Business Ethernet Leads the Pack

Carl Weinschenk spoke with Rosemary Cochran, a co-founder and principal of Vertical Systems Group. Vertical updated its ongoing business Ethernet report earlier this month. The business Ethernet segment is growing as demand builds and providers work to confront internetworking, service level agreements and other challenges that have held them back. Cochran says business Ethernet is the world’s fastest growing data network option and is on course to generate $40.2 billion in revenues by 2014.

Weinschenk: Please explain what Vertical is following.
Cochran: It looks at business Ethernet, which are retail services sold to enterprises throughout the world including midsize companies up to multinationals. What we are seeing is year-end 2009 information. We essentially went to the major service providers worldwide and talked to enterprises that are using the services and asked what their plans are.

Weinschenk: How would you characterize the landscape for Ethernet?
Cochran: The industry for Ethernet has been relatively robust. That is because they are new services. The driver is the demand for bandwidth. A lot of the inhibitors are more on the supply side than the demand side, meaning you can’t get the service, it is just not available.

Weinschenk: What is the dynamic now?
Cochran: We say there are three Ethernet market gaps. One is lack of direct fiber. [Another is] the speed issue, which is that most of the companies today are networking in for WAN at the T1 and E1 level. That is the sweet spot in terms of installations. The pricing gap -- the cost-per-bit -- for Ethernet is much more attractive than for TDM services. But again it’s a question of the pricing relative to the services already being purchased. So it certainly is attractive, particularly for incumbent providers. They have to look strategically at how to position those services relative to Ethernet due to cannibalization of their existing product lines.

Weinschenk: What direction are things going in?
Cochran: What happened in the last year and what we seeing for this year is to fill the fiber piece of that. There is a lot of fiber buildup going on. Also, where that isn't happening, there is use of Ethernet over raw copper or T1s, which fills the gaps where fiber is not available. People are using fiber where they can and Ethernet over copper where they must. Another piece of that is the standardization of an NNI -- the network-to-network interface -- which is basically the ability to interconnect in a standard way so that providers can buy and sell Ethernet services in exchanges. That is a relatively new thing. The MEF just ratified MEF 26, which is a new standard for the standardization of that process. Those things are moving the market along.

Weinschenk: Can you characterize what demand looks like now?
Cochran: We are seeing demand for higher speeds. Demand is going up for higher-speed 100 Meg services. We are starting to see demand begin in earnest for a general migration up to gigabit speeds. There is stronger demand than we anticipated coming into this year. The demand is coming from insatiable demand for bandwidth. A lot of it is coming from state and local governments, education, financial companies and health care. Those are some of the major vertical segments. Again, it’s a question of availability.

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