Lab Scenario 1

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Date of Issue: 06-01-2001
Lab Scenario 1
by Annlee Hines
The Scenario
Proposal 1
Proposal 2
Proposal 3
Analysis
Current Cost Structure -- 256 Kbps leased line, data only
Proposal 1 -- 512 Kbps leased line, data only
Proposal 2 -- 512 Kbps Frame Relay, data only
Proposal 3 -- 1,544 Kbps ATM, voice and data
Solution
Note for the Financially Astute
The Scenario
You are the Network Administrator for FUD Services, Inc., a medium-sized firm providing market research to the
pharmaceutical industry. Your product consists of written research reports, usually accompanied by a number of
graphics files. You deliver these on a subscription basis via password-protected download from your web site. You
also use the web site as a marketing tool, showcasing past research reports and offering an opportunity to begin the
dialogue toward developing special (custom) reports on demand. Such dialogue usually continues via email, with the
final contractual arrangements made via hard copy exchange. Inputs for your reports come from a variety of sources,
often accessed or confirmed via the Internet.
Last year, the company recognized the growing power of the European biological research corridor from Switzerland
down the Rhine into Germany and France, so it began preparations to open an office in Strasbourg. If the project
goes well, in two more years FUD will open an office somewhere in East Asia (probably Singapore) as well.
Your current WAN access is a fractional T-1 line (256 Kbps) leased from BBOS Data Services, Inc. (Baby Bell On
Steroids, you know: the one that swallowed two of its siblings), which also serves as your ISP and provides web
hosting services. For the combined set of services, you pay $2000/month. The Network Administrator in the new
Strasbourg office will contract for his own Internet access, but you are concerned that the file transfers between the

two offices will overwhelm the existing fractional T-1. While this wouldn't cripple the rollout of the new European focus,
it would severely hamper it. You asked the Sales Engineer from BBOS for recommendations; she returned in a week
with three Proposals.
Proposal 1
BBOS will double the bandwidth on your fractional T-1 to 512 Kbps, and will continue serving as your ISP and web
host for $3600/month. The contracted price will be good for two years.
Proposal 2
BBOS will offer you the same 512 Kbps as Proposal 1 -- but as a Frame Relay service, ISP, and web host for
$3000/month. You will be required to add a Frame Relay-capable router at the demarc; BBOS will provide
configuration specifications for the DLCI. BBOS can provide the router on a lease, for $180/month, or for sale, at
$3200. These prices will also be good for two years.
Proposal 3
BBOS will offer FUD a full T-1, carrying ATM, again on a two-year contract. This will also carry FUD's voice traffic on a
PVC (your telco is, conveniently, BBOS) and replace the separate voice service contract currently costing
$1800/month. You will need to install a new PBX system at a one-time cost of $12,000, and an ATM-capable switch.
On an arrangement similar to that for Frame Relay, BBOS will provide the switch on a leased basis ($265/month) or
for purchase ($4200). The total package (1.544 Mbps of ATM, one contract for voice and data, ISP, web hosting) will
cost $4300/month.
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Which Proposal should FUD accept, and why?
Analysis
Before we even look at the price quotes, examine what services FUD needs on this circuit -- what problem is FUD
trying to solve? The problem, as described, includes only data transfers, which are typically bursty and delay-
insensitive. Since both the leased line (which has been doing fine up to now) and Frame Relay work well for data
traffic, both of those Proposals would work. The sales engineer has offered to include voice traffic, removing one
recurring cost, but that would require FUD to purchase a great deal more hardware. FUD did not include telephone
service in its requirements, but the offer is worth examining. Obviously, the sales engineer was listening, since all
Proposals are set for two years, which matches the time frame (the potential opening of another office, this time in
Asia) at which FUD will need to reconsider its contract anyway.

Current Cost Structure -- 256 Kbps leased line, data only
Proposal 1 -- 512 Kbps leased line, data only
Proposal 2 -- 512 Kbps Frame Relay, data only
Proposal 3 -- 1,544 Kbps ATM, voice and data
Item Per Month For Two Years
Equipment $0 $0
Data Services $2,000 $48,000
Telephone Services $1,800 $43,200
Total Cost

$91,200
Item Per Month For Two Years
Equipment $0 $0
Data Services $3,600 $86,400
Telephone Services $1,800 $43,200
Total Cost

$129,600
Item Per Month For Two Years
Equipment (lease) $180 $4,320
Equipment (buy) - $3,200
Data Services $3,000 $72,000
Telephone Services $1,800 $43,200
Total Cost (lease)

$119,520
Total Cost (buy)

$118,400
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Solution
Of the three Proposals, continuing with leased line service is the least economical. Proposal 3 is attractive; for only
$1000 more over a two-year period, FUD could have more bandwidth than it thinks it will need for this transition.
Intangibles to consider include the probability of work and/or communications disruption while the voice equipment is
swapped out. Since this is the first real expansion of FUD, and will occur overseas, disruptions are a major drawback.
Senior management is already quite nervous about keeping FUD "on the same page" when operating with such a
large time zone difference (6 or 7 hours, depending on the time of year). In the words of the CFO, "The existing
telephone system works perfectly well, thank you." That, plus the higher price (though not significantly higher,
especially considering the greater bandwidth offered), rules out Proposal 3 this year. If a similar deal were offered in
two years, it would certainly be worth reconsidering.
That leaves Proposal 2. Frame Relay is the least expensive (especially if FUD buys the router instead of leasing), and
requires only a minor equipment addition to the network. It also meets the requirements established before the
proposals were seen. This is an important point: rational contracting decisions regarding your WAN service are easier
to make (and to justify) if the criteria for success are established in advance -- and were therefore not swayed by a
"good deal" from the sales engineer (although the ATM package was very nearly the best deal anyway).
Choose Proposal 2.
Note for the Financially Astute
The CFO corrects your analysis, reminding you that monies spent over time should not be compared in nominal
dollars, but rather in dollars converted to their present value (PV). She reruns the numbers, and arrives at the same
answer, Proposal 2 (though like all accountants, she lists an expense as a negative value).
[IE-WANS-LS1-F03]
[2001-06-01-01]
Item Per Month For Two Years
Equipment (switch lease) $265 $6,360
Equipment (switch buy) - $4,200
Equipment (PBX buy) - $12,000
ATM Services $4,300 $103,200
Telephone Services $0 $0
Total Cost (lease)

$121,560
Total Cost (buy)

$119,400
Proposal 1 PV
$3600/mo for 24 months + $1800/mo telco ($119,396.94)
Proposal 2
$3000/mo + $180/mo for 24 months + $1800/mo telco ($110,110.51)
$3000/mo for 24 months + $3200 now ($109,330.61)
Proposal 3
$4300/mo for 24 mo + $265/mo for 24 months +$12,000 PBX replacement ($112,934.63)
$4300/mo for 24 mo + $4200 now +$12,000 PBX replacement ($111,275.34)
Copyright © 2001 Genium Publishing Corporation