The metro market provides opportunity, but payback will be slow, say analysts

June 19, 2002--In its new report, "Metro Strategies: Is There a Sustainable Business Model?," the Yankee Group argues that metro market deployments can provide a return on investment (ROI), and patient carriers, suppliers, and investors will be rewarded.

The metro market has attracted many vendors, providers, and investors, all hoping to cash in on the intense concentration of sophisticated, high-demand end users. But the metro market has proven to be much more resistant to competition than originally anticipated, resulting in the bankruptcies of many would-be players. So is the metro market an opportunity or an illusion?

In its new report, "Metro Strategies: Is There a Sustainable Business Model?," the Yankee Group argues that metro market deployments can provide a return on investment (ROI), and patient carriers, suppliers, and investors will be rewarded. Successful carriers must leverage new technologies, focus on key services with proven traction, and build penetration within their target markets. Although few competitive providers managed to accomplish this, serving the metro market is still a viable business model with room for both start-up and established providers.

"There has been a lot of excitement around the metro market," contends Nick Maynard, senior analyst for the Telecommunications Strategies research practice at the Yankee Group. "But if carriers are going to succeed, they will need to be cautious and choose their infrastructure deployment building-by-building," he cautions.

The report draws on the Yankee Group's cost-of-services-sold and ROI models to underscore its thesis that successful metro competitors must focus on controlling capex, offering a range of services, and deeply penetrating each target building. Results from the models include:

• Deployment costs of Ethernet versus SONET in the metro.

• The impact value-added services will have on margin and return on investment.

• The vital importance of in-building penetration for a carrier deploying an Ethernet solution.

• Payback time frame for start-ups and established players deploying Ethernet infrastructure.

For more information about The Yankee Group (Boston), visit the company's Web site at www.yankeegroup.com.

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