1. Competition Impacts Carriers On Vertical Systems Group’s Year-end U.S. Ethernet Leaderboard

    CEN Feature (Feb 5 2013)

    1. Competition Impacts Carriers On Vertical Systems Group’s Year-end U.S. Ethernet Leaderboard

      The rankings don’t show it, but the service providers that made Vertical’s year-end 2012 U.S. Business Ethernet Leaderboard are facing several challenges and some fierce competition  --  which in turn is impacting market share, according to Rick Malone, principal of Vertical Systems Group.

      Service providers that make the Leaderboard, which is produced every six months, must reach a threshold of 4 percent or more of retail Ethernet ports. The three carriers atop the latest Leaderboard continue to be AT&T, Verizon and tw telecom.

      AT&T’s overall U.S. port growth is “pretty good,” and tw telecom has steady growth in pace with the market, said Malone. However, Verizon had a challenging fourth quarter, which resulted in a loss of market share.

      Unlike many other Leaderboard providers, AT&T and Verizon focus primarily on selling products and services to their existing bases in the U.S. while they grow their Ethernet footprints in Europe and Asia, he added. Additionally, AT&T is selling more and more wholesale Ethernet ports. However, AT&T’s drift toward wholesale sales is resulting in lower growth in more profitable direct sales, he added.

      Wholesale deals are not included in this Leaderboard, which measures U.S. market presence based on Ethernet service ports sold to enterprises and business customers. However, as the number of Ethernet partnerships increases, retail Ethernet providers gain more competitive options for service delivery to their customers. The Metro Ethernet Forum’s new CE 2.0 standards for carrier interconnection will advance this trend, said Malone.

      Even though CenturyLink remains in fourth place, it is a company to keep an eye on going forward. The carrier registered the highest port growth of the companies on the Leaderboard over the past six months. During the past year, CenturyLink upgraded and expanded its Ethernet backbone, added new Ethernet central offices and expanded its service offerings via both fiber and copper, said Malone. 

      At the lower end of the Leaderboard, the players are separated by razor thin margins. Cox remains in fifth position, but other rankings did change. Level 3 moved up to sixth position, while XO fell to seventh place and Time Warner Cable moved to the eighth and final Leaderboard position.

      “Not long ago Level 3 sold most of its Ethernet ports as a wholesale offering. Now the company is selling mostly direct in the U.S. and closing more business,” said Malone. In contrast, XO sold more Ethernet ports through its wholesale and channel partners than it had in prior years, he added.

      Cox and Time Warner Cable do not always compete with each other, because cable companies’ footprints tend not to overlap, but they do compete with CLECs. Time Warner Cable “came out of the chute” pretty quickly with its Ethernet offerings, but they have faced more competition over the past year, he added.

      Companies in the Challenge and Market Player tiers experienced fairly rapid growth. The Challenge Tier consists of providers just below the Leaderboard threshold. They are (in alphabetical order): Charter Business, Cogent, Comcast Business, Integra, Lightpath (formerly Optimum Lightpath), Reliance Globalcom, Windstream and Zayo Group. Some of these companies have made substantial investments in Ethernet services and could attain U.S. Leaderboard status in the near future, said Malone.  

      The Market Player tier includes all other providers selling retail Ethernet services in the U.S. These companies typically use their own network facilities for their core locations, along with the bigger players’ networks to extend the reach of their Ethernet footprints, he added.

      The companies in the Challenge and Market Player tiers are facing stiff competition from one another. Customers that used to have only one or two Ethernet carriers to choose from now have three or four vying for their business.

      Competition is a continuously growing challenge for all Ethernet carriers. Price wars have escalated substantially in many geographic markets during the past year. They have been a big benefit to customers and a headache for the carriers, said Malone.

      A good indicator of the market’s stage of development is the fact that the U.S. retail Ethernet port base grew a robust 24 percent, but that is 6 percent less than the 31 percent growth reported one year ago. However, the average bandwidth per port has increased. “Ethernet is the onlyl wireline market growing at this rate,” he said.

      Among the hottest selling offerings is Ethernet access to Layer 3 IP VPN and MPLS services over copper. The Leaderboard companies that are providing a lot of Ethernet over Copper right now are Level 3, XO and CenturyLink, he added.


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