VSG: tw telecom, XO, Level 3 take dominant competitive Ethernet position

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tw telecom (Nasdaq: TWTC) continues to enjoy a top spot in the competitive Ethernet market due to its aggressive buildout of its fiber network and new software-based capabilities, according to Vertical Systems Group's new Competitive Provider Business Ethernet Leaderboard.

In November, tw telecom announced that it would expand its metro fiber footprint by 17 percent while hatching a plan to enter what it calls five new "high-demand" markets. It also plans to increase the density of its metro fiber footprint in 27 existing markets it already serves.

Evidence of tw telecom's position was on display in its fourth-quarter 2013 earnings.

In the fourth quarter of 2013, tw telecom's data and Internet services revenues rose 13.1 percent to $224 million due to an increase in strategic Ethernet and VPN products. Data and Internet revenue now represent 56 percent of total revenues, up from 52 percent in the fourth quarter of 2012.

Not far behind tw telecom are XO, Level 3 Communications (NYSE: LVLT), Cogent and Zayo. Every one of these providers achieved either a Leaderboard rank or a Challenge Tier citation on the 2013 U.S. Business Ethernet Leaderboard.

XO has used a mix of fiber and Ethernet over Copper (EoC) to deliver its mix of cloud and MPLS services to its multi-site customers, while Level 3 has been able to leverage its wide-reaching fiber network to serve both medium-sized and multinational corporation (MNC) customers.

Cogent has mainly found its niche selling its low-cost Internet access service to large companies via its own on-net fiber facilities. Zayo, meanwhile, has been building up its national and international presence via acquisitions of regional and multinational providers like AboveNet.

"In this bucket we have everything from Zayo's acquisitions of AboveNet, Cogents bring a focus on Internet access, XO is delivering Ethernet over Copper, and tw telecom working on dynamic bandwidth," said Rosemary Cochran, principal of Vertical Systems Group, in an interview with FierceTelecom. "It's a very interesting category and much broader than the others because the characteristics are different, but they are not incumbents so they're more flexible on the way they do business."

There are two elements that set the competitive Ethernet segment from others: customers replacing their legacy services with Ethernet and using Ethernet to connect to data centers and cloud services.

"Depending on the provider they either used as an enabling technology or as strategic to their portfolio, it is right in line with the trending in the market, which is the customer migration from legacy services to Ethernet and then the growth area being data center connectivity and cloud connectivity," Cochran said. "This is beginning to show up as these companies look at how to make that easier for their customers through them rather than having the outside of your network going onto a separate connection to salesforce.com, for instance."

Cochran added that these companies are "looking at Ethernet as part of the product portfolio unlike cable, where that is their data solution for the most part."

For more:
- see the release

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