Cable Companies Think Big About Carrier Ethernet

CEN Feature (Jul 19 2011) Cable / MSO

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   The notable, post-WWII German statesman Konrad Adenauer once remarked, "all of us live under the same sky, but we don't all have the same horizon." With Carrier Ethernet service revenues exploding, cable companies have begun to expand their own horizons and take Carrier Ethernet opportunities very seriously by thinking bigger and aiming higher than they have in the past.

   Some cable companies have been offering Ethernet for several years, albeit in a highly conservative manner, as Andy Paff, managing director for investment banking firm Headwaters MB and long time cable industry executive, explained during a recent phone call.

   Paff points out that in considering the opportunity to serve an individual enterprise customer, a cable company typically measures potential revenues and costs based on a target internal rate of return – a process that drives the decision whether to deploy or not. As a result, cable company Carrier Ethernet deployments often look essentially like point-to-point deployments, he says.

   Cable companies’ conservatism has been dictated, in large part, by their desire to keep Wall Street happy. “Since 2000 and the technology meltdown, Wall Street has been very concerned about free-cash flow,” said Paff. "Cable companies watch CapEx – they want to convince Wall Street that they’re in a unique position in the last mile and they’re being very careful to deliver that.”

   Although a point-to-point approach does not easily support network resiliency, Paff explains this hasn’t been a major problem for cable companies that simply offer customers two quotes – a lower one without resiliency and a higher one with it. Most customers choose the former.

   Recently, however, Paff has seen a change in cable companies’ attitude toward investment in Ethernet. “They’re getting comfortable with the fact that it’s a big business,” he said.

   Increasingly, cable companies are deploying Ethernet in a ring configuration with the goal of obtaining a higher level of resiliency and serving multiple customers from a shared ring. In addition, they’re deploying carrier-grade equipment capable of supporting multiple customers with service level agreements (SLAs) from the same box.

   “The internal rate of return model will end up as more of a comprehensive design model,” said Paff. “A big customer may drive construction, but then the cable company will start to look at other tenants in the building or nearby. They won’t build too far in speculation but they may say, ‘History has shown that we can get four customers in this situation.’ The point-to-point or ad hoc mentality quickly becomes, ‘If I build it, I know who’ll come.’”

   Unlike other competitive carriers, cable companies traditionally haven’t leased last-mile copper facilities from the incumbent to support Ethernet services. But the cable companies are beginning to take an interest in Ethernet-over-copper as a means of serving multiple enterprises using the vertical copper wiring in the building, Paff said.

   Like some other network operators, cable companies also are rethinking the role of routers in their networks. As Paff explained, “They’re saying ‘We ought to be able to engineer Layer 2 where appropriate and use Layer 3 only where it's needed.’”

   Paff says the goal is to minimize costs, latency, and jitter, and to improve overall performance. "Routers take longer to come back up after a power outage, and they drive network operators to spend more on power and back-up generators," he said.

   Accordingly, he said cable operators are starting to look at their Ethernet networks and say, “I own all of this; I can define Layer 2 interconnects and where I need to go off network, then maybe I need a router.”

   As in the enterprise market, cable operators also are thinking a bit bigger when it comes to mobile backhaul deployments, Paff said. Here too, he said, cable operators are more likely than in the past to use equipment that can support multiple customers with SLAs on a single box.

   Despite all the attention that the Ethernet mobile backhaul market has received recently, Paff believes the business market ultimately has greater promise for cable operators.

   “Wireless backhaul is a tremendous opportunity for cable companies,” he said. “But it will pale in comparison with Carrier Ethernet services if they do it right.”

    

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