The Ethernet services pricing conundrum

Rosemary Cochran, Vertical Systems Group

Cochran

How much does Carrier Ethernet service cost? That's like asking how much a car costs. The answer is similar--it depends on what you need and what you can afford to spend. Ethernet pricing has been--and will continue to be--a conundrum for both service providers and business customers. Pricing for Ethernet services is highly volatile, with significant discrepancies from provider to provider, and from city to city.

Like shopping for a car, there are many different Ethernet models from which to choose and bottom line pricing is not often straightforward. Enterprise network managers are doing a lot of comparison shopping to obtain information on Ethernet service availability and costs, plus installation time frames.

Location is a major factor in Ethernet pricing. Metro area services are generally less costly than Ethernet services that interconnect multiple metros, regions or countries. Contract length is another factor as longer term multi-year agreements yield higher discounts. Based on what enterprises are paying net of discounts and deals, we've seen monthly bills for 10 Mbps Ethernet Metro LAN service for less than $240 per site in one U.S. city, and more than $1,900 in another. Deployment time frames are also location-specific, with service installations ranging from weeks to several months.

The two core variables that contribute to Ethernet sticker prices are service type and port speed. Product managers have numerous pricing decisions to make because Ethernet is not a single service. From a market perspective, the primary Ethernet service types are Metro LAN, Ethernet Private Line, Ethernet Virtual Private Line, Dedicated Internet Access (DIA), Ethernet Access to IP/MPLS VPN and WAN VPLS. Some providers sell a single type of Ethernet service, whereas others offer a full portfolio of services. 

Ethernet providers may offer different port speeds per service type. Port speeds start as low as sub-10 Mbps rates, with the top rates at 10 Gbps or higher. Within this speed range, service ports are typically available in preset increments (e.g., 10 Mbps, 100 Mbps, etc.). Overall, Ethernet pricing increases as a function of bandwidth horsepower. Premium priced options such as low latency or custom SLAs will boost the price.

The first-mile access technology used to deliver an Ethernet service connection also impacts pricing. Optical fiber is unquestionably the most fuel efficient based on bandwidth costs per megabit. Vertical Systems Group's latest research quantifies that more than half of U.S. Ethernet customer ports are delivered using direct fiber. Moreover, the percent of on-net fiber installations is increasing. This trend is significant because fiber-based Ethernet access affords greater bandwidth scalability as compared to TDM, SONET/SDH and other access technologies with fixed rates. Advantages for customers include more price points for port speed upgrades, and new market-priced capabilities like bandwidth on demand.

Pricing strategies play a major role within the competitive landscape. Ethernet providers with strategies focused on share gain within a target market have the most aggressive pricing. Providers utilizing cost-based pricing strategies are typically managing migration from their legacy services. Custom pricing strategies are the norm for providers that sell hybrid Ethernet / IP VPN networks, or for Ethernet-based solutions that integrate mobile data, cloud, data center or other offerings.

Today's rapidly expanding business Ethernet marketplace has services that fit a range of business network requirements and budgets. Just like with cars, shiny new Ethernet services and purchase incentives are being rolled out with the 2014 models. Expect that pricing will continue to be a challenge. And a footnote--wholesale Ethernet pricing is a conundrum too--and a different story.

Rosemary Cochran is the Principal and co-founder of Vertical Systems Group

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