Ethernet services

Value Is Key to Ethernet Service Growth

How will service providers tap the emerging market for metropolitan Ethernet services? They've got to innovate more specialized offerings in order to attract customers.

So says a recent report from The Yankee Group, which predicts that value-added retail services based on Ethernet will comprise $2 billion of a total $4 billion market for Ethernet services in the U.S. by 2006.

"We expect several value-added services will see explosive growth in the next three to four years, including storage-area networks, IP VPNs [virtual private networks], and content delivery," writes Yankee senior analyst Nick Maynard. "Although other value-added services like [voice over IP] and video conferencing will be an important part of the overall product strategy, they will not be long-term drivers of significant revenue growth for Ethernet providers."

The report cites the following key players: Cogent Communications Inc., FiberCity Networks Inc., GiantLoop Network Inc., IntelliSpace, XO Communications Inc. (Nasdaq: XOXO), and Yipes Communications Inc. Yankee identifies these carriers as the "survivors of the metropolitan provider shakeout."

"All of these companies have recently received significant funding rounds and are deploying their networks in Tier 1 metros to serve enterprise customers without relying on RBOC facilities," writes Maynard.

There is evidence that at least a few of the service providers cited by Yankee as survivors aren't out of the woods yet. Cogent, for instance, continues to sustain losses (see Cogent's Finances Revealed in Filing). And there's evidence that other players, such as Yipes and Telseon Inc., are scaling back (see Metro Providers Retrench and Telseon: Running out of Road?).

The carriers set to offer these services are independent providers that aren't burdened with legacy networks the way RBOCs and IXCs are. They have lots going for them: They can upgrade services quickly; having spent less than CLECs on their facilities, they are well-positioned to start peddling new offerings; and, thanks to an ongoing market shakeout, they're facing a minimum of direct competition.

According to Maynard, metro carriers will also need to maintain a mix of value-added services, instead of sticking to just one type. This strategy should enable them to circumvent the problems undergone by those carriers that failed in attempts to offer just one service -- the so-called application service providers (ASPs) and storage service providers (SSPs).

— Mary Jander, Senior Editor, Light Reading
gea 12/4/2012 | 7:35:31 PM
re: Value Is Key to Ethernet Service Growth Now this seems a lot more sane than the Pioneer consulting report (or at least Pioneer's own description of it!). And the statements Yankee seems to be making concerning "scaling back" the target of services to mundane things such as VLAN and VPN services seems to make a hell of a lot of sense. At least, VLAN services across the metro and VPNs will probably be the platform upon which things like VoIP and teleconferencing will be built.
optigirl 12/4/2012 | 7:35:30 PM
re: Value Is Key to Ethernet Service Growth Gea:

This might sound a bit more reasonable but I have a few questions that the author of this story seemed to gloss over:

1. Would you bet your money on companies like Cogent (who generated $90K in revenues vesrus how many millions in losses) or XO who's stock is barely above the NASDAQ delist range?

2. Why would any IT manager buy services from companies with financials like these "wannabes"? Would you trust your mission critical apps to Cogent, Yipes or Telseon? Also....the SAN market seems to be following the same downward trend that other overhyped and economically challenged sectors are right now.

3. The growth curve seems strangely familiar....start from nothing and zoom upward.
I would agree with the low numbers early on but the ramp up is too steep. Prove to me that the big boys are going to get in on this and I will take it less skeptically.

I would really have to know more about why Yankee feels the way they do. I do not have any experience in Yankee research although having asked around it seems that they have gone down hill quite a bit from the early 90's and have instead gone the route of other market research firms who have allowed their names to become synonomous with "being for sale" if you know what I mean.....

ta ta...

edgecore 12/4/2012 | 7:35:29 PM
re: Value Is Key to Ethernet Service Growth
Finally a report that talks about metro services and doesn't refer to managed wavelength services!

What I do caution is that whenever people talk about SAN services, they need to be careful. Very few, if any, carriers have had any success with SAN services today (real time disk mirroring, disaster receovery, back up and archival).

SAN` services touch an area of great nervousness within the Fortune 1000, who have concerns about outsourcing the crown jewels to a storage carrier/provider. Maybe less crucial stuff like tape backup, but for realtime stuff or disaster recovery they would prefer to go with a private outsourcing model where an IBM or an SNI would actually go on their site and manage it from the inside.

Enterprises have mostly purchased and installed their own DWDM boxes to extend their storage channels themselves. This is also very painfull as SAN equipment from different vensord doesn't always plug and play!

SSP's, who thought that people would pay for a fiber lateral to any site, plus pay to extent Fibre Channel connections quickly saw those plans disappear! Cost of the connections plus the general insecurities with outsourcing your corporate data storage are not fully accepted yet.

I hear a lot of talk about SAN's, but the numbers that have been projected over the last year or so seem somewhat optimistic.


