Level 3’s SDN play, global footprint keep it competitive, says analyst

Ethernet connection

Level 3 Communications has maintained its dominant spot in the U.S. competitive market segment as the service provider continues to enhance its network footprint and implement SDN-based capabilities to be more responsive to customer needs.

Rosemary Cochran, principal of Vertical Systems Group, told FierceTelecom that Level 3's dedication to software-based provisioning and its market presence help it stand out in the competitive Ethernet segment.

“Level 3 has built a strong U.S. and global footprint,” Cochran said. “Level 3 is also in forefront with on-demand, dynamic network service capabilities.”

Trailing Level 3 on VSG’s Competitive Ethernet Leaderboard are XO Communications (now part of Verizon), Cogent Communications, Zayo Group and Sprint. VSG noted that year-end 2016 U.S. Ethernet share figures for XO and Verizon were reported separately.

Evidence of Ethernet growth was certainly a key contributor to Level 3’s Core Network Services (CNS) revenue in the fourth quarter.

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During the fourth quarter, Level 3 reported that CNS revenue was $1.93 billion, down 0.5% year-over-year on a reported basis, and increasing 0.2% year-over-year on a constant currency basis.

The service provider expanded its Metro 2.0 Ethernet platform and SDN solutions to the Asia-Pacific region, capitalizing on its efforts to drive hybrid networking services into more markets.

Business customers in Asia-Pacific will be able to reach Level 3’s Ethernet platform from two access points each in Hong Kong, Tokyo and Singapore, for a total of six access points in the region.

Interestingly, Level 3 will also bolster CenturyLink’s Ethernet ranking when the two companies complete their merger later this year. CenturyLink will immediately bolster not only its long-haul fiber reach, but also on-net fiber to reach more buildings to deliver Ethernet services.

Sprint’s wireline rededication

While Sprint today is known more for being one of the largest U.S. wireless providers, the service provider reestablished itself in the wireline game in 2016 by creating a new division focused solely on helping business customers transition to IP-based services.

“Sprint decided to recommit to wireline,” Cochran said. “They established a new unit focused on Ethernet and other solutions to help retain Sprint’s business customers migrating from legacy TDM services.”

In late 2016, the service provider established multiple external-network to network interconnection (E-NNI) agreements in its footprint. The service provider said this will enable it to deliver Ethernet access services to more than 96% of their U.S. customers' locations by the first quarter of 2017.

Don Briscoe, manager of network solutions product and marketing for Sprint, told FierceTelecom in a previous interview that by using a mix of Ethernet over DOCSIS and Ethernet over Copper (EoC), the service provider will expand its Ethernet footprint by 26%.

Cogent, Zayo enhance fiber footprints

Cogent and Zayo are being no less aggressive on the Ethernet front. These service providers have also continued to expand their respective fiber footprints to satisfy a mix of wholesale and business customers.

“Fiber footprints matter,” Cochran said. “Cogent and Zayo are leveraging their fiber reach and capacities to address gigabit speed application requirements.”

Although cable operators are gaining ground in the Ethernet space, Cogent contends that its dedication to using fiber for every customer location is a competitive differentiator.

On the business end, Cogent has about 1,600 buildings on its fiber network, which is equal to 860 million square feet of on-net multitenant office space. 

The company’s dedication to put all of its customers on its on-net fiber network is certainly paying dividends for the low-cost Ethernet provider. Cogent’s on-net revenue was $83.5 million for the fourth quarter, up 2% sequentially and up 9.1% from the fourth quarter of last year.

Zayo likewise is seeing benefits from its aggressive fiber build-out strategy, one that has grown via its own organic expansions and acquisition of other providers like Electric Lightwave.

In the fourth quarter, Zayo reported that its Network Connectivity business has a strong cash flow profile of 23% of revenue. The growth rate is positive at 3% but lower than the other businesses in part because SONET service revenues are shrinking.

What’s been interesting for Zayo is that when it builds out fiber to a wireless cell tower, it is attracting other customers like school districts to purchase fiber and Ethernet services.

One example of this trend is taking place in Dallas where Zayo won a 1,178-route mile Texas school district contract. The service provider will extend services to the area schools located in the Texas Education Service Center Region 11 via a fiber network build that's under construction in Dallas-Fort Worth for a major wireless operator.