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Ethernet goes small-time
By Carol Wilson

May 13, 2008 3:45 PM

Growing demands at small- to medium-sized businesses make them a prime target for Ethernet services

When Ethernet first crept into the market as a carrier service in the late '90s, it was mostly targeted at the high end: enterprises with multimegabit bandwidth needs.

But even the smallest business has seen its bandwidth requirements grow as more routine tasks are automated and more commerce moves onto the Web, so the appeal of services that are faster than legacy T-1s and frame relay offerings has spread downmarket as well. Combine this need for speed with the arrival of technologies that enable Ethernet-over-copper (EoC) and cable companies' hybrid fiber/coax (HFC) networks, add in the renewed competition in the small- to medium-sized business (SMB) space among incumbents, CLECs and cable operators, and you have a hot market opportunity.

What you don't have, however, is a monolithic view of what is, after all, a very diverse market. Some service providers, such as Cogent Communications, Optimum Lightpath and Verizon, are delivering Ethernet exclusively over fiber. AT&T recently joined Cavalier, XO Communications and others in using EoC to extend the reach of their services to the more than 80% of the business world not served by fiber. Some companies are focusing on Ethernet for Internet access, while others are offering more managed services, such as virtual private network (VPN) capabilities or integrated access that combines voice and data offerings.

For one stark contrast, consider two active competitors in the carrier Ethernet for SMB space: Cogent and Cavalier Broadband.

Cogent has been offering Ethernet at a flat-rate price since the late '90s, targeting SMBs in TSBs — tall, shiny buildings — with fiber-based Ethernet, almost exclusively over its own network. Cogent offers 100 Mb/s services, gigabit Ethernet and 10 Gb/s service. “We have 6000 small-business customers,” said Dave Schaeffer, CEO of Cogent. “We have approximately 10,000 miles of metro fiber, about 260 rings in 100 markets. We are directly connecting into about 925 very large, multitenant office buildings — they average 580,000 square feet, 51 tenants, 42 stories tall.”

Cavalier got started last fall with its formal Ethernet service launch. As a CLEC, it buys dry copper loops, called unbundled network element loops (UNE-Ls), from incumbents and bonds them using Hatteras Networks gear to deliver services at 3, 5 and 10 Mb/s. “The great thing about this is that you don't have to be in a bigger building to get it,” said Glenn Moore, director of marketing and sales operations for Cavalier. “A lot of people think they can't get the service, and they are surprised to find they can.”

For all the current activity, however, it's important to remember these are still early days for Ethernet in this market.

“I hear a lot about it, but I don't see it in [Yankee] surveys yet,” said Steve Hilton, analyst for Yankee Group specializing in the SMB space. “I don't see small businesses adopting Ethernet over whatever in large volumes. It may be they don't know what they have, or it may be too early. Small businesses do have this need for speed as more of them adopt software as a service — on-demand applications — and as they host their own Web sites with e-commerce functionality. They have the need for more speed. But it's slow going; it is taking a while.”

There are multiple drivers for SMBs to look to Ethernet, according to just about everyone in this space.

“Historically they have been using T-1s, ADSL and cable — one carrier we know was quoted as saying Ethernet is the new T-1,” said Eric Vallone, vice president of marketing for Actelis Networks, a maker of EoC gear. “Everyone needs it — everyone wants it — because of the quality of service and symmetrical services that you can get.”

“We are seeing a lot of downmarket push for Ethernet services because of how simple, scalable and cost-effective Ethernet services are,” said Greg Harris, director of Ethernet services product management for AT&T. “A lot of SMB customers are familiar with the technology because they are using it for the LANs. Usually, we can go right into what they are using on their premises. It has connections to Ethernet to make it readily available. The simplicity of Ethernet is really attractive to small to medium businesses, and the scalability — it's able to grow with them.”

Ethernet is replacing legacy services such as frame relay and offering more flexibility for growth than adding T-1s, often at a lower price.

“What we like to focus on is the cost per meg of connectivity, and it is far more cost-effective on a per-meg basis,” Moore said. “Customers are going from 1.5 meg to a 3 meg service, and it's only 20% more expensive.”

Cavalier also will order additional dry pairs of copper to deploy for each customer to enable it to upgrade the service later from a remote location without rolling a truck, Moore said.

(Continued on next page)

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