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Tom Giannetti faced a difficult but common problem. He needed to upgrade from modem connections to broadband services at 350 retail locations across the country.

Trying to find the right coverage from multiple service providers proved "too labour intensive and cost prohibitive," says Giannetti, who is vice president of IT for the El Pollo Loco restaurant chain. Instead, he hired virtual network operator (VNO) MegaPath to piece together broadband services from a variety of providers.

While some network executives might say he's loco for giving up control over his WAN links, Giannetti believes he's crazy like a fox. "Hiring a VNO enabled El Pollo Loco to deploy broadband services in hundreds of restaurants without increasing internal IT staff," he says.

And the migration was a mission-critical move that afforded El Pollo Loco measurable gains. For instance, patrons now wait less than two seconds -- rather than 10 to 12 seconds -- for credit card transaction approval.

Midsize businesses such as El Pollo Loco are the bread-and-butter of VNOs, which are defined as WAN services vendors who do not own their own infrastructure.

"VNOs can offer higher levels of customer service and customisation than larger network-owning players. Each customer is that much more important to a VNO, especially the midsize customer, which typically isn't the focus of the global telecom players," says Jan Dawson, vice president of enterprise practice for market-research firm Ovum.

The original appeal of VNOs was that they offered to take over the dizzying prospect of negotiating contracts with foreign carriers and the painful process of dealing with stacks of invoices and intricate billing procedures from multiple vendors.

That's still true, but these days VNOs are adding enterprise services to lure larger customers. Many are serving up security and network-management offerings, such as IP, MPLS and SSL VPN access options. They also are offering intrusion prevention and related endpoint security services to help companies manage mobile workers.

"The availability of enhanced services certainly contributed to our move in the direction of a VNO contract," Giannetti says.

Beyond bandwidth

Offering customers more than mere access is a key VNO strategy. "Increasingly, VNOs are positioning themselves as solution developers rather than bandwidth providers," says Martin Rogers, senior research analyst at Stratecast, the telecom research arm of Frost & Sullivan. "Overall, VNOs are more interested in the business issues of the customer and are not hindered by the cultural legacy that comes with being a facility-based provider."

Such VNOs as Virtela, Vanco, iPass, MegaPath and Fiberlink are adding these security and management services in part to allay a bevy of customer concerns. Enterprise executives tend to ask VNOs a lot of questions, because these providers are less familiar to them than the major carriers. Plus, there is a sense of risk in forfeiting control of enterprise network management by turning over operations to a VNO, according to Michael Disabato, service director for the Burton Group.

"Enterprises that engage a VNO do not have micro control of their networks, since they are often not even aware of where traffic is being routed and who is carrying it," Disabato says, though he quickly adds that the trade-off of control for convenience may be worth it. "Companies don't want to spend their time trying to negotiate deals all over the planet. There is also the benefit of VNOs being able to reach out and grab another provider any time something goes wrong," he says.

Many enterprises will still hedge at the notion of turning operations over to a VNO completely. "Our interest in hiring a single VNO right now is zero," says Jim Garland, manager of global contracts and service delivery at United Technologies Corp (UTC) Connecticut.

However, UTC does use MegaPath to provide access services to many of its remote employees and offices. "But in most cases, we don't let third parties manage our networks. World-wide, we have thousands of locations, and we manage all of those services from this building," adds Bob Hyland, manager of UTC network security. "Our concern is that because a third-party network touches our networks, we need assurances that nobody from the outside can gain access to UTC through these networks."

Global warming

Although many enterprises are still shying away, larger corporations are gradually warming up to the idea of hiring a VNO. "The VNO model has definitely gained acceptance in the last few years and has even earned increasing acceptance among large enterprises," Dawson says.

For example, UTC's Garland says, "We are looking to bid out work in China, and that is a place I think we'd consider using a VNO. The problem with China is the fact that the domestic carriers we normally deal with don't understand cultural issues in China any better than we do."

Geographical reach had everything to do with fresh fruit distributor Capespan Continent's recent decision to expand upon an existing seven-year relationship with Vanco. "As Capespan is operating a WAN with offices in the United Kingdom, continental Europe and South Africa, it was a must that our provider have world-wide coverage," says Tom Quets, IT Manager for Capespan, in Capetown, South Africa.

Most VNOs realise that their true strength lies in a willingness to ramp up operations in places where enterprises and even large carriers fear to tread. "To have a presence in all of the countries an enterprise would like to do business in, they would have to increase staff," Burton's Disabato says.

Shaklee, a health- and wellness- products company, had no desire to build out IT staff across the globe, even though the company is on a mission to expand operations to 50 countries over the next several years. Hence, Shaklee IT officials settled on VNO Virtela to provide a full range of WAN- and LAN -monitoring functions in remote locations, such as Taiwan and a smattering of small towns in Mexico.

To choose between the major carriers and VNOs lined up at the door to provide these services, Greg Fina, Shaklee's director of IT architecture and quality, took a somewhat unusual approach. "I just started pulling countries off a map that I didn't even know existed. I then asked each of the vendors 'Can you provide services here? How about there?' The major carriers all said they would get back to me, but eventually they all said no."

The worm turns

Like major corporations, carriers can be reluctant to invest in new infrastructure in out-of-the way places. Therefore, even major telecoms are sometimes relying on VNOs, Dawson says. "The market is shifting in the VNOs' favour. The major network-owning providers have changed their views on network ownership over the last couple of years to the extent that they are now only investing in expansion on very selective and growth-driven basis," he says. "They realise that they cannot cover every part of the planet and are working to expand their networks through partners."

Meanwhile, VNOs continue to fight for enterprise business and are looking for any foot into the network operations of large corporations, Disabato says. "VNOs are knocking on every door they can. And they keep going back to the same doors repeatedly, since they realise that enterprises often change focus due to evolving business environments," he says.

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