Vertical: Ethernet bandwidth is outpacing legacy service bandwidth

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While there are still a lot of businesses that have completely let go of their legacy Frame Relay, T1 and ATM services, a new Vertical Systems Group report reveals that Ethernet bandwidth is actually taking the lead.

The research firm argues that 2011, which is interestingly coincides with the 10-year anniversary of the Metro Ethernet Forum, marks a "tipping point" in an uptick of new Ethernet service installations with bandwidth rates scaling up to 10 Gbps and beyond.

By 2015, Vertical forecasts Ethernet bandwidth will more than double based on the research group's analysis of enterprise service requirements.

VSG Business bandwidth"Between the period from 2005-2015, the access connections have a compound growth rate of 1 percent, but the bandwidth is 22 percent," said Rosemary Cochran, Principal and co-founder of Vertical Systems Group in an interview with FierceTelecom. "The reason is that while the access connections haven't changed much, the capacity of those connections has gone up quite a bit."

During this transition period, service providers like AT&T (NYSE: T) and Verizon (NYSE: VZ) are seeing legacy services Frame Relay, ATM and T1 circuits eroding while Ethernet and IP services continue to rise. Such a trend was reflected in AT&T's Q2 business earnings results, for example.

AT&T reported that Q2 2011 total business revenues were $9.3 billion, down 0.3 percent sequentially and down 4.1 percent versus Q2 2010. The slight decline in AT&T's business services segment was due to slow voice and legacy data products like Frame Relay. At the same time, AT&T reported that next-gen services--including Ethernet, VPNs, hosting, IP conferencing and applications--grew 19.4 percent.

In conducting its research, Vertical looked at three factors: the 5 million connections, including Ethernet, FR, private line, ATM, IP connection, broadband (cable and DSL) being used by businesses; the speeds; and the amount of bandwidth that's available to use.

"We looked at where the bandwidth is coming from and the fact that there are still a lot of legacy circuits, which is still growing because customers are moving up, the upswing in bandwidth has been 10X for Ethernet in the past five years," Cochran said.

As businesses look to upgrade their respective services from lower speed T1 and Frame Relay circuits to Ethernet, they are looking at various options, including CLECs and even cable operators. This phenomenon creates a new opportunities for these players that don't have to deal with cannibalizing legacy service revenues.  

"Customers are migrating to other services and that's the point at which they look for alternatives, including a cable company like Comcast and see what they have to offer." Cochran said. "They will either stay with their current incumbent provider or look to some competitive provider or a cable company, which does not have to worry about preserving existing T1 service revenue."

For more:
- see the release

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