WorldCom Unveils Metro Ethernet

WorldCom Inc. (Nasdaq: WCOM) today introduced metro Ethernet services nationwide in what it says is a key step (see WorldCom Launches Metro Ethernet).

The carrier has rolled out a series of services based on point-to-point Ethernet connections, and it says this is just a start. "This is very strategic for us," says Jon Zymaris, director of Ethernet and security at WorldCom. "It is a pillar for us in terms of... new opportunities and growth."

The services include site-to-site links, as well as corporate links to the Internet and enterprise VPNs.

WorldCom is now the third-largest incumbent carrier offering Ethernet services. BellSouth Corp. (NYSE: BLS) offers a series, as does SBC Communications (NYSE: SBC) (see BellSouth Extends Ethernet Services).

Table 1: WorldCom Ethernet Services Profile

	Type of service	Customer interfaces	Bandwidth max	Where offered	Price per month
Metro and WAN private line	Corporate MAN links	Up to 1 Gbit/s	50 Mbit/s, 150 Mbit/s, 622 Mbit/s	84 U.S. cities	"Comparable to ATM and frame relay"
Dedicated Internet	Enterprise access to Internet	10/100 Mbit/s; 1 Gbit/s	1 Mbit/s to 500 Mbit/s	Chicago, Dallas, New York, Northern Virginia, San Francisco, San Jose, Wash., D.C.	$1,200 to $200,000 per circuit
Enterprise private line/VPN	LAN to LAN and corporate network connections	10/100 Mbit/s	1 Mbit/s to 100 Mbit/s	Chicago, Dallas, New York, Northern Virginia, San Francisco, San Jose, Wash., D.C.	$630 to $20,000 per circuit

WorldCom is basing its Ethernet offerings on equipment from Nortel Networks Corp. (NYSE/Toronto: NT), including Nortel's OPTera Packet Edge system, the BPS 2000 Ethernet switch, Passport 8600 Ethernet switch, and Preside management system.

WorldCom's hung this gear off its underlying Sonet network, using a prestandard implementation of Resilient Packet Ring (RPR) technology to provision and manage local nodes. So far, all services are point-to-point from the customer's perspective.

WorldCom says it plans to offer switched services too, like the switched Ethernet VPNs offered by BellSouth. The carrier also says it's looking at alternative suppliers to Nortel.

Hang on. Isn't WorldCom tiptoeing into a minefield? One that's littered with the bodies of carriers who've failed to make a living selling Ethernet? (See Yipes Files Chapter 11: Is Ethernet a Sustainable Business Model? and Cogent Buying Binge: Another Bubble? ) What's to keep WorldCom from miring itself in a sinkhole that exacerbates its already distressed financials? (See Is It Too Late to Rescue WorldCom? and WorldCom's Junk Status Fuels Fears.)

Several things, experts say. First, one of the biggest problems with Ethernet services is that they require high-priced fiber access on the part of business buyers. Startups don't have that access, but WorldCom certainly does.

"The challenges faced by a Yipes are not the same for an RBOC or an established carrier," says Russ McGuire, chief strategy officer at TeleChoice Inc. "Yipes must pay the incremental cost of getting into the customer's building. For others [like WorldCom and SBC], the cost is low."

Even so, there are limitations. The enterprise-based Internet access and VPN services are available right now only in selected cities (see table above), reflecting those locations where WorldCom has most access to buildings.

WorldCom also isn't up to speed with all its offerings. While the intercity MAN links are supposed to reach 1 Gbit/s, they only support 622 Mbit/s right now. Enterprise-based VPN and Internet access are limited to 500 Mbit/s, although 1 Gbit/s is promised. Spokespeople say the current shortfall is simply part of the planned rollout schedule. As demand builds, so will the available bandwidth.

There are other potential problems. Sources aren't convinced there's big demand for Ethernet services right now. For one thing, it's not clear who will be using them, or when, or whether they'll cut into revenues from other services a carrier may offer.

Telechoice, for instance, projects that until 2005, less than 5 percent of business customers will use any Gigabit Ethernet services -- even using an aggressive forecasting model. Using the firm's conservative model, uptake is nil through 2005.

Roderick Beck, an independent consultant based in New York, says WorldCom's new services offer a "user-friendly" interface for business customers who don't want to spend big bucks on a Sonet interface to get higher speeds for corporate data. If these customers can get the bandwidth they need using their Ethernet interfaces, they'll probably go for it. But the size of the market is still a question.

Beck expressed concern that Ethernet services could cut into the revenues carriers get from private lines. That's an issue WorldCom claims it's got under control. Zymaris says the carrier will use "careful positioning" to avoid any erosion.

"We're not focused on Ethernet. Ethernet is not just another access alternative but an enablement tool for other new services, too," he says. "We'll steer customers according to their needs and applications."

— Mary Jander, Senior Editor, Light Reading
http://www.lightreading.com