MPLS: Market Maturity and negative impact of the Pandemic

MPLS (Multiprotocol Label Switching) has been the network of choice for over two decades now for most enterprises. Reduced network congestion, increased uptime, and security are some of the reasons why MPLS became a quick favourite.

But the MPLS market has reached a point of stagnation as far as market revenue growth and will have negligible CAGR in the next 5-year arc. The last two years have been particularly bad as companies decided to reduce their existing MPLS links while there were hardly any new deployments. In fact, due to the lockdown, many branches were also shut down. So, while work from home or Hybrid work might have helped some technology markets, that cannot be said for the MPLS business.

As a result, the overall enterprise data services business will have a relatively tepid growth rate as MPLS has had the largest share of this market (almost close to 1/3rd of the overall enterprise data services market). Going by this trend, it would not be surprising that MPLS gets upstaged by ILL (Internet leased line connectivity).

Also, the MPLS market has been battling price erosion for some time now, affecting the profitability of the business line and eventually impacting the growth rates. As MPLS is the preferred connectivity option for most large enterprises (SMBs tend to prefer either leased line connectivity or some also opt for broadband), the scope for new deployments is also limited.

For a telecom operator, while MPLS is too big a market to neglect and will remain a mainstay for the next couple of years, an increased focus on ILL, point-to-point connectivity (DLC or ethernet-based connectivity) can be expected.