AT&T, Level 3 international Ethernet expansion threatens BT, Orange's hold

AT&T (NYSE: T) and Level 3 have become greater competitive threats in the global Ethernet market to BT (NYSE: BT) and Orange by continually expanding their service offerings and presence in Europe and other countries outside of North America.

In AT&T's case, the service provider has been able to grow strategic services like Ethernet and IP VPN at a time when its nearest ILEC competitor Verizon has seen revenues slump.

Evidence of this trend was seen in AT&T's fourth quarter earnings report.

Strategic business services revenues were $2.8 billion, up 10.3 percent when adjusted for foreign exchange. The service provider said that strategic business services continue see double-digit revenue gains.

Vertical Systems Group said that it was these drivers that helped AT&T gain global Ethernet market share in 2015.

"AT&T in a way looks like they're taking advantage of some of the slump that Verizon is in," said Rick Malone, principal of Vertical Systems Group, in an interview with FierceTelecom. "They still have a pretty robust business within this enterprise segment and strategic services are growing in the mid-teens while Verizon are flat or slightly down."

Malone added that this trend is being extended outside of the U.S. and into its international customer base.

"AT&T has done a good job maintaining their customers and they have established good enough partnerships with their customers," Malone said. "What they're buying mostly is access lines to IP VPN services so Layer 2 and Layer 3 connections are being made as more than half are access to IP VPN services."

In addition to providing Ethernet access to Layer 2-3 VPNs, AT&T is increasingly providing connections to cloud services like Amazon AWS and data centers -- two important services for large MNCs. 

Level 3 likewise is on a similar growth track, gaining market share by expanding its fiber footprint in Latin America and Europe.

While it has the majority of its fiber -- over 70 percent -- in North America, Level 3 has 20 percent and 10 percent of its fiber deployed in Latin America and EMEA, respectively.

The service provider recently announced an initiative to extend Ethernet service into 27 European markets where it has deployed fiber. Level 3 said that it plans to expand Ethernet into an additional 15 EMEA locations later this year, but did not provide a specific timeline.

"They have significant resources dedicated to exploiting those markets," Malone said. "When I see Level 3, they are competing now with AT&T and Verizon for that U.S.-based multinational customer, but when you enter Europe there's a lot more competition than there is in South America because you have BT, Colt and Orange, which is Pan European with access to another 170 countries."

Besides growing Ethernet coverage in more markets, the service provider is also extending its on-demand Ethernet capability in global markets outside of the U.S. enabling MNCs to adjust and provision bandwidth as needed.

"Level 3 has basically been introducing its on-demand flexible capacity services into their international networks," Malone said. "We have seen it with Colt, Telstra, but other providers are right now evaluating whether they should do it with their domestic markets while others have not seen a need to put it into their global platforms."

Related articles:
VSG: Level 3's tw telecom acquisition helps it surpass Verizon in Ethernet race
Level 3's Q4 enterprise service revenues offset declines in data center segment
Comcast, Level 3's mega-mergers could shake up the Ethernet market, says VSG

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