AT&T, Level 3 maintain Ethernet service lead, but growth softens as businesses evaluate SD-WAN, dark fiber options

Ethernet network
VSG's nearly static 2017 forecast signals that Ethernet growth is slowing as emerging technologies catch business customers' interest.

AT&T and Level 3 held onto the top two spots of Vertical Systems Group’s Carrier Ethernet Leaderboard results for year-end 2016, but the Ethernet market overall is being challenged as businesses evaluate SD-WAN and dark fiber services.

Evidence of these service providers’ Ethernet growth was clearly seen in their fourth-quarter earnings results.

AT&T noted that in its business wireline segment, declines in legacy products and business investment were partially offset by continued growth in strategic business services. Strategic services revenues from Ethernet and other packet-based services were up 8.3% year-over-year and make up 38% of business wireline revenues. 

Level 3, which is being purchased by CenturyLink, reported that fourth-quarter IP and Data services revenues were $916 million.

IP and data service revenues were a large contributor to Level 3’s broader core network services (CNS) revenue base. CNS revenue was $1.93 billion in the fourth quarter of 2016, down 0.5% year-over-year on a reported basis, and increasing 0.2% year-over-year on a constant currency basis.

Following AT&T and Level 3 are Spectrum Enterprise, Verizon, CenturyLink, Comcast, XO, Windstream and Cox.

Spectrum Enterprise's ranking includes its 2016 port share for Charter Business, Time Warner Cable and Bright House.

Windstream and Cox swapped places on the Leaderboard: Windstream advanced to the eighth position on the year-end 2016 Leaderboard, up from ninth in mid-2016, while Cox moved down from eighth to ninth position.

Another notable move was Sprint, which entered the Challenge Tier. Sprint made a big splash in the fourth quarter, announcing in January that it had expanded its Ethernet Access service line to include Ethernet over Copper (EoC) and Ethernet over DOCSIS (EoDOCSIS).

Having established a new external-network to network interconnection (E-NNI) footprint and an agnostic Ethernet access approach, Sprint anticipates providing Ethernet access services to more than 96% of their U.S. customers' locations by the first quarter of 2017.

VSG year-end 2016 Ethernet
Image: Vertical Systems Group

Businesses evaluate SD-WAN, dark fiber

However compelling AT&T and Level 3’s growth in Ethernet was during the quarter, overall Ethernet growth was slower than it has been in previous years.

Vertical Systems Group noted that Ethernet growth slowed as businesses have begun to examine emerging technologies like dark fiber and SD-WAN.

In the second half of 2016, Ethernet growth slowed to finish at 16% for the full year. The research group said it expects a similar pace throughout 2017.

Rosemary Cochran, principal at Vertical Systems Group, told FierceTelecom that businesses are trying to understand how the various SD-WAN options can benefit them.

“SD-WAN solutions are varied, services are in different stages of deployment, and comparing proposals isn't easy—all helping to slow customer purchase decisions,” Cochran said.

Cochran added that the utility of dark fiber is rising among businesses as a way to support Ethernet and other bandwidth-hungry applications.

“For dark fiber, purchase dynamics are more straightforward and demand for higher bandwidth is rising,” Cochran said. “Applications requiring gigabit speeds are candidates.”

Cable gets aggressive

Cable operators may have a long way to go toward being a bigger threat to incumbent players that have broader reach. But it’s clear they are gaining momentum in the Ethernet market.

A key focus for cable operators is continuing to increase the reach of their network into more markets and buildings.

“Overall for MSOs, footprint expansion is big,” Cochran said.

By purchasing Time Warner Cable and Bright House, Charter immediately expanded its overall fiber and coax footprint to more markets. Specifically, Charter gained 150,000 miles of fiber and 75,000 on-net buildings. In addition to its own network, TWC has established 130 E-NNI agreements with 25 other service providers.

As a result of Charter’s acquisitions, Cochran noted that “Spectrum Enterprise now has the most fiber-lit buildings of any MSO.”

No less aggressive is Comcast Business. The cable MSO is aggressively expanding the reach of its fiber network in various markets, including Boston, where Comcast Business is investing $25 million to expand its fiber-based network in the city and across the river in Cambridge, Massachusetts. This expansion will enable the cable MSO to reach over than 3,000 businesses directly.

M&A to impact rankings

As seen in previous reporting periods, a new set of mergers and acquisitions will have further impact on carrier rankings on VSG’s leaderboard.

There are currently three main deals that are in the process of being finished: Verizon and XO, CenturyLink and Level 3, and Windstream and EarthLink.

Verizon’s recently-completed acquisition of XO Communications immediately expanded the telco’s metro fiber footprint. The service provider gains metro networks in 40 major U.S. markets with over 4,000 on-net buildings and 1.2 million fiber miles, a factor that could enable it to further its Ethernet reach.

“Verizon and XO is done and will impact mid-2107 results,” Cochran said.

Cochran added that “CenturyLink/Level 3 is still pending, but if is completed this year it will impact year-end 2017 share.”

Another acquisition to keep an eye on is Windstream/EarthLink. While not as large as CenturyLink/Level 3 and Verizon/XO, the deal will give Windstream a larger set of network service capabilities and broader footprint.

Windstream can combine the on-net fiber assets it will get from EarthLink and combine them with its own growing network to get more Ethernet customers onto its fiber network facilities.