HR Sees Ethernet Services Explosion

Many telecom service providers are abandoning conservative growth strategies adopted after the telecom crash and are pushing aggressively into the Ethernet services market as they look for ways to recoup losses from aging voice and data service products, according to a new report, “Carrier Ethernet Services: Who’s Doing What,” released this week by Heavy Reading, Light Reading's paid research division (see Converge It & They Will Come, HR Sees Ethernet Services Surge).

The report looks at more than 330 different Ethernet-based services from 75 carriers in North America including AT&T Corp. (NYSE: T), BellSouth Corp. (NYSE: BLS), SBC Communications Inc. (NYSE: SBC), Verizon Communications Inc. (NYSE: VZ), and other local incumbent operators, long-distance carriers, competitive providers, metro Ethernet service specialists, cable network operators and service wholesalers.

“The emergence of the Ethernet services market is leading carriers to rethink their conservative rollout strategies, with some carriers even taking the ‘build it and they will come’ approach widely adopted in the telecom bubble era,” writes Stan Hubbard, Senior Analyst at Heavy Reading.

While the report found that Ethernet services are in an exciting growth period, it notes that there are a number of challenges still to be overcome before Ethernet solutions can take root and become ubiquitous. Challenges include the need to expand the service footprint, strengthen service management, and to develop strategies for service targeting and portfolio management.

Because the business case for Ethernet is so compelling, network operators can charge ahead without worrying whether it will develop into a huge market. The report notes that the Ethernet services market can grow into the multibillions of dollars over the next few years by simply supplanting the huge legacy TDM private line, ATM, and Frame Relay markets.

“Much of the competitive advantage in the Ethernet services market will go to those carriers that can claim large coverage areas either on their own or through partnerships,” Hubbard writes. Thirteen service providers have emerged as the leaders in delivering Ethernet services, the report notes. These include the Bell companies, major long-distance carriers AT&T, MCI Inc. (Nasdaq: MCIP), and Level 3 Communications Inc. (Nasdaq: LVLT), and aggressive competitors AboveNet Inc., Masergy Communications Inc., OnFiber Communications Inc., Time Warner Telecom Inc. (Nasdaq: TWTC), XO Communications Inc. (OTC: XOXO), and Yipes Enterprise Services Inc.. As a group, these carriers account for about a third of all North American Ethernet services, having introduced more than a dozen Ethernet services or major features in the past year, and have plans for rolling out new capabilities and services over the next two years.

The report features a complete breakout of all available Ethernet services by service type and geographic scope as well as defining the five market drivers for carrier Ethernet services, which are: Ethernet benefits; carrier and vendor enthusiasm; industry trends and standards activity; customer needs; and external events and mandates.

Along with taking a comprehensive look at each carrier’s Ethernet service offerings, the report details service pricing strategies, giving both buyers and sellers of Ethernet services important insight into how Ethernet service pricing models are developing.

Table 1: XO Communications Ethernet Service Sample Chart
Service Type Ethernet Virtual Private Line & Virtual Private LAN
Geographic Coverage Inter-metro
Service Name Multitransport Networking Service (MTNS) � VLAN Service
Description Multipoint-to-multipoint interconnection over an MPLS-enabled IP infrastructure (using technology based on the Draft Martini standard). Customers may configure up to 1,024 802.1Q VLANs per physical Ethernet port to provide connectivity as needed. Customers may also have a VLAN to the Internet at no additional cost.
Data Rates 10 Mbit/s, 100 Mbit/s, 1 Gbit/s. Speeds may vary from site to site.
Service Performance 100% availability, 65ms average latency, 99.8% packet throughput objective, and four-hour mean time to repair (MTTR). Customers select a level of committed bandwidth for each port (at or below port speed) and may burst above this level � burst charges may apply. In addition, customers have the option to prioritize one VLAN over another on any given port. Any single VC or combination of VCs can burst to full port speed.
SLA / Billing Comments Offers SLAs for availability, latency, packet throughput, and MTTR. Provides Web-based reporting and monitoring tool called XOStats. This service provides a lower entry cost than XO's traditional inter-city Transparent LAN service. Customers are billed for a committed rate per port, and they are charged for any usage above that rate up to the full bandwidth of the port, based on the 95th percentile.
Technologies Edge Router, Switch Router, MPLS
Coverage 63 markets
Applications LAN-to-LAN interconnection, applications requiring high bandwidth, Internet access, storage extension.
Target Market Large and medium-sized businesses with geographically dispersed locations, especially ones seeking to replace legacy networks with a single private data network solution. All sites are required to be on-net for this service.

“One thing that is clear from our research is that operators are moving in the direction of providing more and more robust, carrier-class features at competitive price points that should make it difficult for enterprises and other customers not to choose Ethernet over alternative data services,” Hubbard writes.

“We firmly believe -– and Heavy Reading survey data supports this view -– that it is simply a matter of time before the Ethernet service market overtakes the legacy data markets as carriers begin to cap investments in ATM and Frame Relay services.”

— Chris Somerville, Senior Editor, Next Generation Services

Light Reading's Carrier-Class Ethernet in China roadshow will provide an invited audience of senior decision makers from service providers in China with a unique education in how to design and deploy profitable Ethernet services, employing original research written and presented by Heavy Reading analysts.

In Shanghai on Nov. 30 and Beijing on Dec. 2, those interested may register for it

Light Reading's Triple Play 2004 roadshow will take its audience on a tour of the infrastructure and services that are fueling the new broadband revolution.

  • Register for the Dec. 7 Washington event here.
  • Register for the Dec. 9 Dallas event here.
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