AT&T, Verizon Ethernet dominance challenged by tw telecom, Cox and other competitors

Ethernet competitorsAT&T (NYSE: T) and Verizon (NYSE: VZ) may be the dominant players in the Ethernet services market, but they increasingly are facing a set of savvy cable and CLEC competitors that are expanding their Ethernet service presence.

The growing Ethernet profile of cable MSOs and CLECs was reflected in Vertical Systems Group's (VSG) mid-year Ethernet Leaderboard, a report that measures port shares sold over the past six months.  

Cable MSOs, says VSG, now make up 20 percent of the total U.S. Ethernet port base. However, the incumbent carrier segment remains the largest, with 47 percent of total U.S. Ethernet ports, followed by the competitive provider segment with 33 percent of ports.

Despite the growing presence of competitive Ethernet providers, incumbent telcos will continue to have the upper hand over cable and CLECs, particularly in providing connectivity to private business clouds using Ethernet Private Lines (EPLs) and Ethernet Virtual Private Lines (EVPLs).

Ethernet services has become an ongoing strategic business revenue driver for telcos, cable operators and CLECs, a trend that was evident in the second quarter earnings season. 

Here's a summary of the performance of the top eight Ethernet providers:

AT&T: AT&T continues to enjoy a top spot on the Ethernet service food chain, a trend that was reflected in its second quarter business services results. The service provider's business services revenue was $8.9 billion, down 2.2 percent compared to the same period a year ago but up slightly from Q1 2013. Although AT&T continues to weather a tough economic environment, strategic business services, including VPN, Ethernet and hosting services, which grew 15 percent over Q2 2012. Those services represent a $8.4 billion revenue stream in its wireline portfolio. As part of its ambitious Project VIP program AT&T has been wiring new multitenant units (MTUs) with fiber throughout its serving territories to extend Ethernet and cloud-based services to more local and national businesses. 

Verizon: Verizon continues to hold onto its number two spot in the Ethernet services market. The telco's ongoing strategic services sales, including cloud and Ethernet, rose 4.8 percent in the second quarter and represented 57 percent of total enterprise revenues. Like AT&T, Verizon saw the effects of a down economy as its business services revenues declined year-over-year to $3.6 billion--from $3.8 billion in Q2 2012. To support potential growth of Ethernet and cloud services, the telco recently completed a 200G optical trial across a network link between New York and Boston.

tw telecom: In the competitive telecom provider category, tw telecom (Nasdaq: TWTC) continues to lead the pack. Supporting its enterprise, data and Internet services, including Ethernet, is a fiber network that's connected to 19,000 commercial buildings. The CLEC continues to innovate on its Ethernet service platform, offering customers its Alerts Driven Dynamic Capacity, an automatic dedicated Ethernet bandwidth-on-demand capability. It also gained the Metro Ethernet Forum's (MEF) Carrier Ethernet 2.0 certification for four of its Ethernet-based products. As it has reported for multiple quarters, Ethernet played a big role tw telecom's second quarter revenues. During that period, strategic revenues, which comprise Ethernet and IP/VPN services, grew 19.9 percent year-over-year and 4.7 percent sequentially.

CenturyLink: CenturyLink (NYSE: CTL) has set the expansion of its Ethernet and fiber assets as two key business services goals. CenturyLink is taking a multi-pronged approach to delivering Ethernet, which includes a mix of fiber and Ethernet over Copper (EoC). In the second quarter, CenturyLink customers' ongoing adoption of high-bandwidth MPLS and Ethernet services drove up strategic business revenues 4.6 percent to $617 million. Similar to the consumer segment, overall business segment revenues declined 0.8 percent to $1.53 billion as lower legacy services offset growth in high-bandwidth offerings.

In the first half of this year, the service provider put 1,000 of its fiber-fed buildings into its MTU program, which give customers up to 500 Mbps symmetrical data services and enhances cloud connectivity. Leveraging its existing fiber facilities, the service provider is also offering GPON-based speeds of up to 1 Gbps. In areas where it does not yet have fiber deployed it is offering EoC out of 700-plus central offices (COs).

Cox Business: As one of the earliest cable MSOs to offer business services, Cox Business' Ethernet services continue to resonate well with SMBs and medium-sized businesses in various verticals, including education, health care and hospitality. The MSO recently won a seven-year contract to provide the Las Vegas Convention Center and Cashman Center with a host of services, including video, data and Wi-Fi services.Its efforts to serve business customers with Ethernet and other related IP-based services including IP PBX, has gotten the attention of JD Powers where it scored 710 in the small/medium business segment (companies with between 20 and 499 employees). 

One of its boldest moves to expand its business network presence came this week with an announcement to acquire EasyTEL Communications, a business-focused CLEC serving the Tulsa, Okla., market. Upon completion of that deal, the MSO will have a 95,000 fiber route mile network to serve more businesses in the Tulsa market. 

XO Communications: XO has taken a two-pronged Ethernet approach that leverages a mix of its on-net fiber network and EoC to target the medium-sized business market. Complementing its growing base of over 3,000 on-net fiber connected buildings, the service provider now offers a 100 Mbps EoC access speed and expanded its nationwide Ethernet access network to nearly 2 million business locations. One element that is helping XO enhance its profile in the Ethernet ecosystem is its ongoing dedication to expand its reach. The service provider recently announced that it would extend its service reach into the Canadian market through both its Canadian subsidiary and its series of network partners.

Time Warner Cable: Like Cox and Comcast (Nasdaq: CMCSA), Time Warner Cable (NYSE: TWC) may be seeing ongoing video subscriber losses, but business services, including Ethernet, has become an emerging source of growth. In the second quarter, the cable operator reported that business services jumped 21.8 percent to $565 million. TWC's Ethernet and fiber buildout drive is also benefitting its wholesale business where it added backhaul service to more than 10,000 cell towers.

Level 3 Communications: Level 3 Communications (NYSE: LVLT) may be going through a realignment with its recent announcement to cut 700 employees from its workforce, but the competitive provider continues to make progress with increasing its enterprise services sales. During the second quarter Core Network Services, which includes Ethernet, was once again the shining star in its portfolio, rising 2.4 percent to $1.4 billion. 

Take a look at these Ethernet players' metrics in the following chart.

AT&T, Verizon Ethernet dominance challenged by tw telecom, Cox and other competitors
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