U.S. incumbent telcos have taken charge of the U.S. retail Ethernet market as they continue to expand their respective portfolios and footprints to serve their SMB and enterprise customers, but they all face a challenging economic reality that's slowed revenue growth.
Image source: Vertical Systems Group
In its latest Carrier Business Ethernet Leaderboard, Vertical Systems Group ranked four service providers--AT&T (NYSE: T), Verizon (NYSE: VZ), CenturyLink (NYSE: CTL) and Windstream (Nasdaq: WIN)--as the top ILECs selling Ethernet services in the U.S. market.
Rick Malone, principal at Vertical Systems Group, said "AT&T and Verizon have been successful in providing Ethernet services to their large enterprise network customers, thereby maintaining the top two U.S. Ethernet Leaderboard positions for several years running."
While AT&T and Verizon will likely continue to hold onto their No. 1 and 2 spots, CenturyLink and Windstream are emerging as viable players with an expanded network and Ethernet service portfolio that incorporates both fiber and Ethernet over Copper (EoC).
AT&T, Verizon hold fast
AT&T and Verizon saw ongoing growth in Ethernet and IP services in Q4 2012, but a challenging economy did hurt their overall business segment results.
AT&T reported that as a result of ongoing economic uncertainty and soft government sales, overall business revenues declined 2.1 percent to $9.1 billion year-over-year but rose 0.6 percent from Q3 2012. Declines in legacy services like Frame Relay and ATM were partially offset by growth in strategic business services, including Ethernet and VPN.
John Stephens, AT&T's CFO and Senior EVP, said during the Q4 earnings call that while the company has a growing portfolio of business services, "the economy continues to be tough, and the uncertainty that overhangs the economy from Washington continues to challenge people's decision making timing."
Verizon echoed a similar trend in Q4 2012.
The telco's global enterprise revenues declined 2.1 percent year-over-year to $3.8 billion in the quarter as a result of economic issues in Europe and the United States. However, the sale of strategic services, including Terremark cloud and data center services, security and IT solutions and Ethernet, increased 5.3 percent over Q4 2011.
Fran Shammo, CFO and EVP of Verizon, said during the Morgan Stanley Technology, Media & Telecom Conference that the company has yet to see any signs of a major recovery on the business services side.
"I don't see those signs yet," he said. "And it could be that the segment that I am in, there is a lag here, as when the economy went down I lagged about six months before we saw it. I think with all the uncertainty in Washington, especially now around the sequestering, I just don't see--I don't see any growth, but I don't see it getting worse. I just see it as flat this year."
CenturyLink, Windstream grow up
CenturyLink and Windstream have taken up the No. 3 and 4 spots on the Leaderboard as they have both expanded their Ethernet portfolios organically and through their acquisitions of Qwest and Paetec.
In Q4, CenturyLink reported that the sales of MPLS and Ethernet services helped drive up strategic revenues in its Enterprise Markets--Network segment. Strategic revenues rose 7.8 percent year-over-year to $346 million due to the growth of MPLS and Ethernet services.
One of the key highlights of this division's growth in Q4 was Ethernet services, particularly EoC.
Glen Post, CEO and chairman of CenturyLink, said during the Q4 earnings call that "we continued to expand our Ethernet over Copper footprint, which has increased over 80 percent in 2012 to over 700 Ethernet-enabled central offices."
Likewise, Windstream's ongoing focus on selling Ethernet to IP VPN and Internet access continued to drive Ethernet and overall data and integrated services revenues in Q4. During the quarter, data and integrated services revenues rose 9.5 percent over Q4 2011 to $398 million.
Windstream also obtained the Metro Ethernet Forum's MEF 9 and MEF 14 technical certifications for its MPLS-enabled Virtual LAN services, giving both existing and new customers assurance that its Ethernet services are standards-compliant.
"CenturyLink was the fastest-growing of this group, while Windstream also had enough growth on the leaderboard because they were in the challenge tier on the U.S. side," said Rosemary Cochran, principal and co-founder of Vertical Systems Group, in an interview with FierceTelecom.
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