3GPP Long Term Evolution (LTE) is one of the most advanced technologies in the wireless and mobility field because it provides high speed data and sophisticated applications. LTE was originally deployed by service providers on various platforms using separate dedicated hardware in Access radio layer and the Evolved Packet Core network layer (EPC), thereby limiting the system's flexibility and capacity provisioning. Thus, the concept of virtualization was introduced in the EPC hardware to solve the dedicated hardware platform limitations. It was also introduced in the IP Multimedia Subsystem (IMS) and Machine to Machine applications (M2M) for the same reason. This paper provides a simulation model of a virtualized EPC and virtualized M2M transport application server connected via an external IP network, which has significant importance in the future of mobile networks. This model studies the virtualized server connectivity problem, where two separate virtual machines communicate via the existing external legacy IP network. The simulation results show moderate performance, indicating that the selection of IP technology is much more critical than before. The paper also models MPLS technology as a replacement for the external IP routing mechanism to provide traffic engineering and achieve more efficient network performance. Furthermore, to provide a real network environment, Poisson Pareto Burst Process (PPBP) traffic source is carried over the UDP transport layer which matches the statistical properties of real-life M2M traffic. Furthermore, the paper proves End-to-End interoperability of LTE and MPLS running GTP and MPLS Label Forwarding information Base (LFIB) and MPLS traffic engineering respectively. Finally, it looks at the simulation of several scenarios using Network Simulator 3 (NS-3) to evaluate the performance improvement over the traditional LTE IP architecture under M2M traffic load.