Frost & Sullivan: Private Line and SONET services growth engines for U.S. data transport market

JUNE 3, 2010 -- New analysis from Frost & Sullivan’s U.S. Data Transport Services Market Overview finds that the market earned revenues of over $33.0 billion in 2009 and estimates $40.0 billion in 2014. Private-line (DS1/DS3) and SONET services are likely to command a major share of data transport revenues in the near future, according to the new report.

The multi-billion dollar U.S. data transport services market represents huge revenue potential for communication service providers, says the market research firm, growing at a compound annual growth rate of 4.6 percent. The launch of Ethernet virtual private line (EVPL) service by most leading carriers is expected to enhance market potential for wholesale E-Line services. Multiprotocol Label Switching (MPLS) and Ethernet services are expected to ramp up market revenues as well. The year-on-year growth rates for these services are pegged at 10-12 percent for MPLS and 20-30 percent for Ethernet, according to the report.

Private-line services, particularly DS1 and SONET services, have maintained a modest, but steady inflow of revenues, largely owing to stable demand from wireless service providers on the wholesale front and the reluctance of end users to move to Ethernet unless their bandwidth needs exceed 6 Mbps on the enterprise/business front.

"Wavelength services are seeing a growth spike owing to escalating demand for higher bandwidth circuits," says Frost & Sullivan Research Analyst Roopa Shree H. "Also, the emergence of Ethernet has revived the wavelength services market as a number of service providers use waves to provision Ethernet circuits, and most 1 GigE and 10 GigE Ethernet circuits provisioned today are over dense wavelength division multiplexing (DWDM)."

Legacy services, particularly Frame Relay and ATM, are declining at a faster pace than expected, owing to market migration from these technologies to newer IP-based ones such as MPLS and Ethernet. However, despite the market shift to these newer services, their growth in revenues are not as rapid as the decline in revenues for Frame Relay and ATM, because of the price competitiveness of IP-based services that offer more bandwidth for a lower cost, says Frost & Sullivan.

The U.S. data transport services market (wholesale and retail) is dominated by the Tier 1 carriers, according to the report. Competition is expected to intensify in the MPLS and Ethernet arena, as carriers begin to position themselves as solution providers (selling voice, Internet, and data bundles with MPLS backed by hosted/managed security services, as compared to pure MPLS transport).

The report states that bundled products such as voice/Internet/VPN for data transport seem to be seeing a great amount of success in the SMB space because of cost savings. Tier 2 carriers are emerging as better service providers compared to Tier 1 participants, Frost & Sullivan asserts, largely due to the focused approach they have on specific verticals and the size of the enterprises to which they market, thus creating a market niche.

"Large carriers are seeing a surge in demand for high-bandwidth transport services -- especially MPLS VPN for multipoint-to-multipoint connectivity for large distributed enterprises," says Roopa Shree H. "Also, large carriers are showing increased interest in integrating telepresence type of solutions with MPLS, which obviously makes sense for large enterprises."

Some interesting trends are expected in the next four to five years, with solution selling greatly taking precedence over pure transport or bandwidth, the report predicts. Business VoIP/SIP trunking and hosted/managed security services bundled into transport are expected to clearly dominate the market landscape.

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