The carrier Ethernet equipment market continues to grow, having reached $12.7 billion in 2010. Even though the market is growing strongly, deployments vary widely by region and by application, which has driven requirements in different directions, forcing vendors to think hard about where to place their R&D investments.
RAD Communications is one example of a small vendor trying to expand with the market by taking a focused approach and using internally developed ASICs for its EAD (Ethernet access device) NIDs (network interface devices). The technology allows the company to specifically configure its EADs for business services and mobile backhaul applications to lower costs for network operators. This is a must for any vendor competing in the $4.7 billion EAD market, which accounted for over one-third of all carrier Ethernet spending in 2010.
As noted in Ovum’s soon to be published “Market Segment Profile: Carrier Ethernet,” carrier Ethernet technology is being used more extensively in the established economies of North America, Western Europe, and parts of Asia-Pacific (Australia, South Korea, Japan) than in less-developed markets, including China, India, MEA, and SCA.
This presents two distinct sets of requirements for vendors: Operators that have deployed carrier Ethernet on a wide scale are interested in capabilities, such as operations, administration, and management features that help reduce opex, while operators in regions where carrier Ethernet is just beginning to see deployments are more interested in reducing capex.
In addition, carrier Ethernet requirements for the two major uses of the technology (business services and mobile backhaul) vary widely. Mobile backhaul networks require synchronization and timing (for handoffs between cell sites) and also the capability to support TDM (E1/T1) services. Business Ethernet services generally replace TDM and thus do not need to provide TDM or timing capabilities. A third set of capabilities is required for wholesale operators that make a business of providing carrier Ethernet access both for business services and mobile backhaul services.
It is critical for vendors seeking the widest possible addressable market to provide products and solutions that can be configured to support different applications and geographical preferences and that address specific customer needs. However, it often becomes difficult to address such a diverse market with a single product.
RAD provides a good example of a small vendor doing well in the EAD niche and looking to provide a low-cost, but still feature-rich, set of products that exposes the company to a wider range of markets. The company provides critical fault location and performance-monitoring features, integrating service access and demarcation into a single product for developed markets, while providing more cost-conscious products for emerging markets like India. Other vendors such as Telco Systems are also trying to strike a good balance of inexpensive and feature-rich solutions.
Competition and pressure on pricing moving to equipment providers
In the markets where carrier Ethernet adoption has been greatest, we are seeing increasing competition among service providers. This is driving down service pricing (particularly on popular routes) and increasing the need for flexibility and intelligence so providers can differentiate their services from those of the competition. In turn service providers are increasing the pressure on equipment vendors to provide lower-cost solutions both from a first-in (capex) perspective and ongoing maintenance (opex) perspective. Mobile operators are very sensitive to costs because service revenues they get from their customers are not rising as fast as the capacity required to support their network backhaul needs.
Carrier Ethernet (also known as metro Ethernet to some) is meanwhile rapidly moving into and across core backbone networks. This is true particularly with wholesale providers that are providing Ethernet access service to endpoints that are located in different metros. This means that the end-to-end Ethernet service is crossing more than one network, creating the need to provide uniformity of service attributes across those networks.
Right now, each service provider may define Ethernet attributes a little differently. Uniform service-attribute definitions are critical to maintaining end-to-end network visibility to ensure SLAs (service level agreements) are being met. Since such a large number of Ethernet services are provided via wholesale agreements, SLAs are extremely important to service providers, and end-to-end visibility and SLA monitoring are critical features that often differentiate vendor offerings.