Growing Pains

15 June 2010 |


The immaturity of the carrier Ethernet market is reflected in the wide variations in pricing around the world. Guy Matthews asks if and when it will even out.

With so much faith now pinned on carrier Ethernet as the answer to the future needs of carriers and service providers, it is easy to forget just how young it is as a market. A primary characteristic of pretty well any immature market is diversity, fragmentation and unevenness in pricing and availability.

Carrier Ethernet is no exception. It can be purchased in any one of a range of flavours – over SDH, MPLS, DWDM, copper, fibre, pure Ethernet – with the price you will pay for it also varying wildly depending on geography and also other variables like required level of performance.

So when can we expect carrier Ethernet to grow up and even out? Is this something to be expected in the near or far term? Is this something to be desired? Or is the market’s diversity and granularity in fact a boon, to be celebrated while it lasts?

“With its origins as a LAN standard, Ethernet is as yet a lot less standardised when applied to the wide area,” says Erik Kreifeldt, senior analyst at Telegeography, and an expert on Ethernet pricing and variety. “It has evolved in many different ways as a long-haul technology, which is why it has proliferated into many different types of service. It’s been available over SDH for some time, but most service providers now offer a number of choices for how it’s delivered. When you talk about carrier Ethernet you can mean a lot of things. That’s before you even get into all the different levels and classes of service.”

Kreifeldt argues that the wide range of pricing, even within the different flavours of Ethernet, is also largely to be expected: “Why? Because it’s a relatively new product, with consequent volatility in what different providers deliver,” he says. “There’s a far higher differentiation of pricing of similar services in Ethernet than there is in legacy services. That Ethernet comes in a more diverse array of options than legacy contributes to this differential.”

A lot to think about

Ethernet is still emerging as a carrier-class solution, whether it’s being used as an access technology for other solutions, or as a full service in its own right,” says Bob Walters, executive director of product marketing at AT&T Business Solutions. “As a result, we have solutions in all spaces, and emphasise the flexibility we offer in migrating between them. We can offer this migration because of how we built our architecture. Whether you’re talking about a dedicated or a switched service, it all depends on what the customer needs and on what they are trying to accomplish.”

The variety and diversity of Ethernet may present buyers of wholesale services with a lot to think about, but provided they are prepared to sift through the options, they should find advantages in the market’s multiplicity, says Kreifeldt: “You can think you’re asking for a service that comes at a pretty standard price: ‘I’d like to connect from London to Glasgow at 100Mb per second please’,” he says. “But you’ll get quotes that don’t seem to come from any price list. Maybe this is because there are different service levels at play that aren’t immediately apparent from the price. The other side of the coin is that with all this variety you should be able to find what you want as a buyer.”

Wholesale customers, he says, ought to be able, by looking, to find the service level they are after for a price they are prepared to pay: “With something like an IP-VPN service that’s been around for a while, you’ve all sorts of choice from best efforts to real time,” he says. “Ethernet affords this sort of flexibility too. If you’re buying a straight SDH service, you’ll find all your choices come at a similar level of performance, and that perhaps you’re locked into a higher performance level than you want for your traffic. Ethernet, as anyone will tell you, is a lot more granular and easily scalable than that.”

Striking a balance

The boot is plainly on the other foot for the carrier assembling a product portfolio to meet the needs of buyers, deciding on a balance between variety and profitability. Greater standardisation in the way Ethernet is sold would, argues Kreifeldt, ease this process while also bearing risk.

“With all standards there’s a balance to be struck between enough to make interoperability possible, and to make what you’re offering readily understandable, but not so much that it’s a straightforward commodity,” he says. “Commoditisation is clearly not so bad for the buyer, but as a service offering you want to be able to differentiate yourself against the competition, or even within the confines of your own product range to be able to offer different things at different prices.”

There is clearly, says Kreifeldt, an appetite across the market for more standardisation than it currently enjoys, and he believes efforts to bring this about are for the most part welcome.

“I do believe that Ethernet is moving to greater uniformity and standardisation, even if there are still a lot of service providers out there whose offer is not MEF-certified,” says Rena Bhattacharyya, research manager for enterprise telecoms services at analyst firm IDC. “There are people out there who don’t think a more unified Ethernet world is necessary or important, but in the US market that I am familiar with, people are looking for a tried and tested solution. They would not have been interested in carrier Ethernet in its early days when it was best efforts, but it’s got credibility now. Like IP VPN, initial scepticism is something people have moved on from. They are happy to use Ethernet and IP VPNs in their network.”

Different needs

Despite moves towards greater market uniformity, service providers still need a well-rounded offer in all areas to make them well placed to work with enterprise and wholesale customers. And this will naturally entail price variance.

“There’s not one price that fits all situations,” says Sarita Fernandes, senior director of product management at Reliance Globalcom. “For price, you need to understand what customers really want. Everyone has different needs. Otherwise we’re heading down the path of commoditisation.”

John Hoffman, head of Ethernet product management for the global VPN services division at Tata Communications, is also wary of a drift to homogeneity: “There was a big call a few years back to ‘standardise Ethernet’,” he recalls. “There’s less of that talk now. One of the nice things about Ethernet for a lot of people is the variety. We’ll probably see more unity of pricing though, although we’re probably 10 years off true pricing consistency.”

