The retail/business carrier Ethernet services market has clearly emerged out of the early adopter stage and has entered the growth stage with demand for the same growing leaps and bounds. With the Metro Ethernet Forum playing a key role in standardizing the services and certifying the quality of service, the technology is gaining widespread acceptance.
Almost every conceivable vertical market represents a good potential market for the service providers due to the rapid increase of bandwidth needs. Financial services, government, education, healthcare and legal are verticals that are leading the way.
Ethernet private line and Ethernet virtual private line are emerging as the de facto choice for customers migrating from traditional T1/T3 circuits, owing largely to the price competitiveness of Ethernet. Ethernet access to internet as well as VPNs are driving demand for Ethernet circuits. Large corporations looking for interconnectivity among dispersed locations to run bandwidth intensive applications on a reliable network at a reduced cost represent the target customers for E-LAN connectivity services.
Virtual private LAN service, which is a Layer 2 VPN, is emerging as an excellent option for customers who need large bandwidth, fully meshed connectivity between multiple locations. Ethernet plays very well for convergence of voice, data and video as it drastically reduces the cost of managing separate networks for each of these applications, and is hence gaining rapid adoption in the enterprise space.
Although the current worldwide economic downturn has its negative effect on every industry, we expect the Ethernet services market will still exhibit in 2009 a 35-40% growth rate. The churn rate for Ethernet services is nil or very low as the service is pretty new. The service is gaining acceptance across businesses of all sizes, owing to the benefits it offers "” scalable, reliable and cost-effective bandwidth. Instances where the customers have disconnected from Ethernet service to adopt an alternative service is very rare. However, the reverse is true "” customers are migrating from ATM, Frame Relay, SONET (synchronous optical network) and Private Line to Ethernet.
Frost & Sullivan believes when the economy recovers and companies come back to business, those companies who are in need of network connections will be unlikely to use the old and expensive circuit-based technology again. At that time Ethernet services will be a very attractive service.
Expanding service availability
The lack of Ethernet-Network to Network Interface (E-NNI) standards has led to carriers signing E-NNI agreements on a case-to-case basis. These E-NNI agreements are highly influenced by the carriers leasing out their networks and has led to regional market domination by companies that own the network assets in a given region. Thus, currently, Ethernet availability is still spotty, lagging behind the single-carrier availability of legacy metro and wide area networks services. Consequently, customers are forced to cobble Ethernet services from different providers based on network and service availability.
The wholesale vs. retail Ethernet market was roughly split as 30:70 in 2008 Market revenues for retail Ethernet totaled $1,140 million last year and are expected to reach $4,700 million in 2013, growing at a CAGR of 32%. Market spending is largely driven by customers\' demand for greater bandwidth, ongoing migration from legacy services such as private lines and ATM/frame relay, lower-priced internet access, and growing applications such as business continuity, video, collaboration, and VoIP.
The US retail Ethernet services market continues to experience a good growth driven by demand from bandwidth hungry customers. The simplicity of implementing the services as well as the clarity on pricing has led to a growing demand for Ethernet services across business verticals. Metro Ethernet still dominates the overall market revenues with demand for long haul Ethernet growing gradually.
AT&T and Verizon are the Tier 1 players in the overall Ethernet market because of their sheer size and geographic reach, followed by competitive players such as Cox Communications, tw telecom, Qwest, Cogent, Level 3 and Global Crossing.
Competition at the metro level tends to be fragmented based on who has the assets in a particular region. The Metro market is largely dominated by regional companies that have strongly positioned themselves in their regions. tw telecom, Cox Communications, XO Communications, RCN, and Optimum Lightpath are some of the service providers that fall into this category.
Roopa Shree is a senior industry analyst for Frost & Sullivan.