Q&A: Equinix - Carrier Ethernet Exchange Update

10:35 AM -- Against the backdrop of Ethernet Europe 2011 in London, I had the chance to discuss Equinix's Carrier Ethernet Exchange with Jim Poole, General Manager of Global Networks, Mobility, and Content. Jim's company is a global provider of interconnection and other data center services, including the Carrier Ethernet Exchange and the IP Exchange that are offered within its carrier-neutral International Business Exchange (IBX) data centers. The total traffic on Equinix's Internet Exchange reportedly surpassed the Terabit per second milestone in fourth quarter 2010. Equinix has one of the largest colocation footprints in the world and is the biggest player in the emerging Carrier Ethernet exchange market.

The following are highlights from my interview with Jim:

Heavy Reading: It has been one year since you officially launched your Carrier Ethernet Exchange program during last year's Ethernet Europe event. Before we get into a progress update, I am wondering if you could put the Carrier Ethernet Exchange into context in terms of Equinix's overall business.

Equinix JCP: Great question! Equinix is typically categorized as a 'data center' company ... and we DO operate 92 IBXes (International Business Exchanges). However, the focus of our business is interconnecting ecosystems. We started out over a dozen years ago by helping to solve the IP Peering challenges of the period. Interconnection was difficult, expensive and more art than science. It was difficult for carriers and almost impossible for anyone else ... like content companies. Today, our IP Peering Exchanges are some of the largest in the world. Overall, we are the largest global provider of interconnection services and this is where our Ethernet Exchange plays a key part in our corporate strategy. We believe that Carrier Ethernet Exchanges play a similar role to the IP Peering Exchanges. What IP Peering Exchanges did to easily interconnect Internet networks and then content, Carrier Ethernet Exchanges will do to interconnect private data networks and then cloud resources.

HR: For potential customers who may not be familiar with the Carrier Ethernet Exchange concept, can you provide a quick overview of how it works and what type of information is available within the Equinix Marketplace Web portal?

Equinix JCP: Conceptually, it's pretty straight forward. There are three major components: a set of many-to-many ENNIs, a Layer-2 switching platform and a Customer Portal. The ENNIs creates the community of Ethernet networks. The Layer-2 switching platform performs protocol normalization and business-class mappings between divergent services offerings. The Customer Portal allows users of the Exchange to discover lit buildings, see the platform's operational status, route RFQs and discover service information from other members. The first two components are pretty standard between all Exchange providers. The Customer Portal is really where we create the most value for the user community. Today our portal caters primarily to the Networks in terms of the basic building and service discovery I mentioned above. However, we're currently adding the capability of discovering other resources, such as cloud services, that are linked through the Ethernet Exchange. Our long term plan is to evolve the portal into a true "marketplace", where all types of services can be discovered, bought/sold and interconnected anywhere in Platform Equinix. By later this year, you'll be able to interconnect best-of-breed Network providers, compute services, storage and popular SaaS applications through our marketplace.

HR: How many customers are now participating in your Carrier Ethernet Exchange? And how do you define participation? Have they input buyer and seller information into Equinix Marketplace? Have they run test or live traffic?

Equinix JCP: We currently have 45 participants on the Exchange. We define participation as either having a commercial contract in place or being part of our initial trial. We're up to just shy of 5M lit buildings loaded into our portal. About half the members are completely in the portal. All but about two or three are in the 'on-boarding' process. The last two or three are new participants, so of course they take a bit longer. There's still some testing occurring, depending on when the member joined, however we're now seeing production traffic. In fact, we've recently seen a couple 10G upgrade orders come through.

HR: In our interview last fall, you mentioned that your Carrier Ethernet Exchange was active in eight markets - London, Paris, New York, Los Angeles, Chicago, Washington, D.C., Silicon Valley, and Tokyo. Have you added any markets since then? And what's your latest plan for active markets by the end of 2011?

Equinix JCP: Indeed we have ... we've been busy! We currently operate Carrier Ethernet Exchanges in 15 markets: London, Paris, Amsterdam, Frankfurt, Toronto, New York, Los Angeles, Dallas, Chicago, Washington DC, Silicon Valley, Seattle, Atlanta, Hong Kong and Tokyo. We expect to have two more markets in operation by July: Sydney and Singapore. We see potential for three more markets by year end, depending on customer demand. We're currently talking to customers about markets such as Denver, Miami and Sao Paulo, for example.

HR: What type of customers have lined up to participate in the exchange? What are their primary motivations for involvement?

Equinix JCP: On the network side, we see most of the current interest in the Tier 2 or competitive access marketplace. Remember, we know that most of the primary relationships between the major carriers are across private ENNIs. We don't expect that to change. Carrier Ethernet Exchanges provide great value for competitive players to find new partners with unique assets and pick up incremental business outside of the established business relationships. Many private ENNIs have usage commitments and we hear a lot of our participants using their Exchange presence to find alternative access providers once they fulfill their primary commitments. Also, we're seeing strong demand from the MSO community. Many of them didn't historically have wholesale offerings and they're viewing the Exchange as a channel to a new market. Finally, even the large players see value in extending their market reach. Large wholesale networks may do 90 percent of their volume through private interconnects, but they still don't touch every potential partner. The Exchange is an excellent way to get that next 5-10 percent of the market that you can't economically justify with a private ENNI.

HR: During Equinix's earnings call in February 2011, CEO Steve Smith said that the massive shift to virtualization and cloud computing is driving public and private cloud nodes into your data centers. You mentioned last time that some cloud providers are looking to use your exchange as a private access aggregation method. Can you elaborate a bit on the potential role of the Carrier Ethernet Exchange can play when it comes to enabling cloud-based applications?

Equinix JCP: The most interesting Ethernet Exchange dynamic we see playing out is with the cloud community. Aggregating private access is not typically in the core competency of cloud providers. They see a lot of value in terms of their ability to either buy network access or partner with Networks in order to link their services to private data networks. Most corporate IT sits inside a private WAN today and the movement toward cloud isn't going to change that. Instead, there's a growing demand for quick, scalable means to interconnect far-flung IT resources. On the flip side, we've had several of our network partners voice the inverse of this problem. They're being approach by cloud providers who effectively want a private ENNI. The networks see the promise of cloud, but are wary of the CAPEX implications of tying up a lot of ports without hard commitments. Carrier Ethernet Exchanges provide an elegant solution by bringing together a large community of IT resources and distribution networks, across a far more scalable switch fabric. Each party improves their capital efficiency, while decreasing their time to market. It's a win-win for everyone.

HR: Jim, thanks for taking the time to visit.

- Stan "EtherMan" Hubbard, Senior Analyst, Heavy Reading, and Chairman, Ethernet Europe 2011

uglygeorge 12/5/2012 | 5:07:51 PM
re: Q&A: Equinix - Carrier Ethernet Exchange Update

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