There’s more to seeking out the perfect wholesale partner than just the issue of price, argues Emma Forrest, product manager for Ethernet at Cable & Wireless Worldwide: “We price our Ethernet in two bands, locally and nationally,” she says. “You can go from London to Edinburgh for not much because of our national network. It’s MPLS so more efficient than a legacy network. Scale is something important to look for in a wholesale partner.”

Regional variation

The differential in the pricing of Ethernet is not evident simply between different types of services, but also by region. So why is Ethernet connectivity between Asian PoPs so much higher than in mainland US?

“Pricing for Ethernet services around the world clearly mirrors, by geography, other types of service,” says Kreifeldt. “That’s because although Ethernet is a newer type of service, it’s layered on top of the same network that’s always been there. “If you look at places where there is not much Ethernet, like Africa, the priority there is just to get the basic network in, then get on to deciding what layers of service you’re dealing with. There are fundamental needs that must be answered first. If you look at a more developed market, like Latin America, there’s less competition there in services generally than there is in, say, north America, and that’s going to reflect in the price of Ethernet regardless of what layer of network you’re talking about.”

The more even and market-driven pricing of a mature market like north America is only really skin deep, argues Walters of AT&T: “The carrier Ethernet market in the US looks on the face of it to be commoditised and stable,” he says. “But if you look back not all that far in time, you see a market full of variables, slowly migrating to the sort of commonality and consistency that generates confidence. As service providers we all recognise this is necessary, which is why we all belong to the MEF. If Ethernet is to be the dominant technology over time, as planned, then standards will need to continue to emerge. We’re still at an early stage though. It’s a that than can take years, and the MEF has a lot on its plate in terms of new standards to drive.”

Bhattacharyya of IDC sees Ethernet’s regional pricing differential dissipating over time: “I also see more and more Ethernet connectivity in remote locations,” she says. “Because the world is becoming more globalised, it just makes sense to be able to interoperate better.”

Evening out

Telegeography’s Kreifeldt also anticipates a smoother landscape, casting ahead a year or more: “I’d imagine that the wide range of pricing we’re seeing, and which is reflected in our report samples, is going to even out over the next three of four years,” he says. “Maybe we’ll see those offering the lowest prices raising them or the higher prices falling, or both. Maybe at least the different performance levels implied by the pricing will at least be more apparent and more rational. At the moment you have to factor in that carrier Ethernet is a new product in hot demand, and that’s not generally a catalyst for prices to fall. Remember that a year or so ago, a lot of the product we’re seeing on the market didn’t exist yet.”

Product lines, he believes, will mature, and be both better understood and easier to compare with other prices: “Customers will gravitate towards those services that work for them,” he predicts. “Exactly where the balance will be found between standardisation and differentiation – bearing in mind you’ve got opposing forces with different motives – I don’t know.”

Ethernet will not only decrease in cost, but will continue to delivering more features and better performance for that decreased cost, predicts Reza Vaez-Ghaemi, technology manager for emerging markets at vendor JDSU.

“The wide range of emerging IP applications requires a technology that can meet both high-end performance and low-end cost-sensitive cases,” he says. “While Ethernet is not expected to be the perfect and exclusive solution, it definitely delivers many components necessary for the this wide range of applications.”




 

HOW ETHERNET IS PRICED

 

The way in which carrier Ethernet is priced, and how it is delivered, is the subject of a report by analyst firm Telegeography titled International Long-Haul Ethernet Service Pricing.

The report surveyed the Ethernet pricing of a number of major carrier names around the world. It found that of the seven carriers surveyed that offer both Ethernet over MPLS and Ethernet over SDH, six offered the MPLS service at a discount to traditional Ethernet over SDH for the same capacity. The premium for EoSDH over EoMPLS varies widely by carrier, ranging from 15% to 80%.

Most carriers also offer a differential in pricing between EoMPLS and Ethernet over DWDM. Five offered both EoMPLS and EoDWDM for the same routes and capacities, three of which price EoDWDM at a discount to EoMPLS, with the other two pricing the services uniformly.

Different architectures of EoMPLS have different prices. A pseudowire, or virtual circuit that tunnels through the MPLS cloud, is generally sold at a significant discount to a port-based VPLS service, the comparison analogous to price differences between SDH/Sonet and Layer 3 IP VPN.

North America and Europe are the least costly regions for Ethernet. Intra-Asia routes are much more expensive. India has the highest EoSDH prices in the data set.

“As our data demonstrates, all Ethernet services are not the same, and prices vary significantly based on the product required,” concludes Erik Kreifeldt, senior analyst at Telegeography and author of the report. “Rather than simply checking for the best price on a commoditised service like SDH/Sonet, customers must also evaluate service characteristics.”

Ethernet’s advantages, both in terms of carrier cost and customer price, are likely to lead to more market share in the long-haul communications market at the expense of rival standards, he believes: “Legacy corporate network technologies such as ATM and Frame Relay, SDH/Sonet and perhaps in some instances even MPLS-based IP VPN will be replaced,” he says. “As this occurs, and as carriers enter the Ethernet market in greater numbers, prices will likely fall as we have seen with other products.”