Instructor: V. Sridhar

Prepared by: Helena Geraldes, Nicole Holden, and Hunaid Sulemanji

Case Study: 1 – MasterCard's Virtual Private Network

Q1: Discuss the important technical characteristics of MasterCard's Virtual Private Network? What are the differences between closed and open networks as discussed in the case? Why did MasterCard choose closed network architecture?

Important technical characteristics of MasterCard's VPN:

• Shared network (Internet) to simulate a dedicated link. The shared network concept allows merchants and issuing banks to communicate directly therefore increasing performance, bandwidth on demand, and Internet connectivity.
• Firewalls and security policies are required because of some interconnectivity with the public network.
• Standardized protocols worldwide such as TCP/IP.
• Frame Relay technology for packet switched voice and data at higher transmission speeds. ISDN service in the event Frame Relay is not available.
• Primary and secondary routers, bridges, hubs required in the event one fails to keep the data transfer integrity.

• Closed networks are typically designed and reserved by multinational corporations. Traffic on closed networks is limited to the members of the network and therefore performance is usually high (not bottlenecks as in the case of public networks). In addition, security is very high in closed networks to keep the information away from the public domain.
• Open networks are typically designed to be shared between the public (such as Internet). Traffic is usually very high and performance low because of the volume of information travelling across the network. In addition, the information is unsecure and can be viewed by third parties across the network.

For MasterCard, it is imperative to protect the information about its members and banks. Closed network architecture provides this type of security. Second, it is important to have high performance for data exchange and transaction processing. Closed networks are reserved for member organizations and therefore performance is usually high. In addition, customized modifications can be made to accommodate peaking transactions through bandwidth on demand.

Q2: Discuss the business implications for MasterCard due to their migration from their existing X.25 based network to a Virtual Private Network? What are the advantages MasterCard foresaw in their migration strategy? Does the new global network improve MasterCard's operations?

In the past, Master Card was using Banknet, X.25-based transaction processing network. As Master Card grew and expended its global reach, X.25 network was no longer capable to handle the transaction volume of more than 20 million transactions per day. Banknet had the most difficulties during the Christmas shopping season, when the network traffic skyrocketed. Unless MC could improve the situation, it had a risk of loosing the business to an increasing number of competitors. Another problem was that the network limitations made it impossible to offer new services, such as electronic cash, and thus limiting the competitive edge and new streams of revenue. Master Card also needed to update the routing of the transactions in foreign countries, limiting the packet switching to the countries where the transactions originated. The reasoning was not only for the performance issues, but also involved "cultural sensibilities".

In order to update the network, MC would require substantial capital outlays for equipment and maintenance, would have to replace the whole infrastructure, would have to build huge gateways to have access to the Internet. Even if MC would go to all this trouble, they were not guaranteed the resolution of the technical limitations. The new strategy was needed and VPN offered the necessary solution. Rather than upgrade the X.25 network infrastructure, MC chose to outsource the job using AT&T as a service provider for the Frame Relay Virtual Private Network.

Virtual Private Network allows MC to increase the speed and performance of Banknet by nearly 150 percent; failure to connect to process the transaction was reduced by 40 percent. Member banks have seen significant savings because of reduced processing on-line time. VPN offers bandwidth-on-demand (taking care of the Christmas season bottlenecks), use of closed TCP/IP network allows MC to expand to the new services like electronic cash and Internet connectivity which was not available before. Another benefit of the switched closed VPN is better tracking of people and resources. And finally, through its contract with AT&T, MC has more flexibility in taking the advantage of new evolving technologies.

Q3: Discuss reasons as to why MasterCard choose AT&T and World Partners as its VPN service providers?

AT&T, through World Partners (a business alliance of 17 global telecommunication carriers in 33 countries, cofounded by AT&T) already had the global presence needed for MC’s project. World Partners offers a "virtual network service for voice, a private-line data service, and a frame-relay service for high-speed data transmission, all with common features and standards of performance". The flexible contract, which is discussed later, offered MC a lot of advantages and a highly competitive edge in the market.

Q4: Discuss details of the flexible contract MasterCard entered with the service provider? Why did MasterCard choose the flexible contract?

MasterCard deals with a constantly evolving type of business, has over 23,000 members spread throughout the world, and handles more than 20 million transactions a day, therefore when negotiating a contract agreement with AT&T for its VPN network these questions had to be taken into consideration. Therefore the best solution was to engage in a flexible type of contract, which would allow for price re-adjustment, increase capacity and the possibility of having bandwidth on demand.

The contract negotiated between AT&T and MasterCard had therefore to consider that technological innovation and more reliable infrastructure lead into decrease in the cost of hardware and therefore the overall cost for the provision of services. Furthermore, the constant expansion of the MasterCard network also made it necessary to foresee for the need of a contract in which those needs would be spelled out in order to accommodate for the companies future technological needs, as well as for changes in price structure. Therefore a 10-year flexible seemed to be the best solution. Through this contract, unexpected changes in a sector in permanent technological evolution would ensure MasterCard with the possibility of having its infrastructure upgrade and its services improved without the hassle of a locked-in contract that needed constant renegotiations. This type of contract could also concur for MasterCard’s maintenance of a "state of the art communications network" without incurring into very high cost for upgrading its infrastructure.

Q5: If MasterCard wants to expand coverage of their network to some other locations in the world (including developing countries where telecommunications infrastructure is inadequate) what should be its future Telecommunications strategy?

If MasterCard wants to expand coverage of its network to other parts of the world where the telecommunications infrastructure is poor, especially in the developing world, the company should consider entering into special agreements with cellular carriers, and have its VPN connected to their system. Among some of the possibilities would be entering into agreement with companies offering satellite networks (such as LEOS), since they have a worldwide exposure and a relatively reliable network. However, the operating costs are still very high because the technology is still under development. Nonetheless, it is foreseen that the cost for these services will start to decrease because of increasing economies of scale and wide spread exposure. MasterCard, however should also take into consideration that there are questions about the security and the reliability of the system that should be addressed, and therefore arrange to have its data encrypted in order to avoid "peeky eyes".

The reliability of the network should also be addressed, since cellular transmission can be affected by atmospheric changes, however, the permanent technological improvements taking place to surmount this problem lead us to believe that in the near future there will be increased reliability.