Where Carrier Ethernet Is Going
Heavy Lifting Analyst Notes Stan Hubbard, Director, Communications & Research, MEF 2/3/2006
Below, I highlight several major Ethernet-related developments we can expect in 2006, drawing upon recent engagements with many operators, vendors, and other experts, as well as survey feedback that Heavy Reading received from service providers last fall.
Carrier Ethernet will increasingly become the technology of choice for network access, metro transport, and traffic aggregation. Large and small carriers around the world are embracing Ethernet as a critical convergence technology. We used to hear talk about IP dominating the network, but – as a Richard Klapman, a senior AT&T Inc. (NYSE: T) data services official, stated last October – it is now clear that "Ethernet will eat everything," given that it is becoming the common denominator over which other services and applications will run. (See Light Reading's Ethernet Expo: Day One and Light Reading's Ethernet Expo: Day Two.)
As for transport, Ethernet inventor Bob Metcalfe shares his view that Ethernet will continue to slowly replace the legacy TDM network: "Ethernet is killing Sonet. It will be a long, painful death. There is now a major substitution going on. As Sonet is rolling out the back door, Ethernet is going in the front door." (See Metcalfe Places Broadband Bets.) The recent Heavy Reading report Sonet/SDH-to-Ethernet Migration Strategies includes survey feedback from operators that sheds light on this trend.
Intensifying competition in the carrier Ethernet equipment market will drive price/performance improvements that benefit operators but will force individual suppliers to tighten up their business models to avoid being marginalized. Carrier Ethernet is one of the hottest areas of innovation right now, with equipment vendors adding more robust features to practically every major type of Layer 0 to Layer 3 product that will go into networks over the next few years. This is great news for operators looking to roll out cost-competitive Ethernet services that match or exceed the performance characteristics of legacy data services or seeking to use carrier Ethernet to converge their enterprise, residential triple-play, or wireless backhaul traffic. But all of this activity poses risks to the vendors, even in one of the wireline industry's fastest-growing sectors.
The carrier Ethernet switch/router market, which I've been tracking closely, has nearly 15 suppliers that are rolling out new platforms and significant feature upgrades on a regular basis. Up until recently, these vendors enjoyed a bountiful hunting ground – but the competition is starting to stall the growth of some of the smaller players as larger suppliers such as Cisco Systems Inc. (Nasdaq: CSCO) and Alcatel (NYSE: ALA; Paris: CGEP:PA) snag the business of big-spending carriers. We also are seeing significant investment among optical vendors focused on delivering new packet service provisioning platforms and other Ethernet-friendly solutions that will create challenges and opportunities for MSPP and CWDM/DWDM vendors.
With technological change occurring at breakneck speed, it will be critical for vendors to introduce their carrier Ethernet platforms into multiple customer networks as quickly as possible once a product is fully baked. Vendors who are able to establish and maintain strong sales channels and alliances will have the best chance of rapidly bringing products to market and extending product lifespan in the market. What makes the sector a bit mysterious right now is that a lot of Ethernet-related partnerships involving large and small vendors remain unannounced.
MEF carrier Ethernet equipment and services certification programs will help broaden the appeal and availability of feature-rich Ethernet services. One of the most noteworthy developments in 2005 was the launch of the MEF Carrier Ethernet Equipment Certification program, which establishes a base set of feature requirements for supporting next-generation Ethernet services. MEF 9 got things rolling by testing compliance with user network interface requirements for E-Line and E-LAN services. More than 40 platforms from about 16 vendors have already passed those tests. The next phase of equipment testing, involving MEF 14, will be more rigorous because it deals with service performance (frame delay, frame delay variation, and frame loss) and bandwidth profile attributes (including committed and excess information rates, among other things) that can be used to make service-level agreements (SLAs). Carriers should be able to leverage these test results to lower their own product evaluation time and costs, as well as speed service deployment.
Another important development with implications for 2006 and beyond was the launch of the MEF Carrier Ethernet Services Certification program at Light Reading's Ethernet Expo last October. AT&T/SBC, Verizon Communications Inc. (NYSE: VZ), Qwest Communications International Inc. (NYSE: Q), tw telecom inc. (Nasdaq: TWTC), T-Systems International GmbH , and MetNet Communications Inc. became the first operators to commit to the program.
One of the primary objectives of this initiative is to promote service interoperability and connectivity consistency, which thus far have been lacking in the market. This will help ensure greater ubiquity of service for enterprise customers by extending SLAs and QOS to more locations across multiple carrier networks, according to Mike Rouleau, senior VP at Time Warner Telecom. (See Michael A. Rouleau, Senior VP, Business Development & Strategy, Time Warner Telecom.) On top of this, as AT&T's Klapman noted, "Certification will help] commoditize the last-mile access at higher and higher speeds... and we'll battle elsewhere."
Carrier Ethernet services competition will intensify and force operators to look for creative ways to differentiate their offerings. While operators, on the one hand, are cooperating to promote carrier Ethernet availability for end users in general, the enormous R&D, marketing, and sales resources pouring into Ethernet is setting the stage for some serious clashes when players compete for business head-to-head. Hundreds of operators worldwide now offer Ethernet services, and they are not simply looking to make money from cheap and reliable connectivity. Feedback from carriers indicates that the battles in 2006 will primarily center on Ethernet-based applications such as VOIP, storage extension, disaster recovery, and service interworking with ATM, Frame Relay, and IP/MPLS services. Beyond this, players will be looking for ways to differentiate around such things as service scaleability, service connectivity via a range of Ethernet access options, service density within markets, and service reach within regions or nations, across countries, and even across continents.
In sum, the carrier Ethernet market is poised for another booming year in 2006. Industry players will need to keep a close eye on developments across multiple fronts – service providers, equipment vendors, standards bodies, enterprises, and consumers – to ensure they are able to keep pace with the changes and capitalize on the opportunities at hand.
— Stan Hubbard, Senior Analyst, Heavy Reading