The Carrier Ethernet (CE) market is either doing well or undergoing challenges. It all depends on who you talk to.
The category has been hot for several years, taking advantage of the same basic Ethernet protocols that dominate home and business local-area networks (LANs). There are many differences between the Ethernet used inside homes and businesses and in the outside network, but the basics are the same. This tends to make things more efficient and less expensive. It is not an accident that cable operators, who have been using Ethernet within subscribers’ homes for generations, are major players in the CE game.
The Carrier Ethernet technology has made consistent progress during the past few years. A measured, if not outrightly negative, prognosis to how CE fared last year comes from Petr Jirovsky, IDC’s research manager for Enterprise Communications Infrastructure.
“We are seeing minor decline in the overall Carrier Ethernet switching this year and expect the market to be flat to slightly down in the near future as well,” he wrote in response to emailed questions from IT Business Edge.
A more upbeat assessment of CE came from Vertical Systems Group Principal and Co-Founder Rosemary Cochran, who wrote that the category is stable. The U.S. market is entering its mature stage, she wrote, with other markets three to five years behind.
“Demand for Carrier Ethernet services continues to increase worldwide so we’re still on the upswing of the growth arc,” Cochran wrote.
Cochran provided some detail to the growth of the category during 2016. The most active companies were competitive local exchange carriers and cable multiple service operators (CLECs and MSOs). They were, she wrote, responsible for more than 60 percent of the new CE connections.
An important element of the landscape is consolidation.
“The competitive balance of the Ethernet market in the U.S. has been shifting due to mergers,” Cochran wrote. “In 2015, it was Level 3’s acquisition of tw telecom. The biggest shake-up in 2016 was Charter’s acquisition of Time Warner Cable and Bright House. As a result, Charter moved up in rank on Vertical’s Mid-2016 U.S. Carrier Ethernet LEADERBOARD based on aggregated ports. Charter Spectrum is now the largest Cable MSO provider of retail Ethernet services.”
The market for equipment is also an important gauge of how the sector is faring. It’s clearly concentrated. Late last year, IHS Markit found that Cisco, Juniper, Huawei and Nokia (which incorporates Alcatel-Lucent’s Ethernet lines) accounted for 86 percent of the router/Carrier Ethernet services) equipment market.
There will be no lack of room to grow in the coming years. Though the technology is becoming predominant, a huge backlog of connections must be transitioned from legacy protocols, said a statement from Altice USA’s Lightpath.
“Altice USA Business Services will remain focused on providing flexible solutions to serve the carrier customer segment,” the company wrote. “As TDM finally ‘sunsets’ in the coming years, there will be tens of thousands of end users that will need an Ethernet solution. We stand ready to help support transformation efforts as a proven partner to carriers as they facilitate these transitions.”
The category is evolving, and Comcast Business saw two trends, wrote Jeff Lewis, the vice president of Data Product Management for Comcast Business in response to emailed questions. “For one, we started seeing a growth in ENS (Ethernet Network services; multi-point to multi-point network) needs from our customers,” he wrote. “We are supporting more sophisticated networks today compared to 18-24 months ago, when the demand was for more E-Line services. For instance, LifeWorks Northwest, an Oregon mental health care provider, recently deployed our Ethernet Network Service to connect 16 Portland metro area locations to meet capacity and new application demands.”
Lewis added that the company is seeing growing demand for multi gigabit services. It is, he wrote, becoming a significant revenue generator for the company. “Over the past year, we announced several more Ethernet expansions with multi-gigabit service intended to provide a wide range of businesses with superior data, voice, Wi-Fi and video services.”
On the business side, the year ahead will be characterized by consolidation, Cochran wrote. Indeed, it’s already written in the cards, so to speak: CenturyLink is in the process of acquiring Level 3 and Verizon is taking over XO. That means that there will be fewer big providers, even as the actual business grows due to the expansion of fiber footprints. Cochran adds that the year ahead will be characterized by stabilizing prices – after years of aggressive reductions – less regulation under the Trump administration, and more efforts to enable interoperability. She also anticipates collaboration of standards-based orchestration.
Precisely how software-defined wide-area networks (SD-WANs) will fit in is still up in the air. Cochran is optimistic: “Lower cost per bit” is driving the basic dynamic, she wrote. “Ethernet services offer scalable bandwidth to gigabit speeds at a lower cost per bit as compared to other alternatives,” she wrote.
Carl Weinschenk covers telecom for IT Business Edge. He writes about wireless technology, disaster recovery/business continuity, cellular services, the Internet of Things, machine-to-machine communications and other emerging technologies and platforms. He also covers net neutrality and related regulatory issues. Weinschenk has written about the phone companies, cable operators and related companies for decades and is senior editor of Broadband Technology Report. He can be reached at [email protected] and via twitter at @DailyMusicBrk.