Most IT departments will ditch in-house Internet VPNs in favour of managed IP VPN services by 2007, according to a report published today.

Spending on managed IP VPN services in Western Europe doubled in 2003, and will continue to grow at more than 10 percent annually until 2007, according to IDC. The increase will lead to greater adoption of MPLS (Multi-Protocol Label Switching), which currently accounts for more than half of managed site connections.

“VPNs have taken the managed data market by storm and 2003 was the year of MPLS,” said James Eibisch, a research director with IDC’s IP and Hosting Services division. The ability of MPLS to separate public Internet and private network traffic, while improving reliability and performance, have been critical in driving adoption of IP VPNs, Eibisch added.

Managed services also allow the enterprise to delegate the management of complex networks, said Eibisch. “Migrating some, if not all, of the network to a managed IP VPN lessens the burden considerably and is generally a cost-effective way to rationalise the legacy complexity,” he said.

Potentially, businesses will also be able to use managed IP VPNs to deliver real-time applications for voice and video that wouldn’t be possible over the public Internet. “There’s no SLA [service level agreement] at the application level on the public Internet, so the quality might be okay or it might be awful,” said Eibisch. “A managed service over an MPLS backbone can provide real-time QoS for these apps, as well as low latency performance for CRM and ERP.”

The report mirrors the experience of VPN suppliers, who are seeing little interest in traditional VPN technology. “If you’re looking for a VPN for converged voice and data then a managed IP VPN is the only realistic option,” said Peter Hankinson, business solutions manager with Your Communications (formerly Norweb). “With the public Internet, you simply can’t guarantee the performance or the security - and those issues are paramount to virtually all the companies we deal with.”

The increased use of managed services is good news for MPLS, which currently accounts for more than half of all managed site connections. The report predicted that the use of IPsec will have declined significantly by 2007, replaced by MPLS and other technologies such as SSL.

However, IDC believes that the IP VPN spending spree will slow down after 2007, returning to annual growth rates of around 5 percent. By that time, most enterprises will have an IP VPN solution in place and will turn their attention to applications such as voice-over-IP and hosted business applications. In addition, the arrival of layer 2 services such as Ethernet will lead to some migration from layer 3 IP services, Eibisch added.