Carriers ponder metro optical and Ethernet investments

28 January 2004 San Jose, CA Lightwave -- Service provider metro capital expenditures are beginning the shift from legacy TDM to products based on Internet Protocol (IP) and Ethernet, driven by increasing customer demands for metro Ethernet services, contends a new report from Infonetics Research. Service providers plan to offer more Ethernet services, plus other services over Ethernet, but their spending plans could speed up if manufacturers solve a number of tricky technical challenges.

28 January 2004 San Jose, CA Lightwave -- Service provider metro capital expenditures are beginning the shift from legacy TDM to products based on Internet Protocol (IP) and Ethernet, driven by increasing customer demands for metro Ethernet services, contends a new report from Infonetics Research. Service providers plan to offer more Ethernet services, plus other services over Ethernet, but their spending plans could speed up if manufacturers solve a number of tricky technical challenges.

For example, nearly two-thirds of the service providers plan to roll out Quality-of-Service (QoS)-based services over Ethernet by next January--including packetized voice, bandwidth on demand, and private lines--but manufacturers must address the problem of providing QoS for Ethernet services, the highest-rated technical challenge. This is a particularly nasty problem, since providers use different technologies to reach their various target customers: wholesale (provider to provider), large business, medium business, small business, small office/home office (SOHO), and residential.

"All carriers are offering Ethernet or will soon, because corporations are demanding it," asserts Michael Howard, principal analyst of Infonetics Research and lead author of the report. "Ethernet offers higher bandwidth at a lower price per bit and is simpler. Carriers offer Ethernet services over a variety of technologies, including MPLS [Multi-Protocol Label Switching], SONET/SDH, RPR [Resilient Packet Ring], and WDM, raising the complexity and creating some tough technical issues for manufacturers to address. As soon as they do, they'll find service providers ready to invest."

The study is based on formal interviews with 27 infrastructure-owning service providers in North America, Europe, and Asia Pacific, as well as informal discussions with these and many other service providers. Of the providers interviewed, 56% are incumbents and IXCs; the rest are competitive operators and IOCs.

The report also finds that:

• 63% of respondents will use an RPR network after January 2005 (more than doubling from 2003).
• Ethernet switches and routers are the main technology for delivering Internet access. SONET/SDH is preferred for virtual private line services; WDM is preferred for SAN extension.
• The leading revenue source among metro Ethernet services in 2002 was wholesale, but in 2004, retail point-to-point leads with 44% of such revenue.
• SONET/SDH services provide the bulk of metro optical service revenue from 2002 to 2004, as they have for many years.
• European respondents are much more concerned with competing with their own legacy services: 57% rate it highly as a challenge, versus 17% of North American respondents.
• Incumbents are very concerned with operational expenditures (64% rate it highly as a business challenge), while only 6% of the other types of service providers rate it highly.
• Asia remains a metro Ethernet and optical network hotspot.

For more information about the report, Service Provider Plans for Metro Optical and Ethernet, visit www.infonetics.com.

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