Global Ethernet Telebriefing 06 23 09

Washington DC / Paris

Ethernet Services: Global Market Drivers & Winning Portfolios

David Hold, Joel Stradling & Siow Meng Soh

June 24 & 25, 2009

To listen to a replay of this presentation, go to: http://www.currentanlysis.com/t/2009/ethernet/ethernetserv0609.htm

Introductions

Siow Meng Soh, Senior Analyst, Telecom Services Asia

David Hold, Senior Analyst, Business Network Services, North America

Joel Stradling, Senior Analyst, Business Telecom Services Europe

Agenda

1. Broad Trends in Ethernet Services and Market Penetration

2. Current Controversies: Ethernet vs. IP VPLS, MPLS & Scalability

3. Reaching Customers: Topics in Ethernet access: Ethernet over Fiber, Bonded Copper & TDM circuits Off-net Access via E-NNIs

4. Market Verticals & Applications Who is buying Ethernet and why

5. Buying Criteria – What makes a Winning Portfolio? Regional Market Landscape and Leaders U.S, Europe & Asia Pacific

6. Future Directions – Taking Ethernet to the Next Level

Broad Trends

Ethernet is replacing legacy data networks

Different country-by-country and cross-border landscapes around the world:

Regulatory environment, network legacy/next-generation, competition, and so on

Business applications are driving take-up: Software as a Service (SaaS), hosted UC & VoIP

Additional ICT trends driving Ethernet take-up: Data centre consolidation, virtualization, ICT outsourcing

Broad Trends by Ethernet Services Types

Positive

Immature Mature

EPL-Metro

Metro Ethernet(All types)

Cross-border VPLS

Ethernet Access

National VPLS

Negative

Momentum

Maturity

Neutral

EVPL

ETREE

Transparent LANServices (TLS)

EPL-LH

Market Penetration

Carriers experiencing high double-digit growth mainly due to migration from legacy services

Ethernet circuits still low (<10-15%) compared with other circuits; mostly metro Ethernet circuits (long haul Ethernet circuits <25%)

Point-to-point still more common than multi-point

Metro Ethernet still more common than long haul (inter-metro)

Market Penetration

U.S. market approaching an estimated 200K ports in 2008

Port & Revenue Growth* The largest carriers seeing growth rates of 50-70% per year Cable operators report growth ranging from 30% to 45%

Ethernet growth rates may be “recession-proof” Multiyear enterprise contracts Companies are looking for cost savings, which Ethernet delivers Demand still rising for bandwidth, which Ethernet delivers Migration from legacy services may even increase

* These projections were made in 2008 before the economic crises in Q4 2008. Growth was apparently on track until Q3 of 2008, at which point most carriers experienced slowing sales, although Ethernet appears to have been less affected, with growth rates slowing but not declining in absolute terms.

Ethernet vs. IP

We see the technologies as complimenting each other

Different horses for different courses – vendors should really be avoiding shoe-horning end-users into a specific technology

Some incumbents are still moving slowly with aggressive Ethernet plays because there is a risk of cannibalization

IP/MPLS – investments have been made and for solid reasons: Neat QoS & traffic-shaping Suitable for few hundreds of sites

VPLS

VPLS – Is it Ethernet or MPLS? Layer 2 or Layer 3? Virtual Private LAN Service runs over MPLS Pseudowire mesh Defined by IETF, not IEEE We view VPLS as Layer 2 service, since no customer IP routing is involved

– Ethernet hand off; MAC address forwarding

Advantages of VPLS Scales Carrier Ethernet beyond metro -- national and international Customers to build full mesh WANs at Layer 2 using lower cost interfaces Provides traffic traffic management for better QoS and more reliable SLA Carriers leverage investment in national or global MPLS infrastructure

Growing worldwide VPLS deployments by major carriers U.S. – AT&T, Level 3, Qwest, Masergy, Reliance, tw telecom, Verizon

Business; Global Crossing by Q4 2009 EMEA – KPN, COLT, Tinet Asia Pac – SingTel, HGC, Reliance

VPLS & Scalability

But can VPLS scale to large enterprise networks? That is a major debate; demand for VPLS led by large enterprises Majority opinion is no – max 50 sites, preferably less Minority opinion -- VPLS can scale to hundreds of sites or more Verizon proposed hierarchical VPLS architecture scalable to 1000 sites Most network operators will recommend Layer 3 solution above 50 sites Hybrid MPLS/VPLS solutions are being proposed

Scalability issues fall into two categories; carrier and customer Customer issues revolve around previous experiences with instability in

large flat Ether-networks. Customer interior routing protocols, OSPF, require fewer than 50 routers Switches are cheaper than routers but using switches instead of routers

can cause MAC address explosion Carriers respond by limiting or charging for MAC IDs Other carrier issues relate to controlling broadcast and multicast traffic, and

the number of pseudowires needed to build a fully meshed core

E-NNIs

Crucial for international carriers to expand their Ethernet coverage quickly and cost-effectively, particularly for deep in-country coverage

More efficient to have a standardized E-NNI framework MEF Specs near completion (Q4 2009) E-NNI certification is next

Some carriers have established E-NNIs based on the draft MEF standards

Some carriers have taken a more aggressive approach to use E-NNIs to expand their footprint

COLT: 100 E-NNI partners Reliance: 21 E-NNI agreements with key partners HGC: E-NNI with partners such as Reliance, Telekom Malaysia, KT,

