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Ethernet Services Growth Pulse

With calendar third-quarter 2008 financial results trickling in, I thought it might be useful to provide an update on revenue growth rates for Ethernet business services delivered by key players around the globe. News has generally been positive thus far, which suggests macroeconomic weakness may not have had a significant impact on the Ethernet market through September. The real question is how well will Ethernet providers perform in the fourth quarter of 2008? Is Ethernet recession-proof?

Continued Strong Ethernet Sales Growth
tw telecom inc. (Nasdaq: TWTC) reported that its data and Internet services revenue grew 5 percent quarter-over-quarter and 24 percent year-over-year to $102.3 million in the third quarter of 2008. This growth was identical to the sequential and year-over-year growth rates reported for the second quarter of 2008 and was again driven primarily by good demand for Ethernet- and IP-based solutions.

KDDI Corp. , the leading Ethernet service provider in Japan, reported that its wide-area Ethernet services revenue grew 15.6 percent year-over-year to $184.5 million (¥18,112 million) in its fiscal second quarter of 2009 ending in September 2008. This is identical to the year-over-year growth rate reported in the previous quarter. KDDI's Ethernet enterprise customer base reportedly grew 12 percent during the past 12 months.

Pan-European operator Colt Technology Services Group Ltd said that solid Ethernet demand among large enterprise, wholesale, and small and medium-sized businesses (SMBs) helped to fuel 12 percent year-over-year growth in corporate data services revenue (measured in constant currency). This is similar to the 13 percent year-over-year growth reported in the previous quarter. COLT highlighted Ethernet as the fastest growth engine in its service portfolio.

AT&T Inc. (NYSE: T) reported that regional IP data and Ethernet sales grew 18.9 percent year-over-year to $535 million in the third quarter of 2008. Ethernet revenues have been increasing during 2008, but they still appear to account for less than 20 percent of combined regional IP data and Ethernet sales.

Carrier Ethernet services innovator Optimum Lightpath reported that corporate revenues grew 2 percent sequentially and 13.4 percent year-over-year to $62.7 million in the third quarter of 2008. This is slower than the 20 percent year-over-year growth reported in second-quarter, but Ethernet services sales continued to grow faster than total sales.

Strong Traction for New Ethernet Service
This week, BT Group plc (NYSE: BT; London: BTA) reported that it is experiencing rapidly growing demand for its new Ethernet service launched on the 21CN network in October 2008. BT has deployed next-generation Ethernet platforms in 110 nodes and plans to increase that number to 600 nodes in the U.K. by April 2009.

Notable Ethernet Sales Slowdown
In sharp contrast to KDDI, NTT Communications Corp. (NYSE: NTT) reported that its Ethernet services sales actually fell 3 percent quarter-over-quarter and rose only 3 percent year-over-year to $135.4 million (¥13,291 million) in the quarter ending in September 2008. This compares to a 9.5 percent year-over-year growth rate for Ethernet sales in the previous quarter. Competition appears to be a drag on NTT Com's Ethernet business. The operator reportedly had no noticeable growth in the number of business customers using its e-VLAN service between September 2007 and September 2008.

— Stan Hubbard, Senior Analyst, Heavy Reading

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