Is E for Extra Speed and Extra Margin?

May 20, 2014

Although 1973 sounds like a long, long time ago, if we realise that 41 years ago this spring Robert Metcalfe conceived the first conceptual hints of what evolved into Ethernet while at MIT, the interval seems small.

After a decade of evolution through various uses and standards, the IEEE published a formalised standards paper in 1983. From the early 10Mbit/s to the current 100Gbit/s varieties, the adaptability of the standard and ability of the appropriate protocol software to perform similarly on all varieties has allowed companies to cut costs and add speed for decades.

This formula continues to underlie new products decades after those first hints in a grad student’s memo. This century’s teen years offer new forms of the ever-winning combo of lower costs and higher speeds, through dedicated Ethernet private line and its more flexible cousin, switched Ethernet.

Our research on Wholesale Metro products shows the growing importance of these services to customers. In 2011-12, wholesale customers reported that they expected to place 31% of their local wholesale transport spending into Ethernet services. The next year, the percentage moved up to 36%. For 2013-14 spending, they expect 42% of that spend to go the Big E. It is not surprising that the wireless and content customers pull this average up as they expand their networks, with rapid growth in support of end users. Lower Ethernet spending can be expected by CLECs, CAPs, international and ILECs.

Customers also report to us their opinions on carriers offering these Wholesale Metro products. For port-based, point-to-point or point-to-multipoint Ethernet dedicated services, those who “raised the bar” with both strong quality and price competitiveness include Level 3, Fibertech, Lightower, tw telecom and Time Warner Cable.

For the more scalable switched Ethernet solutions, Level 3 and tw telecom scored in the “raise the bar” quadrant. These services are the growing moneymakers for the wholesale carriers, so we expect competition to increase as the share of spending on Ethernet increases.

All in, Ethernet migration shows no signs of slowing – my firm forecasts that it will more than double (2.3X) from 2013 through 2019 – and all carriers are chasing their own slice of the pie. And why shouldn’t they? Customers are keen on the advantages of Ethernet compared to DS-1s, DS-3s, Frame Relay and ATM – Ethernet access is based on a well-known and proven standard, is easy to set up and manage, highly scalable and, perhaps most importantly, delivers the best price-per-unit (MB) in the marketplace.

In other words, more than 40 years after Ethernet’s first seeds sprouted in the mind of Robert Metcalfe – after the emergence of personal computers, the world wide web and the iPhone – it remains a superior technology.

Perhaps some good ideas really do last forever.

This analysis was originally published at Capacity Magazine.

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