StarHub

Most carriers adopt the ‘wait and see’ approach and establish E-NNIs only when there is significant demand in a particular market

Ethernet Access – EoCu, Cable, and Optical Fiber

SPs deploying EoCu in Europe: COLT offers EFM in 12 European countries, based on Actelis BT uses Hatteras to reach approx. 54% of UK businesses BT 21CN fiber: 90% of UK business located within 15 km radius of its

exchanges to make higher speed Etherflow feasible

FTTx desirable for bandwidth intensive applications

At a point above 8 Mbps at least one European SP prefers to deploy dedicated fiber tail

KPN aggressive fiber rollout to business parks: End-users encouraged to sponsor costs Driven by desire to leverage SaaS and remote back-up

Ethernet Access – EoCu, Cable, and Optical Fiber

VAST MAJORITY OF U.S. ETHERNET IS FIBER BASED Most downtown buildings have fiber, plus carrier neutral facilities Outside downtown areas, fiber, and Ethernet access, inconsistent Consequently, Ethernet availability and prices can vary widely

ETHERNET OVER TDM CIRCUITS AND COPPER TWISTED PAIRS Bonded T1 or DS3 -- Masergy, Level 3, tw telecom, Verizon

– Equipment from Overture, Nortel (Tasman)

– Verizon CPA Building Ethernet Aggregation System – ANDA Low speed Ethernet over bonded copper pairs – Max. 10-20 Mbps ILECs AT&T, Equant & Qwest; CLECs Cavalier, XO and others

– Equipment from Actelis, Adtran, Aktino, Hatteras

Cable MSOs Deploy Ethernet over HFC Cox and TWC-Business Class use DOCSIS 2.0 Cable Modems Cox = 5 Mbps and TWC-BC = 2 Mbps Symmetric

Vertical Markets

Four industry verticals are most commonly cited - GEMS Many are well suited to ILEC & Cable MSOs local infrastructure

Governments, Education, Medical, Services (financial) State and municipal agencies

Education K-12 school districts and college campuses

Medical Regional medical centers in single metro area

Services Financial Markets, Banking and Legal

Applications: What are the End-users doing with all this Ethernet?

Large enterprise and MNC: 1 Gig-E to 10 Gig-E data-centre interconnection Ethernet VPN – combining with IP/MPLS VPN IP video; Telepresence; SaaS; Disaster Recovery; intranets/extranets, data

replication Example: BT Etherflow point-to-point customizable specialist IP VPNs,

unique encryption and IP multicast

SME market: Simple and cheap – collapse voice, data & video onto one access Interconnecting small numbers of branch offices Disaster Recovery, remote back-up

Mobile backhaul – and cost-effective core transport

Evaluating Ethernet Service Providers

Current Analysis ‘Buying Criteria’ are used to evaluate the best Ethernet service portfolios

Buying Criteria include network reach (metros, PoPs, nodes, etc), service types, bandwidth range and increments, multiple QoS, real time SLA metrics and customer network management.

‘Winning Portfolios’ include: Extensive on-net coverage and strong E-NNI partnerships for extending

service reach to multiple metros, states, regions & countries Ample choice in the range: namely point to point, point to multipoint, or

multipoint to multipoint – EPL, EVPL and ELAN or VPLS. Ethernet over DWDM wavelengths at the high end.

Broad feature list: such as low, mid, and high bandwidths and flexible increments, fully-managed or non-managed, QoS, client-side and proactive monitoring, and competitive SLAs

Current Analysis’ Ethernet Product Assessments

Carrier Product Assessments: Results

U.S. Leaders: AT&T & Verizon – both players have broad choice and regional/national/int’l coverage

tw telecom national CLEC with fiber to >10k buildings

Cox, TWC-BC strong regional cable operators, + Optimum Lightpath in NY

Contenders: Level 3, Global Crossing, Qwest, Masergy, Reliance (Yipes)

EU Leaders: COLT – pioneer, broad range, EFM in 12 countries, 100+ E-NNIs

KPN innovative VPLS in 22 countries Orange & BT Global Services –

competitive Verizon good EPL product and CPA

rollouts on-going AT&T, Interoute, Global Crossing, Cable

& Wireless, Tata Comms, and Tinet

A-PAC Leaders: SingTel & Tata Comms – good reach and broad options

AT&T, Orange and Verizon competitive, but need local partners

Strong contenders: Telstra, NTT Com, Reliance, PCCW Global and HGC

What are SPs Working on to Move to the Next Level?

Coverage expansions: Adding Ethernet PoPs in key cities Establishing E-NNIs with access partners where demand is high Carrier NGN, including FTTx

Adding new services and features New services e.g., BT and Cable & Wireless VPLS for any-to-any connectivity – national and international 10 Gig-E – pushing need for higher capacity transport Bandwidth on Demand e.g. Verizon Business

Better Performance New submarine cables – improves latency and availability Faster provisioning

Better online monitoring: Inbound and loop-testing adding NTU-to-NTU monitoring

Washington DC / Paris 20

CompetitiveIntelligence

levels the playing field…

Current Analysis is the only competitive research firm that provides solutions to improve your company’s Competitive Response

CompetitiveResponse

enables you to

Win.

ItoTo listen to a replay of this presentation, go to:

http://www.currentanlysis.com/t/2009/ethernet/ethernetserv0609.htm