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Ethernet Executive Council Q&A: Tinet & Neutral Tandem

3:15 PM -- In September 2011, Heavy Reading launched the global Ethernet Executive Council with the goal of honoring senior service provider professionals who are helping drive Ethernet and cloud services market growth and shaping the direction of the industry. The Ethernet Executive Council now has 100 members from 63 companies. This is the first in a series of planned Question and Answer interviews with Council members.

I recently had the chance to chat with Council member Paolo Gambini, the chief marketing officer of Tinet , and his Neutral Tandem Inc. (Nasdaq: TNDM) colleagues: President and COO Surendra Saboo and Regional Vice President of Sales Jeff Beer. Neutral Tandem acquired Tinet in 2010 and has placed a strategic priority on leveraging the company’s global network to support end-to-end delivery of wholesale IP, Ethernet, and voice solutions. Gambini was a popular speaker at our Ethernet Europe event in April 2011, and Beer will be participating in Ethernet Expo Americas (November 8 and 9, 2011).

Heavy Reading: Back in April 2011, you launched your EtherCloud service. The name, in a nutshell, appears to capture the industry’s shift toward on-demand, Ethernet-enabled cloud services. Can you briefly describe the service and the role you see Tinet and Neutral Tandem playing in both the Ethernet connectivity and cloud services markets going forward?

Saboo: EtherCloud hits to both the trend in Ethernet services and the trend with the cloud. We have two perspectives on the cloud. First, our network is a cloud, so to say. We’re giving customers end-to-end connectivity services and continuing to expand our network through partnerships around the globe. Customers want to go from point A to point B, and we take on the responsibility to provide that. The other aspect of it is that a lot of cloud service providers bundle in network connectivity for their customers -- usually as a managed service. We offer them that network connectivity.

Heavy Reading: Are you offering or do you plan to offer IaaS, PaaS or SaaS solutions either on your own or in cooperation with a cloud partner?

Saboo: That is where we want to go. Clearly, we have the Layer 2 service. Our network and the connectivity also allow for cloud services. We can take this global network, this connectivity, and now build on it several services, including IaaS and SaaS. I believe that is where the future is, at least for us. We’ll start out with cloud partners.

Heavy Reading: How does EtherCloud differ from the original concept of an Ethernet exchange?

Saboo: We have looked at what the customers want. It is not simply the idea of a cross-connect. People want a total end-to-end connectivity service with one provider that meets their needs globally. We stand behind one price, one SLA, one person to come to for management. We work with multiple partners at the regional and metro level that have Ethernet network-to-network interconnections with us and provide performance monitoring and SLAs. We see a lot more traction with EtherCloud than we saw with the exchange.

Heavy Reading: Can you give us a feel for what that traction means in terms of business?

Gambini: Sure. Since the launch of EtherCloud about six months ago, we’ve sold over 50 new customers and we’ve sold over 110 new services to existing customers. As of the second quarter of 2011, we had 152 customers subscribing to 339 Gbit/s of billable EtherCloud bandwidth.

Heavy Reading: You mentioned performance monitoring. How are you getting those performance stats?

Beer: We proactively try to peer with our metro partners, typically through Y.1731 service OAM. But people are still warming up to that idea.

Gambini: We're working with a set of requirements that comply with MEF OAM standards. In some situations, we may not have the choice to do performance monitoring -- for example, if OAM is not supported by a partner. We are looking at Ethernet demarcation devices, or NIDs, that will enable us to monitor services end-to-end. We are testing them in the labs and will deploy them soon for SLA monitoring and assurance in those situations where our partner does not have their own service OAM.

Heavy Reading: With EtherCloud, what kind of services are your customers most interested in buying -- dedicated Ethernet private lines, hub-and-spoke virtual private lines or virtual multipoint services?

Gambini: About 60 percent are point-to-point, and around 40 percent are VPLS. We have not seen much interest in hub-and-spoke.

Heavy Reading: Given that you are a wholesale provider, I would have thought that hub-and-spoke would be more popular.

Beer: We find customers choosing VPLS partly because it is superior to a hub-and-spoke solution.

Gambini: VPLS is more optimized. For latency-sensitive applications, it is far better.

Heavy Reading: What do the growth rates look like when you compare point-to-point vs. VPLS?

Gambini: VPLS is growing faster. There are more point-to-point opportunities, of course, but VPLS is growing faster. VPLS is a Layer 2 replacement for some Layer 3 VPNs.

Beer: What we see is there is a ton of opportunities for point-to-point because that's what people start with. But what's really exciting are some of the bigger deals we're bidding on for VPLS. That’s not just carriers selling to enterprises, but for the carrier's own backbone.

Heavy Reading: Do you have any plans to sell Layer 3 VPN services?

Gambini: We are not looking at Layer 3 VPNs. We believe that to a large extent the technology is going to Layer 2 for a number of reasons, including total cost of ownership. Layer 2 is cheaper, and it's easier. As contracts expire for Layer 3 VPNs, they'll look at Layer 2. Layer 3 VPNs are a declining technology.

Heavy Reading: One final question before I let you go -- what’s your sense for how the overall Ethernet market has performed during the economic downturn?

Gambini: Some regions are being affected more by the crisis -- mainly Eastern Europe, which has been hit badly and has not yet recovered. Other regions are growing better. Southeast Asia is holding up well. And we see a lot of interest in EtherCloud in parts of Africa, some areas of which previously were accessible only by satellite.

Beer: Ethernet is the ideal solution for the times that we are living in. I haven't seen a downturn in opportunities in North America. What I see is that companies are looking for Ethernet as a way to gain more bandwidth at a similar cost to the TDM infrastructure that they had in place. The ability to scale and even burst in certain situations is proving valuable. The focus on cost savings plays in Ethernet’s favor.

Heavy Reading: Thanks for your time, Paolo, Surendra, and Jeff. I look forward to catching up with you at the Expo.

— Stan "EtherMan" Hubbard, Senior Analyst, Heavy Reading, and Chairman, Ethernet Expo Americas 2011

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