Where's the Mobile Love for Ethernet Exchanges?

The economics of using Ethernet exchanges to enable mobile backhaul are compelling, but there's been no major uptick of sales, says one Carrier Ethernet analyst, Infonetics Research Inc. 's Michael Howard. However, he still expects those sales to come at some point.

CENX Inc. Founder and CEO Nan Chen goes further, predicting wireless backhaul will be the majority of traffic for his company, in the wake of its first announced wireless backhaul deal with LightSquared . (See CENX to Support LightSquared Rollout.)

The CENX announcement comes on the heels of LightSquared's deal with Sprint but, according to Chen, is complementary to that deal. CENX will enable LightSquared to inventory and monitor Ethernet access circuits provided by its backhaul providers including Sprint, which will carry the largest amount of backhaul traffic. (See Sprint, LightSquared Strike Agreement.)

Chen points out that Ethernet exchanges, and CENX in particular, enable a wireless operator to come into a market and, from one connection, reach all the cell towers in that market with Carrier Ethernet, no matter how many different access networks that requires. The exchange delivers simplicity of network operation and lower cost at the same time, by as much as 30 percent.

Without the exchange, the mobile operator has two less efficient alternatives. It can deal with multiple carriers to reach every wireless tower in a market, which is more complex and less efficient, Chen argues. Or, it can choose only one carrier and pay more for that carrier to either build new fiber to reach any towers outside its network, or lease that capacity.

"It is hard to deal with individual cell sites -- they are so scattered even in one metro," Howard agrees. "So this [connecting through an Ethernet exchange] is a huge simplification. I expected it to take off quickly, but it hasn't."

Using Carrier Ethernet for mobile backhaul also can help wireless network operators lower the cost of handling the flood of mobile data by offering two different classes of service (CoS) -- one for real-time traffic such as voice, that mirrors what TDM backhaul does today, and one for data traffic that isn't latency sensitive, Chen says. Operators can save up to 20 percent using a data CoS.

Yet, Howard points out, a lot of mobile operators aren't taking advantage of this potential benefit, but are using Carrier Ethernet as a direct substitute for TDM backhaul, at least for the time being. Either they are asking for real-time CoS, or they are keeping their voice traffic on TDM backhaul such as T-1s, for timing and quality of service, and only moving mobile data to a Carrier Ethernet backhaul.

Chen argues that this kind of business model is unsustainable going forward. He also believes CENX has a specific advantage over competitors such as Equinix Inc. (Nasdaq: EQIX) and Telx Group Inc. because it is facility-neutral, and doesn't have to bring traffic through its own data center.

CENX will still have to deploy interconnection facilities widely, Howard says, and he credits Equinix with greatly expanding its footprint through its Switch and Data acquisition. (See Equinix Reports Q3, Buys Switch & Data.)

"Switch and Data had lots of Tier 2 and Tier 3 locations," Howard says. "Equinix has big data centers, but they bought these less populous sites in order to have footprint in North America."

— Carol Wilson, Chief Editor, Events, Light Reading

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