When will Ethernet spending overtake DSx spending?

Stateside, wholesale transport migration has accelerated this year, as shown in the latest edition of ATLANTIC-ACM's Metro Wholesale Carrier Report Card.

With over 1,500 ratings from customers sorted into seven wholesale sectors, we group trending data into Ethernet; wavelengths; OCx & Above; and DS3 & Below. We then provide you with the spending differences among seven verticals.

As you might guess from your own orders this year, Ethernet’s overall share grew the most during 2011, jumping from 26% of spend by all verticals in 2010 to 31% in 2011. Wavelengths also gained share (from 11% to 14%), with OCx & Above up only one point, to 18%. Growth in share in three of four segments signals companies flocking away from the remainder. The DS3 & Below segment, which held a 63% share in 2008, now represents 36% of spend and will likely lose its position as the largest spending category to Ethernet by the time we report 2012 results.

Macro trending is important, but the real story of technology migration lies in the verticals. Here, we see change driven by sunken costs, scale, market timing and even surprise market events. Rolling with Ethernet for a moment, although international carriers purchase more OCx and above transport than any other vertical, this segment’s Ethernet spending share of 27% is below that of all other verticals, as well as the only segment which is flat year-over-year by percentage of Ethernet spending. This stems from the mid-2000s push in network building when Ethernet was not as readily available, and Wave was the best choice for Big Data. Thus, international wholesale customers report Wave network choices as 36% of their 2011 spending, far exceeding other segments’ use of Waves.

Conversely, newer network builders – those in the cable/content/ISP segment – lead all verticals in Ethernet adoption as the timing of their build outs allowed them to purchase further forward in the technology lifecycle. It is no surprise, then, that the CLEC/CAP vertical ranks second in overall allocation, though this segment’s 32% of spending on Ethernet trails the cable/content/ISP segment’s 44% adoption by a wide margin.

Retail market forces also factor into this adoption curve – some unforeseen and some well known. Massive iPhone adoption after the 2007 introduction, and struggles to keep pace with that demand, forced wireless carriers to purchase legacy products for ease and speed of provisioning. There wasn’t time for a planned migration to Ethernet. Now that migration is in full force, wireless is catching up to CLECs and ILECs in Ethernet spend, moving from 16% to 29% of wireless spending from 2010 to 2011.

The upside to all of this is that, even though its price-per-meg is a fraction of the legacy technologies it replaces, metro wholesale demand for Ethernet is so massive that it is driving new revenue growth. These are the shifts and cycles that makes our industry exciting and keeps our leaders up at night. I t is always the hearty and/or flexible players that land on top.

Judy Reed Smith is CEO of Atlantic-ACM. She can be contacted at judyrsmith@atlantic-acm.com

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