As business customers continue to seek higher capacity network connectivity for Ethernet access, the demand for gigabit-speed commercial services is rising.
According to Vertical Systems Group, gigabit Ethernet ports are increasing at a double-digit CAGR, while 100 Mbps and lower speed ports are steadily eroding. The research firm added that when considering current growth rates, Gigabit ports will exceed the number of Ethernet ports at 100 Mbps and lower speeds by 2027.
Gigabit revenue drives the bulk of the $18 billion U.S. Carrier Ethernet services market and surpasses lower speed revenue contributions.
“This view incorporates the impact of price compression and ongoing customer migration to other services,” wrote Rosemary Cochran, principal and co-founder of Vertical Systems Group, in a new blog post. “Except for DIA, price erosion affects these five other Ethernet service segments included in Vertical’s research analysis – i.e., Ethernet Access to IP/MPLS, EPL, EVPL, Metro LAN, and WAN VPLS.”
One of the critical drivers for 1+ Gbps revenue is Dedicated Internet Access (DIA), the leading service for gigabit speeds supporting managed SD-WAN customer networks. Coming right behind DIA is Ethernet Private Line (EPL), which is driven by what Cochran wrote is “enterprise applications requiring low latency, point-to-point circuits for secure, dedicated access to Cloud services.”
Scaling gigabit revenues
Within the gigabit Ethernet market, there are three main speed profiles—1 Gbps, 10 Gbps and 100+ Gbps—all of which have revenue profiles.
Today, 1 Gbps is the most widely installed gigabit service based on port installations and remains the top revenue source through 2027 across all Ethernet services. However, VSG pointed out that 1 Gbps revenues will decline as business customers migrate to higher-speed Gigabit Ethernet ports or adopt emerging services like optical wavelengths.
As the next step up, 10 Gbps ports will continue to grow at what VSG says is a “double-digit growth rate” through 2027 due to service upgrades and expanding market demand. The 10 Gbps segment is expected to continue to rise and almost double between 2022 and 2027.
The 100+ Gbps segment has a small, but what Cochran wrote is a “rapidly developing port base.” The outlook for this segment is accelerating customer requirements for higher-speed connectivity, a factor that can be attributed to competitively lower pricing (per Gbps). VSG expects 100+ Gbps revenue to increase by almost 5x between 2022 and 2027.
Alternative service threats
While Gigabit Ethernet has some healthy growth projections, it faces various threats from carrier-managed SD-WAN and SASE, wavelength services and dark fiber:
SD-WAN/SASE: For businesses adopting Carrier Managed SD-WAN/SASE services, these customers leverage diverse access connections, including broadband and Ethernet DIA. There are different motivations for each access method. Ethernet DIA provides three key attributes: secure, symmetrical gigabit speeds, while broadband connections offer a widely available lower-cost link.
Wavelength Services: Offering services up to 400 Gbps and above, wavelength services are fast emerging as a new option from a host of traditional and competitive providers such as Lumen, Zayo, Verizon, and AT&T. Wavelength services offer business customers managed, dedicated circuits with pre-determined latency. A growing group of large enterprises, traditional service providers, and hyperscale data center providers are leveraging wavelengths for backbone and IT cloud applications.
VSG noted in its U.S. Wavelength LEADERBOARD that customer demand for retail wavelength circuits will continue to outpace wholesale deployments in 2022.
Dark Fiber: Dark fiber has become a sought-after service for business customers who desire custom-designed connectivity or proprietary application interfaces. VSG noted that dark fiber offerings could require the customer or the provider to oversee operations and termination equipment costs.
While there are various options, the on-net fiber in business buildings remains the common thread for Ethernet services. VSG found that business fiber connectivity reached over 1.4 million U.S. commercial buildings and data centers.
The research firm revealed in its fiber availability research released earlier this year that availability increased in 2022 to 76.4% of sites for the Fiber 20+ segment, which covers four Medium and Large building sizes ranging up to 251+ employees. This compares to 19.1% of sites in the Fiber <20 segment of small buildings with fewer than twenty employees.
“Today, nearly two-thirds of retail U.S. Ethernet connections are delivered over direct optical fiber,” Cochran wrote. “However, the need for business fiber expansion continues.”
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