UK: Ethernet's Crowded House
Demand for Ethernet services continues to boom in the U.K., but Europe’s most competitive market can make things tough for service providers, a trend that’s reflected in a global directory of Ethernet services being compiled by Light Reading.
That directory shows that at least 42 companies offer some form of Ethernet service in the U.K., from niche players such as AboveNet Inc., which operates in London as a link for its US coverage, to tiny ISPs offering Ethernet-based Internet access, to large carriers such as BT Group plc (NYSE: BTY; London: BTA) offering service nationwide.
With Ethernet services still in their early phase, providers often have little to differentiate their line-up of basic Internet and point-to-point services aside from price, which is under pressure in the U.K. because of the sheer number of players.
“It’s a very active market with lots of players,” says Barry Goddard, private circuits U.K. portfolio manager at BT Retail. “And there’s a lot of dark fiber in the ground.”
It seems unlikely that number of players can be sustained, though. Neil Rickard, research vice president at Gartner Inc., says that having about 13 major players offering Ethernet services is “ridiculous,” especially when compared with other European countries that tend to have three or four. “We’ve been saying for a year now that the market needs to consolidate,” he says, citing BT’s acquisition of Infonet Services Corp. (NYSE: IN) as a step in the right direction (see BT Buys Infonet).
But while the market remains so competitive it's likely that prices will continue to fall. Goddard at BT Retail admits the U.K. incumbent carrier hasn’t been immune to the pricing pressures, and has had to remain "very competitive as customers become more astute."
Another player that has experienced the pricing pressure is alternative operator Exponential-e Ltd., which has had to scale down its revenue projections this year. Managing director Lee Wade was all wide-eyed optimism in February when he forecast revenues for the year of £5.5 million ($10.4 million) from 450 customers (see Exponential-e: What Yipes Wasn't). But a few months later he told a different story: “Did I say that? I must’ve been in dreamland.” Wade still expects to end the year with 450 customers, but his revenue projection is now £4 million ($7.6 million).
And at COLT Telecom Group plc (Nasdaq: COLT; London: CTM.L), “price erosion” is routinely cited in earnings reports, prompting the pan-European operator to announce a new business strategy with much fanfare about new services and innovation (see COLT Posts Loss, Outlines Plans and COLT Claims Meshed Ethernet Service First).
But maybe the prices are artificially high, and need to be cut. Talking at the launch of COLT's new Ethernet offerings, Gartner's Rickard noted that operators are pricing Ethernet services to avoid cannibalization.
“They’ve got a nice, big, juicy leased line revenue base and they don’t want to compromise that,” said Rickard. “So they tend to price Ethernet services higher than is perhaps necessary."
According to research from Heavy Reading, such tactics will stifle service uptake, as enterprise customers, while keen on the features offered by Ethernet, don't want to pay a premium for them (see Enterprises: We Want Our Ethernet!).
So how are the carriers responding? COLT says its new strategy is to compete by giving customers more advanced services than its competitors with coverage across Europe, and that it has responded to feedback from customers with its hub and spoke, switched Ethernet VPN, and switched Gigabit IP services.
Paul David, managing director of products and innovation at COLT says customers have been constrained for the past few years by a lack of choice, as everyone was offering the same sort of service in the same way. "COLT is trying to take a fresh approach and offer the customers something a little bit different."
Light Reading's Ethernet directory backs up David's assertion, as it shows the majority of U.K. Ethernet services are metropolitan private line offerings. But as the table below shows, there are plenty of operators hoping to differentiate themselves by marketing metro and wide-area multipoint services.
Table 1: Multipoint Ethernet services in the UK
|Service Provider||Service Name||UK Coverage||MAN or WAN|
|BT Group plc||IP Clear Flex||All cities||Both|
|BT Group plc||IP Clear GigE||All cities||Both|
|BT Group plc||MegaStream Ethernet||All country||Both|
|BT Group plc||WaveStream Services (optical)||All cities||Both|
|COLT Telecom Group plc||LANLink Hub and Spoke||London | Birmingham | Manchester||Both|
|COLT Telecom Group plc||Switched Ethernet VPN||London | Birmingham | Manchester||Both|
|COLT Telecom Group plc||Switched Gigabit IP||London | Birmingham | Manchester||Both|
|Easynet||Ethernet Anywhere||Basingstoke | Brighton | Bristol | Cambridge | Carlisle | Coventry | Edinburgh | Glasgow | Gloucester | Hayes | Leeds | Leicester | Liverpool | London | Manchester | Middlesbrough | Milton Keynes | Newbury | Newcastle | Nottingham | Reading | Sheffield | Slough | Stoke | Taunton | Warwick | Woking | Wolverhampton|
|Exponential-e||PowerConnect||Bristol | Birmingham | Leeds | London | Manchester | Newcastle | Nottingham | Reading | Swindon||Both|
|Exponential-e||PowerLink||Bristol | Birmingham | Leeds | London | Manchester | Newcastle | Nottingham | Reading | Swindon||Both|
|Exponential-e||PowerPeer||Bristol | Birmingham | Leeds | London | Manchester | Newcastle | Nottingham | Reading | Swindon||WAN|
|Exponential-e||PowerStar||Bristol | Birmingham | Leeds | London | Manchester | Newcastle | Nottingham | Reading | Swindon||Both|
|Exponential-e||PowerVPN||Bristol | Birmingham | Leeds | London | Manchester | Newcastle | Nottingham | Reading | Swindon||Both|
|hSo||hSo Connect||All cities||Both|
|InTechnology plc||LANnet||Banbury | Birmingham | Brighton | Bristol | Carlisle | Croydon | Edinburgh | Glasgow | Harrogate | Leeds | Leicester | London | Manchester | Middlesborough | Milton Keynes | Newcastle | Northampton | Nottingham | Preston | Reading | Sheffield | Slough | York||MAN|
|Interoute||Ethernet Private Line||London||Both|
|Level 3 Communications Inc.||(3)Flex Ethernet||All cities||Both|
|MCI UK||Private Line Ethernet||All cities||Both|
|Sprint||SprintLink Virtual LAN Service (VLS)||All cities||WAN|
|Stealth Communications Inc.||TLS||London||Both|
|Telecomplete Ltd.||Long Reach Ethernet||All cities||WAN|
|Telecomplete Ltd.||Metro VLAN||London||MAN|
|Telewest Business||Evolved Ethernet||All cities||Both|
|TeliaSonera International Carrier||L2Connect||London||Both|
|THUS plc||City Ethernet||All cities||MAN|
|THUS plc||National Ethernet||All cities||Both|
|Tyco Telecommunictions (US) Inc.||Global Ethernet||London||WAN|
|XchangePoint Europe||Metro VPH||London||MAN|
|Your Communications||LAN Speed (national)||All cities||WAN|
— Nicole Willing, Reporter, Light Reading