What slowdown?

Don't talk to Kevin Rocks about a bad economy. The executive vice president of sales and marketing for Pangaea Networks just isn't seeing the downside of 2009.

“Our business is growing; that's all we can say,” Rocks said. “Everything we are doing is an increase over a month ago, it's an increase over a quarter ago, and it's an increase over a year ago — and substantially so.”

Pangaea's growth is a reflection of the broader carrier Ethernet industry because the company's primary business is wholesale in nature. Pangaea enables service providers to connect to their enterprise customers, providing an end-to-end Ethernet service at Layer 1 and Layer 2, and it also sells Ethernet-over-Sonet. Recently the company has expanded into direct Ethernet connections to enterprises and also has expanded its geographic footprint from its origins in New York City and northern New Jersey.

“We have gone farther afield up into Connecticut, farther south into New Jersey and eastern Pennsylvania, into the other boroughs of New York City and onto Long Island,” Rocks said.

Pangaea's growth is typical of smaller companies that have gotten into the Ethernet business. US Signal just announced expansion of its Ethernet-over-fiber technology in four upper Midwest cities: Chicago, Detroit, Green Bay and Toledo. Network Innovations, a Chicago-based company providing Ethernet services, doubled its staff head count and moved to larger headquarters in 2008 to accommodate growth.

Ronald Grason, chief operating officer for Network Innovations, said his company saw overall growth of 60% last year, and Ethernet was its fastest growing product. Network Innovations works with many different service providers nationwide to deliver an end-to-end Ethernet circuit on a wholesale basis.

Speakeasy, owned by Best Buy, launched its Ethernet offering in fall 2008 on a limited basis, really ramping up in December, said Arnaud Gautier, vice president of product solutions for the company. “We have been extremely successful in the 3-Mb/s-by-3-meg space,” he said.

What these service providers are discovering is that businesses of all types are seeing bandwidth needs grow and finding Ethernet to be the most efficient and cost-effective way to handle that growth.

“We have not seen a major shift from the type of customers we were attracting before,” Gautier said. “These are your typical T-1 customers, whether they are currently in our base or looking for a new T-1 carrier. Our market segment is primarily smaller-to-medium-sized businesses with 20 to 50 employees.”

Many of those businesses are “knowledge-heavy or information- and database-heavy,” Gautier said. “They are medical offices, architecture firms, law firms. They rely heavily on collaboration between employees and customers, like architecture firms or advertising companies. And they are more and more bandwidth-hungry.”

They are looking at Ethernet because, in many cases, businesses can get more bandwidth for about the same price as they pay for T-1 service and can grow that bandwidth more flexibly.

“The main growth we are seeing is from customers who were on multiple T-1 platforms who say, ‘Enough of this; I want a 10 gig Ethernet pipe,’” Rocks said. “They can then inexpensively put their voice and data and MPLS all over the same platform.”

Businesses find Ethernet attractive because the on-premises gear is cheaper than traditional telecom equipment and Ethernet services don't have the distance charges that some other services have, Grason said.

“Certain products are flat-rated irrespective of distance, unlike typical telecom products,” Grason said. “The Layer 2 switched Ethernet products are not mileage-sensitive.”

In Speakeasy's case, at the lower end of the market, customers are deciding not to add a second T-1 when they can buy more bandwidth via Ethernet for about the same price they are paying for a T-1 and get a service level agreement (SLA) that isn't available on cable modem or DSL broadband service, Gautier said.

“They could get the speed they want with ADSL or cable, but they also want the SLA, and they want a symmetric service with the uptime, the repair guarantees, the quality they get on a T-1 if they are running voice,” Gautier said. “Our price point for a 3-meg-by-3-meg service is right around that of a T-1. One of the reasons we got into Ethernet is that we saw this as a major disruption and wanted to make a big bang.”

At the high end, where Pangaea plays, the ability to deliver gigabit Ethernet is attractive for both its carrier and its large enterprise customers, Rocks said.

“We see lower speed demands — we provision circuits starting at 2 meg — but 10 meg is the most common service from the enterprise — 50 and 100 [Mb/s],” he said. “For larger enterprises and carriers, we mostly see GigE and 10 gig interfaces. If a service provider has a customer that wants a 20 meg circuit, we'll hand off a GigE to that service provider on [a network-to-network interface], and they can use the rest of the bandwidth for other customers. For a nominal extra charge, it launches a long-term relationship between us. They have the rest of the bandwidth on that span that they can use for other customers, and it all gets mapped back as VLANs.”

As more companies look for ways to save money, they like the idea of combining voice and data onto one network that can grow as needed, Rocks said.

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