By Aaron Blazar (ablazar@atlantic-acm.com)

In the past five months, three companies -- Equinix, CENX and, most recently, Neutral Tandem --  have unveiled Ethernet exchange platform offerings with the goal of simplifying the Ethernet interconnection process between carriers, driving greater ease of access to carriers' off-net end user locations.

The entrance of these three unique platforms brings three important questions to mind when looking at the possible industry effects:

What is the value of an Ethernet exchange?

Currently, one of the major challenges facing the evolution and expansion of carrier Ethernet offerings is the ability to establish coverage to off-net, end-user locations. For customers with locations outside their desired carriers' current footprints, carriers must engage in network-to-network interconnection (NNI) agreements to establish last-mile Ethernet connections.  These connections must be established to fulfill carrier-specific interoperability, quality of service (QoS) and SLA requirements.  Under the current business model, NNIs can be costly and time consuming to establish, inhibiting providers ability to effectively sell end-to-end Ethernet services.

One of the primary goals of the new Ethernet exchange platforms is for the third party (i.e. Equinix, CENX or Neutral Tandem) to facilitate seamless, end-to-end Ethernet connectivity between member carriers.  Member providers will be required to meet the standards of each third-party platform.  The three exchanges plan to follow the Metro Ethernet Forum guidelines for establishing network-to-network interoperability, with the goal of providing members with the interconnectivity necessary to easily establish connections.  The third-party exchanges effectively facilitate interoperability while actively helping members to interconnect to quickly fulfill their off -net connectivity needs.  The ease of connectivity will enhance the ability to -- and speed at which -- member providers can offer services off-net,  thereby increasing opportunities to sell Ethernet services to business customers.

What is the potential market effect from the emergence of Ethernet Exchanges?

Third-party Ethernet exchanges could potentially enable increased competition in the end-to-end Ethernet space by allowing small providers to easily expand their network reaches and to compete for geographically diverse business.

Today, providers' abilities to offer Ethernet services off-net are constrained by their ability to independently forge interconnection agreements.  Providers with a large last-mile footprint are inherently in stronger positions than providers with smaller footprints

Tomorrow, the Ethernet exchange model theoretically will help to level the playing field by providing third-party facilitation of network interconnection and allowing carriers to easily cover customer needs off-net.  In effect, the result will be increasing competition in the business Ethernet market for large incumbents like AT&T, Qwest and Verizon, which have strong regional and national last-mile footprints. It should be noted, however, that both Equinix and CENx plan to evolve their exchange businesses to serve markets outside the U.S., which would enable the likes of Verizon, Qwest and AT&T to compete on a greater scale for multinational business.  Additionally, third-party Ethernet exchanges have the potential to drive increased competition in the global Ethernet market by helping to ease the burdens posed by providers' lack of extensive metro footprints today.

What are the chances for the model to be successful?

Although all the current exchanges are in very early stages of development (most are launching in their beta stages), the historical example of VoIP peering may provide a gauge for the potential success of third-party Ethernet exchanges.  Many third-party VoIP peering providers learned over the last five years that the value of a third-party exchange is solely derived from the members it contains and the willingness of those members to interact (read: exchange traffic).  With CENx's announcement of Level 3 and Verizon joining its platform, and Equinix's announcement that Hibernia Atlantic, Exponential-e, Abovenet, Level 3, PCCW Global, Reliance Globalcom and Tinet have all agreed to join the party, membership is off to a fast start. The real success, however, can only be gauged after connections are established using the third-party exchanges and the traffic begins flowing.  For Equinix and Neutral Tandem, the ability to offer Ethernet exchange services may enhance their abilities to market their core products (data center services and tandem bypass services, respectfully) while CENx's core product is the Ethernet exchange platform,  creating an imperative for rapid revenue generation.  Success in this model, like all models, can be boiled down to the test of a simple value proposition:  If third party exchanges and outsourcing of NNI drives cost savings for providers and eases the establishment of last-mile access, they will use the exchanges, and, therefore, allow these models to take root and grow.