Frontier's Ethernet service drives automation, higher bandwidth, but migration challenges remain

Frontier Communications sees Ethernet a top priority as the service mechanism for both its retail business and wholesale service lines, but migration challenges for both segments will continue during its TDM-to-IP transition process. 

Speaking at the recent Bernstein 31st Annual Strategic Decisions Conference, Dan McCarthy, CEO and president of Frontier, said that the flexible nature of Ethernet is increasingly playing a bigger role in its wholesale wireless backhaul and retail business service segments. Throughout 2015 and into 2016, it will expand Ethernet into more areas of its network footprint.

"We're really investing in Ethernet," McCarthy said. "Ethernet is really the future for commercial as well as wholesale and is a much more flexible medium for customers and carriers so we're constantly looking at ways to expand that footprint."

Thus far, Frontier's bet on Ethernet is paying off. Evidence of its Ethernet success was seen in the first quarter, when it reported that service revenues grew 20 percent year-over-year.

Despite the TDM revenue replacement issues it faces, Frontier is seeing ongoing momentum for Ethernet services in the wholesale arm that sells services to wireless operators.

While the service provider continues to face challenges in wholesale data service revenues, particularly as more of its wireless operator customers migrate off of legacy copper-based T-1 circuits to Ethernet, Frontier says its customers are seeing a number of benefits in making this transition.

Unlike a TDM connection such as a 45 Mbps DS-3 or T-1 circuit that has to be provisioned in lower speed increments, the service provider can more rapidly respond to a request to a bandwidth increase in a more automated fashion.

"The thing that gets the most focus in the IP transition that's happening and gets highlighted by every carrier is wireless backhaul," McCarthy said. "In that instance it really was a substitution of a technology that did two things for the wireless providers: one, it provided more robust infrastructure to scale and support the LTE launch, but it also had a much flatter cost structure so in the past increments of capacity were 1.5 Mbps, but with Ethernet you can have infinite scalability."

McCarthy added the result is the "archaic cost structure around the TDM business set by regulation is replaced by a new technology that is much lower cost structure and that is the headwind that the entire industry has faced."

For retail business customers, the motivation to go to Ethernet is predicated on future-proofing their network infrastructure.

McCarthy said that unlike the wholesale side where Ethernet has been a revenue headwind, the adoption of Ethernet is actually becoming a growth engine.

"If you look at the commercial retail side of the business, it's someone who is now looking at this as an opportunity to future-proof a business process," McCarthy said. "A business customer today that might have been thinking that their business only supported only a 10 Mbps connection to their business might find themselves looking at 100 Mbps."  

Interestingly, the service provider is also seeing strong uptick for Gigabit Ethernet services, particularly in the healthcare and finance segments.

The service provider told FierceTelecom in a recent interview that its retail small and medium business (SMB) customers' requests to migrate to 1 Gbps Ethernet connections increased by 60 percent over 2014.

Despite the allure of Ethernet, Frontier is being realistic that not every customer is ready to make the switch yet.   

With the expectation that the transition from TDM to IP/Ethernet for its customers will take three to five years, Frontier still sees some large customers that are using legacy Frame Relay services.

"Even to this day, there's a customer I think that's very progressive but they won't exit Frame Relay, which is a very old technology," McCarthy said. "We have to keep it up because they're such a good customer of ours so I say it's at least three to five years before you get to the end of that transition."

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Related articles:
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Frontier: 1 Gig Ethernet requests up 60% over 2014
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