METRO ETHERNET MINES COPPER

The market for metro Ethernet services has been causing quite a stir in telecom, but it's limited by the fact that of the 750,000 business-use buildings in this country containing more than 20 workers, only about 5% have access to that necessary ingredient, fiber, according to RHK. The prospect of reaching fiber-starved customers has driven the development of Ethernet-over-copper technology, which is poised to blossom later this year after two new standards grace the sector with the all-important imprimatur of the Institute of Electrical and Electronics Engineers.

Ethernet experts such as Extreme Networks and Cisco Systems have been doing copper-based Ethernet gear for some time. Cisco Systems, the sector's Don, has a set of “long-range” Ethernet gear, which delivers 5 to 15 Mb/s over as much as 5000 feet of copper wire. Lucent Technologies and Net to Net Technologies offer IP-based DSLAMs that serve a similar purpose.

But another wave of vendors, led by start-ups Actelis Networks and Hatteras Networks, are bonding pairs of copper wire together to allow greater throughput and open up a market of metro Ethernet services in places where fiber doesn't reach customers and traditional options are too inflexible.

For years, the Ethernet First Mile (EFM) task force of the IEEE has been developing the 802.3ah standards for Ethernet over copper. The group is expected to ratify two standards in June: One, based on G.SHDSL, is for long-range applications up to 2700 meters (about 1.7 miles) and allows 2.3 or 5.7 Mb/s per copper pair, depending on the type of G.SHDSL employed. The other, based on VDSL, is for shorter ranges of up to 750 meters (about half a mile) and allows 10 Mb/s symmetrically per pair. These units portend an enticing offer to business customers whose bandwidth demand lies in the wide gulf between a 1.5 Mb/s T-1 and a 45 Mb/s T-3.

The standards' ratification will legitimize the technology in the eyes of carriers (especially RBOCs, with their wealth of embedded copper), and in doing so, will also draw a wave of equipment vendors out of the woodwork — both start-ups and established vendors. Expect pronouncements from at least a few new entrants into the space at Supercomm, said Bob Mandeville, president and founder of testing lab Iometrix and participant in a multi-vendor EFM “super demo” at the big trade show in Chicago this summer.

“I know some start-up vendors that are very actively developing the code and interfaces for [802.3ah], and some large vendors have been doing the same thing but very much in stealth mode,” Mandeville said. “Everybody's been holding their fire until June.”

At the moment, the domestic equipment market for the bonded-copper crowd seems almost prenatal. The putative start-up leader, Actelis Networks, has “somewhere between 40 and 50 customers” in the U.S., said Thomas Reynolds, the company's senior vice president of sales and customer support. But customer counting drops off pretty quickly from there. Hatteras Networks, which started life in 2000 with a dual focus on copper and fiber access, switched to an exclusive copper push in 2002, but its second generation of gear (emulating the EFM standards) just entered its first commercial trials last month.

Another set of start-up vendors is approaching the space more broadly, offering not just copper bonding but “facilities bonding,” which includes a variety of services, not just Ethernet. One of them, Ceterus Networks, is “still in ‘quiet’ mode,” according to President and CEO David Stehlin, though the company emerged from stealth mode last fall and claims more than 10 paying customers so far. Another, Covaro Networks, which has a similarly versatile strategy that includes Ethernet over copper without being limited to it, will emerge from stealth mode “in a couple of weeks” before exhibiting at Supercomm this summer, a company spokesperson said earlier this month. Yet another vendor, Spediant Systems, takes a separate approach by bonding the DSL bandwidth of up to eight copper pairs.

“Hatteras and Actelis are really kind of controlling the action,” said Yankee Group analyst Pat Matthews, betting that the start-ups that are focusing most intently on Ethernet over copper will outpace rivals with a broader approach. “If you're a start-up, you're better off focusing on a niche market and growing from there than trying to go after everything all at once.”

Though some vendors starved waiting for the Ethernet-over-copper market to be born, investors are showing new interest in the space, perhaps in anticipation of the standard ratification. Covaro pulled in a $25 million B-round of funding in February. And another start-up, Klamath Networks, recently scooped up the assets and intellectual property of two-year-old Ethernet-over-copper vendor Valo, which went out of business in September after raising $10 million in venture funding. The precise plans of Klamath Networks, which was founded by a Valo founder, are not yet known.

