VSG: AT&T, Verizon retain Ethernet lead, but cable becomes a bigger factor
AT&T (NYSE: T) and Verizon (NYSE: VZ) continue to enjoy their status as the two top providers in the U.S. Carrier Ethernet market, but it's clear that cable operators are becoming a bigger factor, according to Vertical Systems Group's latest Ethernet Leaderboard.
Owning their own fiber gives cable operators three benefits: controlling the customer experience, providing flexible pricing and shortening installation times.
"Cable is gaining ground and the momentum is there," said Rosemary Cochran, principal of Vertical Systems Group, in interview with FierceTelecom. "Because they own the fiber-based infrastructure vs. buying that access from other carriers they can be more aggressive on pricing and get circuits installed more quickly."
Time Warner Cable, which has confirmed plans to be acquired by Comcast, surpassed Cox Business to gain the top Cable MSO provider position on the Leaderboard. Business services continued to be a factor in TWC's revenue mix, rising 20 percent in the fourth quarter to $616 million.
But the most notable provider move was Comcast, which moved up from the Challenge Tier and was the fastest growing of all ranked companies. Like Time Warner Cable, Comcast also reported strong business revenue gains in fourth-quarter 2013 earnings, which rose 25.3 percent for the quarter to $876 million and 26.4 percent for the year at $3.24 billion.
Cable providers initially cut their teeth in the SMB market selling simple bundles of voice and data. In recent years, they have been increasingly moving into the medium-sized business market, one that's been largely ignored by incumbent telcos that focus much of their attention on serving their larger multinational corporation (MNC) customers.
"When you're going up market into the medium business segment, that's where there is more of the underserved area," Cochran said. "If you look at particularly the large companies like AT&T, Verizon, CenturyLink and Level 3, they are going after the larger enterprises so there's a big skew between serving the global multinationals and serving regional companies and metro-based networks."
Interestingly, three of the six service providers included in what VSG calls its Challenge tier are cable operators: Bright House Networks, Charter Communications (Nasdaq: CHTR) and Cablevision's (NYSE: CVC) Lightpath. Joined by Cogent (Nasdaq: CCOI), Windstream (Nasdaq: WIN) and Zayo, the Challenge Tier includes providers with between 1 and 4 percent share of the U.S. retail Ethernet market.
While cable operators are gaining ground, they lack the same depth of incumbent telcos such as AT&T and Verizon and competitive carriers like XO and Level 3 Communications (NYSE: LVLT) to serve multi-market opportunities.
These providers can serve a broader set of customers because they use multiple forms of access, including fiber and even copper where necessary. They also will fulfill out of franchise opportunities by establishing external-network to network interconnection (E-NNI) agreements with other carrier partners.
"They are doing NNIs and other types of delivery," Cochran said. "Providers like XO are doing a lot of Ethernet over Copper and alternatives to fiber that allows them to deliver service anywhere."
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