Business models for the post-recession age

Nan Chen, Metro Ethernet Forum
09 Dec 2010

One ray of sunshine amongst the generally depressed economic picture in recent years has been the continuing success and growth of Carrier Ethernet deployment worldwide and especially in the APAC region, as reflected in the region's surge in MEF membership - the industry body largely responsible for defining and promoting Carrier Ethernet - and the provision of services certified to MEF standards.

Initially it was suggested that Carrier Ethernet's value proposition was the key to maintaining sales in a shrinking economy -it offers the cost advantage of flexible, granular scalability that allows bandwidth to be added, or reduced, on demand and at short notice. But the MEF always made a point that cost saving was only one factor in its success. The real benefit would turn out to be the new business opportunities being generated by Carrier Ethernet's performance, features and flexibility - and nowhere are these more apparent than in the dynamic Asian markets.

As the economy begins to recover, we see new business models emerging around Carrier Ethernet services, with organizations taking advantage of the new connectivity opportunities, already reaping significant benefits.

Three new developments stand out in this respect: the creation of Ethernet exchanges, Ethernet for mobile backhaul and global interconnectivity. Ethernet Exchanges already feature in this supplement, so this article focuses on the second two factors.

Ethernet backhaul

According to industry analyst Michael Howard of Infonetics Research: "Ethernet is the only solution for next generation mobile backhaul networks. When you take into account the popularity of iPhone, Android and the new wave of feature-rich mobile devices, you can see the operators are under pressure to deliver a lot more bandwidth in a highly cost-competitive market. Legacy TDM and ATM backhaul solutions cost too much and don't offer anything to match the scalability and other advantages of Carrier Ethernet."

Backhaul costs are the biggest challenge facing wireless service providers today. Companies that had invested heavily in the 3G spectrum auctions were under pressure to reduce further capex spending and so opted for leasing backhaul infrastructure. However, narrowband TDM turns out to be a poor choice because, as T1 reaches near capacity, the network performance degrades by over 40%. Sonet isn't suited for demand variance and TDM field capacity scales at 1.5 Mbps, 45 Mbps, and 155 Mbps, committing the customer to investing in big, costly jumps in capacity.

TDM only supports one Class of Service at fixed QoS, while IP allows for CoS/QoS according to a packet and application priority weighted against the willingness to pay. TDM signaling is static while IP traffic is dynamic. Although TDM guarantees bandwidth, Ethernet is designed to scale with demand in ranges from kbps to Mbps. Although DS1/E1 when cabled, tested, and commissioned over Sonet meets the incremental needs of TDM, it is the least suited technology for TCP/IP.

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