Building cost effective lower layer VPNs: The ILEC/CLEC paradox

Layer 2 and layer 1 VPN services, ranging from simple leased lines to extending private LANs, are commonplace today. With the continuously growing economic difficulties, capital meltdown and telecommunication business turmoil, delivering those VPN services at the lowest cost or with the maximum revenue margin, while committing to service level agreements (SLA), has become essential. We show that whether we tackle the VPN design problem from an incumbent local exchange carrier (ILEC) standpoint or from a competitive local exchange carrier (CLEC) standpoint, we obtain contradictory rules. We show that by building edge disjoint VPN trees and splitting the traffic among them, the ILEC can achieve maximum throughput, revenue, and better network performance. On the other hand, by concentrating all the VPN traffic over a single tree, the CLEC can minimize the cost of leased bandwidth while meeting minimum SLA targets. We then propose two simple algorithms that can help carriers and service provides, respectively, leverage their networks and increase their revenue margins while committing to tight SLAs with their customers.