AT&T (NYSE: T) and Verizon's (NYSE: VZ) ongoing dedication to deliver cloud and IP VPN services helped the two providers maintain their dominant status on Vertical Systems Group end of year 2012 U.S. Business Ethernet Leaderboard.
Although AT&T and Verizon maintained their status as the two largest retail Ethernet players, both service providers faced various challenges throughout the year, including the ongoing migration away from legacy ATM and Frame Relay services and a challenging economic environment.
Rick Malone, principal at Vertical Systems Group, said that "AT&T experienced slower overall growth in Ethernet--especially in the second half of the year--and derived more Ethernet sales from wholesale partners" while "Verizon remained number two on our Leaderboard despite a challenging fourth quarter which resulted in loss of market share."
Business service revenue challenges were evident in the Q4 2012 earnings season for both AT&T and Verizon.
AT&T reported that Q4 2012 overall business revenues declined 2.1 percent to $9.1 billion year-over-year, but rose 0.6 percent sequentially from Q3 2012. Strategic IP-based business, including Ethernet and cloud services, grew 10.6 percent year over year and total business IP data revenues grew 2.4 percent year over year.
Similar to AT&T, Verizon also saw a decline in business services in the United States and Europe due to economic issues, but sale of strategic services, including Terremark cloud and data center services, security and IT solutions, and Ethernet, increased 5.3 percent compared with Q4 2011 and represented 54 percent of global enterprise revenues.
Besides AT&T and Verizon, tw telecom (Nasdaq: TWTC) continues to hold fast onto the third spot on the Leaderboard. While the CLEC won't release its earnings until Feb. 12, in Q3 2012 tw telecom reported that Ethernet and VPN service sales drove a 14.9 percent increase in data and Internet services revenue.
Outside of the top three providers, the most notable mover on the Ethernet Leaderboard was Level 3 Communications (NYSE: LVLT) by rising to the number six spot. Level 3 surpassed both XO Communications and Time Warner Cable (NYSE: TWC), which dropped down to the seventh and eighth spots, respectively.
In Q3 2012, Level 3's enterprise service revenues grew 1 percent to $627 million from $621 million in Q2 2012, while wholesale revenues declined from $382 million to $381 million.
"What they have done is slightly change their business plan to focus more on retail services," said Erin Dunne, Director of Research Services. "They had a much more wholesale type of paradigm before, but it's much more retail in nature now."
And while XO did drop down to the seventh position on the Leaderboard, Dunne said the CLEC has "done a great job with Ethernet over Copper and Ethernet over anything type of technology to get themselves out of their fiber footprint."
Outside of the top eight providers, Vertical cited two other service provider segments that are becoming a greater factor in the Ethernet race, dividing them into two subsets. The Challenge Tier includes a mix of cable MSOs, CLECs, international providers and ILECs. The Market Player Tier covers other providers offering Ethernet services in the United States, including regional players selling services to medium and large businesses.
Overall, the U.S. retail Ethernet market continues to evolve as more businesses migrate towards next-gen services.
Driven by the growth of two applications, particularly Ethernet access to IP VPNs and cloud connectivity applications, the U.S. market for retail Ethernet ports rose 24 percent in 2012. To support these services, a number of service providers made upgrades to their backbones, rolled out services in new markets, and expanded their channels.
- see the release
Industry Voices: Medium-sized businesses buy in to Carrier Ethernet services