Still, Infonetics Research analyst Michael Howard believes it won't take long for the Ethernet aristocracy — Cisco, Extreme, etc. — to overtake the start-ups, either with their own products or through acquisitions. The stakes are about to grow. According to Infonetics, the $160 million worldwide market for Ethernet-over-copper gear will grow at a compound annual rate of about 58%, nearing $1 billion by 2007. In the comparatively diminutive $72 million North American market, however, the pace will be much slower, growing only about 15% each year.

“This technology is booming in Asia,” Howard said, thanks to markets rich with multi-tenant dwellings such as Japan and South Korea. Numbers describing the domestic services market for this technology are more elusive. But in addition to government clients, with their existing copper assets (the military has been a prime target for Actelis), major carriers are already showing uncharacteristically bold interest in the new technology.

“A lot of major carriers are interested in using it,” Matthews said. “Qwest is testing it. SBC's been pretty vocal that they're going to move forward with it. BellSouth's not interested in using it at all. Sprint and SBC will perhaps lead the race.”

Because metro E over copper is a new technology, some industry observers expect competitive local exchange carriers to jump at it before RBOCs, which could give CLECs a jump on their larger rivals with regard to the new market that will open up for these services. XO Communications uses Ethernet over copper today on an individual customer basis only, but is testing some vendors' equipment with the hope of an official product launch later this year, said Jim Turrell, XO's director of product management.

“We see it as a pretty huge market opportunity,” Turrell said.

For CLECs, using existing copper loops means enduring the headaches of buying them from their RBOC competitors, but CLECs have become somewhat accustomed to the challenge, having to rely on RBOC cooperation for DSL, T-1 and T-3 sales. And perhaps more importantly, the lower price tag of Ethernet over copper may make it worth the effort.

“Ethernet-over-copper gear is getting to a point now that we can deploy it in our network and not have a price point that's going to scare away a customer,” Turrell said.

“Which is currently the case with fiber,” added Phil Olivero, XO's director of network planning.

When it comes to serving the fiber-starved, XO is moving faster with another technology — broadband fixed wireless. In January, XO announced it was conducting customer trials in Los Angeles and San Francisco using broadband fixed wireless gear from Ensemble Communications. So far those trials have yielded about 40 paying customers, about 10 of which are metro Ethernet applications (like connecting a handful of corporate sites) and the majority are straight high-speed Internet access based on Ethernet.

However, fixed wireless isn't an attractive offer for other service providers that didn't invest in multi-market spectrum licenses the way XO did a few years back. “Wireless is pretty expensive and somewhat flaky,” Howard said. “It's a very important niche, but it's not a widespread solution and never will be.”

For Cogent Communications, whose bread and butter is fiber-based Ethernet, copper doesn't offer much enticement. Because Cogent mainly targets multi-tenant buildings and clientele with high bandwidth needs — at least, say, 10 Mb/s — it is less interested in copper's potential, which lies mainly in the sweet spot of single-digit megabits per second.

“We've looked at Hatteras' equipment and concluded it was not economical,” said Cogent CEO Dave Schaeffer. “We also tested Cisco's long-reach copper Ethernet product. They haven't proved to really justify any kind of wide-scale deployment.”

Even for enthusiasts, Ethernet-over-copper technology has its limitations. One of the biggest is also one of its biggest selling points: that it uses copper already in the ground. Like fiber, even buried copper wire is finite. Though copper exhaust is not currently a threat, it becomes one when the Ethernet-over-copper business model is extrapolated.

“There's no way you could offer bonded, 10 Mb/s Ethernet using four or five [copper] pairs for each service to the whole city,” Howard said. “There isn't that much copper in the ground. Maybe in some sections of the city there is. But for a carrier to offer the service on a widespread basis will be difficult because they'll be able to in some places and not in others. It just wasn't in the thinking or the planning when the copper was laid.”

So Ethernet over copper isn't a panacea for the hordes of businesses nationwide without access to fiber. But it does provide another potential revenue stream for some service providers. Many are confident that this summer's giant trade show will become a sort of starting gun for wide deployment of the technology, despite the future's inevitable uncertainty and the difficulty of judging reality in the midst of a giant trade show.

“I was on a panel a year ago at Supercomm,” Howard recalled. “A guy from Sprint stood up next to me and said, ‘We found a way to deliver Ethernet services to our customers, and it's bonded G.SHDSL.’ I don't know how much they've done since then.”