Metro ethernet is on the move

Though they make up only a small portion of worldwide WAN connections and telecom service dollars now, Ethernet-based services are growing steadily. Corporations and carriers are buying Ethernet services today to the tune of several billion dollars a year worldwide.

There were more than 150,000 Ethernet connections to buildings in North America at the end of 2003, and Infonetics Research estimates there will be more than 200,000 in 2004. These numbers represent only a small portion of the millions of worldwide WAN connections, which are primarily T1/E1 and T3/E3 (including private lines, frame relay, and ATM) as well as SONET/SDH with some WDM. But over the next 10 years, a significant portion will move to Ethernet-based services, and Ethernet will account for a larger portion of service provider metro capex each year, with revenue growing $24.2 billion between 2003 and 2007.

Infonetics recently completed a study of 27 major North American, European and Asian service providers' metro optical and Ethernet networks. In 2003, these carriers averaged $11 billion in annual revenue, about $200 million of it from Ethernet services. They expect to increase Ethernet service revenue by 50% in 2004, and know they must offer Ethernet services to satisfy existing customers' demand and attract their competitors' customers.

The reason for this growth is simple: Customers want the faster, cheaper, simpler, more flexible networks and bandwidth that Ethernet offers.

Naturally, carriers want to offer all or nearly all of their existing services over Ethernet, including voice, video and data. Carriers indicate that by 2005, the leading Ethernet network-based services sold to business and residential customers will be packetized voice, private lines and bandwidth on demand, enabling customers to easily change the level of bandwidth they purchase.

Service providers have been offering premium resilient, high-bandwidth Ethernet services over SONET/SDH networks for some time, mainly to large customers. To make Ethernet enticing to medium and small businesses, they are lowering the price per bit for less resilient Ethernet bandwidth and offering it at flexible increments that make sense to customers. Time Warner Telecom, OnFiber, Yipes, Cogent, XO, Level 3 and large players such as France Telecom and AT&T are all employing this strategy.

Still, serious challenges remain that vex service providers as they make the move toward Ethernet: namely, how to fit Ethernet into their existing networks and how to establish end-to-end quality of service.

Carriers want simpler networks, but simplification is not just a matter of adding metro Ethernet as an overlay network. New technologies such as VCAT/GFP/LCAS for SONET/SDH, RPR, MPLS, and VDSL are paving the way for Ethernet to take its place as a harmonious telecom-grade option for metro networks. These technologies, as part of Ethernet, naturally support data/packet traffic and add support for existing customer TDM and data traffic. They also deliver resiliency, fast recovery, options for new services, rings and marriage into existing carrier networks, including SONET, SDH, DS1/DS3, copper, and fiber.

However, service providers have not yet decided on the best way to go. In our study "Service Provider Plans for Metro Optical and Ethernet," we found that more than half of carriers offer Ethernet services over five different technologies: over SONET/SDH, over WDM, over MPLS (router network), direct over fiber (Ethernet switches) and over RPR.

And with all these technologies involved for most carriers, it's not surprising that carriers decisively say end-to-end QoS is their biggest challenge in rolling out Ethernet services. Investing in Ethernet is inescapable for carriers, but their spending plans could speed up, if manufacturers solve this difficult technical challenge.

Carriers want their Ethernet investment to be part of their long-term strategy for the next-generation metro network carrying TDM traffic, voice, video and data. As manufacturers continue to address the technology and service definition problems inherent in deploying Ethernet, carriers will get their wish, and Ethernet will inexorably take over the metro.

Michael Howard is the principal analyst and co-founder of Infonetics Research and can be reached at michael@infonetics.com