Steeler 12/4/2012 | 7:35:25 PM
re: Value Is Key to Ethernet Service Growth When will these guys learn that most services never experience "explosive" growth. The easiest connections to sell right now are Frame Relay UNIs and T-1s. The "value" is that they don't depend on expensive fiber laterals. Yankee is either naive or trying to sell this report to the providers it mentions.
gea 12/4/2012 | 7:35:22 PM
re: Value Is Key to Ethernet Service Growth Optigirl:
Well, you make some good points.

What I find a little funny, now that you mention it, is that (according to the Lightreading report), the Yankee group report is focusing on "Ethernet Carriers"..ie, carriers that don't use a SONET-mapped technology.

Well, it is certainly possible to provide Metro Ethernet services over a SONET platform, so if they think that VLANs and VPN are tied to native Ethernet in the MAN, and that's why these carriers will do well, then I agree they've got their work cut out for them.

I, however, do indeed believe that these SERVICES will be big growth areas in the near future, and work for a startup that is betting this is best done within Ethernet. That said, let me say that the difficulties of doing this are not trivial, and that making a case that this is a better approach then SONET (for delivering these Layer-2 based services) is a hard one, if one knows the facts and understands the issues.

Ethernet will have its day--it ain't the death of SONET for sure, but we (and other suppliers) will pound it and mold it into a fairly useful, low-cost shared medium for Ethernet service delivery. As for the carriers listed, some will die but probably a couple (along with others) will stumble upon a business model that will focus on Ethernet and that will give them a decent amount of success.
optigirl 12/4/2012 | 7:35:21 PM
re: Value Is Key to Ethernet Service Growth If the point of their report was that "Value Added" services will be supplied over Ethernet, then that is a debateable point.

If we are to bet on the success of Metro Ethernet based on the demand for new services, well, that's something that I would say needs to be proven. I recall technologies like ATM, FTTX, VOIP that were supposed to provide us with new ways to make money (or save it if you were an end-user) but never came to pass. Ever consider what became of Sprint's ION service? (Failed) And what about AT&T's Inc.? Have not heard much on that one.

If you are going to argue that new services are going to be sold by these carriers and that stronger and more financially stringent companies are going to dump their existing providers and go with them then I fear you have drank the proverbial Kool-Ade. Again, I stress that large companies are not going to invest their money or bet their success on marginal companies. Doing so would be career suicide.

I have no problem with pro-Ethernet arguements with respect to cost and allowing new players to compete against the carriers but what Yankee is claiming is simply misguided and shows either that they don't have any clue about the industry or that they are simply pandering to their clients. Sure, the small business person will consider the 2nd and 3rd tier providers for cost reasons but beyond that.....

gea 12/4/2012 | 7:35:14 PM
re: Value Is Key to Ethernet Service Growth Well, Optigirl, i think a lot of your scepticism is warranted, but you're almost starting to sound like Harvey Mudd here!
I agree that predicting "explosive growth" for a market that practically doesn't even exist yet is a little...speculative, shall we say. But, I think there's some reason to believe that the time is drawing near for a picture similar to what seems to be described in the report.

Now remember, I'm not trying to say that Ethernet will necessarily be the physical medium over which these services will be delivered, but it seems likely that Ethernet frames (either over an Ethernet physical layer, over SONET, or over Ethernet over SONET frames as in the 10GbE standard) WILL be a source of service delivery. Why? Well, I'll tell you...

Remember that Ethernet has won the LAN wars. For several reasons, I think that extending some aspects of Ethernet out into the MAN will make sense (cost, simplicity vs Layer3, lots of knowledgable LAN administrators on the market...). But if multiple customers (which are likely small/medium businesses) now share a single MAN medium, service creation is almost a necessary byproduct of that model. Some customers will be satisfied with best effort, some will not. Some will need bandwidth guaruntees, some will not. Some will want bridged-VLAN services, some will not. These are already "services", though they don't seem like it. Other more sophisticated services will follow eventually, once customers move into a service paradigm.

At least probably. If you listen to the Guilders of the world, then you'd think every person and business in the world will be issued their own optical wavelength. But even then, when that wavelength hits a big router, you have shared bandwidth resources. The service provider that successfully pushes that savings out towards the edge will probably do very well, but there willbe lots of casualties before the industry figures out how to do this in a way that makes money.
optigirl 12/4/2012 | 7:35:06 PM
re: Value Is Key to Ethernet Service Growth >>Well, Optigirl, i think a lot of your scepticism is warranted, but you're almost starting to sound like Harvey Mudd here!....

Them's fighten words, bud.


I'm just voicing an opinion and I don't disagree with some of the arguments for Ethernet. I'm just not as optimistic as you seem to be but then again, I don't have as much to gain as you seem to.

On to something new....

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