What are Ethernet exchanges?

01 January 2011 |


The popularity of carrier Ethernet as a solution to connectivity challenges in the wide area has been growing steadily for nearly a decade. It cost-effectively and straightforwardly presents a way to move large volumes of data traffic from any point on a network to any other, enabling speedy provisioning of extra capacity when needed without breaking the bank.

Up until very recently, the only serious drawback to carrier Ethernet was that interconnection between one operator’s network and a separate network necessitates a lengthy and expensive process of commercial negotiation and alignment of networks with subtly different properties. When another interconnect was needed, the process was started again from scratch.

The carrier-neutral Ethernet exchange is an idea that aims to change all that, threatening to do for the exchange of Ethernet traffic between networks what peering exchanges have been doing for internet traffic for years.

How did these exchanges come about?


The Metro Ethernet Forum (MEF) has been the starting point for all the key advances made by Ethernet over the last decade, and exchanges are no exception.

The MEF had been deliberating for a while about making interconnection a whole lot easier, when in 2008 it launched a global interconnect programme at the Carrier Ethernet World Congress in Berlin. The programme’s goal was to help make carrier Ethernet scale more effectively, not just within each service provider footprint, but globally between providers.

Out of the programme, the concept of the Ethernet exchange was born – a facility where, independent of the control of any one carrier, traffic could be swapped between different Ethernet service providers. After much deliberation, the MEF Ethernet Exchange committee decided that the model would be best implemented not by the MEF itself, but by an independent company. The result was CENX, which opened for business in late 2009 with three exchanges in Los Angeles, Chicago and New York. The CEO of CENX is MEF president and founder Nan Chen. It has since spread its operations to Europe and is eyeing opportunities in Asia.

Who else is active in this space, or does CENX have all the action to itself? 


CENX may have first-mover advantage, but it does not have the market to itself. The other player of note is Equinix, a well-established operator of data centres allowing for large volumes of IP traffic to be swapped between networks. It has moved into the Ethernet exchange sector where its advantage is an extensive portfolio of data centre real estate, while CENX’s advantage, for the moment at least, is its closeness to the heart of the development of interconnect standards, like the MEF’s newly ratified eNNI kitemark.

What effect are these exchanges likely to have on the telecoms industry?  


Wholesale telecoms is already the fastest-growing subset of the entire carrier Ethernet scene, according to the MEF, putting demands on carriers to find more effective ways to interconnect. Smoother interconnection will enrich the market by bringing many more players into it, not just from mature markets in Europe and north America but developing telecoms markets in, for example, Asia and Latin America. They too will, thanks to the exchange model, have an easy way to terminate their customers’ traffic practically anywhere they want without a long list of preliminaries that would stretch their budget. One contract with an exchange operator and away they go.

Are exchanges in everybody’s interests, or are there losers?


Exchanges would seem to be very much more in the interests of smaller, more localised service providers who do not have an armoury of existing off-net deals in place. Bigger carriers with a multinational footprint that have spent years painstakingly assembling partnerships that allow their customers’ traffic to flow around the world, may feel nervous about the idea of doing a deal with an Ethernet exchange operator that lets any other customer of that exchange enjoy the fruits of their wonderfully dense and highly invested network. One person’s plug-and-play simplicity is another person’s dangerous swing towards commoditisation and loss of control.

Where’s the motivation for big carriers to play?


On the plus side, bigger carriers need to reflect that in a global marketplace, they don’t have the power to reach everywhere on their own, and exchanges may well offer them an inexpensive way to reach some outposts that they didn’t until recently think were relevant

to them. Exchanges will speed the time it takes to enter new markets for those with an expansionist strategy, or simply achieve service and network extensions for those who just want a toe in the water.

They can also take comfort from the adage that the value of a network increases exponentially as more endpoints are added. Players like Verizon Communications, Level 3 and RCN Metro clearly think so, as they have all agreed recent deals with exchange operators.