent of medium-sized businesses are already using it, along with 17 per cent of large businesses. At the same time, 19 per cent of the medium and 22 per cent of the large, have stated their intentions to invest in this technology in the near future.

“That is very encouraging, even though these numbers may appear relatively low to equipment vendors like Cisco and Nortel,” Chaisatien says. As in wireless LANs, medical and educational institutions are in the vanguard of voice over IP adoption. “These organizations typically involve a lot of employees and they tend to operate in a campus-based environment,” Chaisatien says.

“IP telephony is no longer negligible in the overall marketshare of IT spending,” Bazinet says. “It’s not only an early adopter’s story; IP telephony is becoming the logical replacement platform for an end user that has reached end-of-life or end-of-lease on his legacy PBX.

IBM Canada sees voice over IP as being part of a larger picture that involves the convergence of technologies necessary for those companies that want to offer what it calls, “e-business on demand.” IBM itself is one of these companies and, as a result has itself become a major adopter of voice over IP.

“We adopted the policy of the mobile employee so that the employee doesn’t necessarily work out of an office at an IBM location,” says Rozen.

For its IP foray, IBM deployed 27,000 IP-capable sets, as many as 9,000 of which were deployed in Canada. “It’s an indication of our support of being able to perform e-business on demand in support of the corporate strategy,” Rozen says. “When it went up it was one of the largest deployments of IP telephony and unified messaging in the world.”

Security is another area that is rapidly becoming part of many organizations’ network architecture, says Bazinet. The market over the last six months however has been flat. “In the case of firewalls, we don’t expect a lot of growth or losses there at all,” Bazinet says. Corporations already have a good level of firewall protection in their network. One of the significant exceptions is in the area of small-to-medium enterprise where IOS (Internetworking Operating System) VPN is being adopted. “IOS VPN has been one of the fastest growing segments in the security portfolio.”

“More and more there is a marriage between security and networking,” IBM’s Rozen says. “As organizations are making their decision, they’re looking at both those aspects to decide which projects they should implement.”

But in matters of security, Canada is showing less concern than the United States. “Storage Area Networking (SAN) and access storage are much more prevalent in the United States than in Canada,” Rozen says. “The threat of a significant outage due to terrorist activity has pushed a lot of organizations to be much more concerned with the ability to keep the network up and running 100 per cent of the time.”

One emerging technology where the awareness is high but skepticism lingers is in the area of Web services.

“The industry has been pushing Web services – the next great hope, the big panacea to the integration complexity that companies face and so on,” says Alister Sutherland an analyst at IDC Canada. “One area of skepticism might be coming from the whole move towards standards – which is a great thing – but throughout the history of the industry there’s been a lot of divergence from standards once they’re set by different vendors.”

In spite of the skepticism, Web standards have appeared to garner a considerable amount of mind share. In its survey of Canadian companies, IDC found about one-third of respondents had already adopted Web services. When those currently implementing, planning or evaluating were thrown into the mix, the figure rose to 73 per cent. “We were actually quite surprised at how quickly Web services began getting traction in the Canadian market,” Sutherland says.

One company in the process of moving towards Web services is Mxi Technologies. The Ottawa-based company offers Maintenix, a program which tracks maintenance cycles for aircraft operators, both civil and military. Two to three years ago, the company began to migrate towards a Web platform based on Java J2EE technologies. According to Marc Lennox, Mxi manager of strategic technology, the company, in the absence of Web services standards, began developing its own integration package based on Java technology about two years ago.

“Web services have been a bit immature for the past year,” Lennox says. “We’ve been watching to see where it goes and we sort of avoided it until it got to the point where it was supported by (Borland) Jbuilder and all the other standard tools.”

Hubbard is a Toronto-based technology writer.