Stimulating carrier Ethernet sales

Carrier Ethernet retail service sales have lagged behind sales forecasts and projections. The Carrier Ethernet exchange concept being pioneered by CENX, Inc. should stimulate retail service sales and help retail Carrier Ethernet service offerings realize their potential.

The Carrier Ethernet concept was developed by the Metro Ethernet Forum (MEF) about eight years ago as a vehicle for establishing a standardized service offering independent of specific vendor or service provider implementations. The MEF's objective was to create an open but standardized offering to accelerate sales as was done for successful products such as VHF video tape and "Wintel" computers, and to avoid less successful proprietary products such as Sony Betamax video tape and Apple Macintosh computers.

Carrier Ethernet technology has been very successful. More than 750 systems, equipment manufacturers and service providers have been certified as meeting Carrier Ethernet technical specifications. Carrier Ethernet equipment is widely used by service providers to deliver Triple Play services--especially in the aggregation network. However, in these implementations Carrier Ethernet is simply an enabling technology invisible to the end user. For example, the customer sees FiOS Triple Play service not Carrier Ethernet.

Retail Carrier Ethernet services such as E-Line and E-LAN service offerings have not realized their potential. There are many reasons for this failure but I believe a fundamental one is that there has been no attempt to build an open service provider neutral service offering analogous to the Public Switched Telephone Network (PSTN) or the Internet. Some ancient history illustrates this point. Beginning in 1876 with the invention of the telephone, Bell and Watson began developing equipment and manufacturing technical specifications for telephones because they realized that a successful network required interoperability. Shortly thereafter Bell dropped out of the technology side of the business and began fund raising efforts around the world to establish new telephone companies. He realized that it would take many companies and many investment groups working independently to establish worldwide telephone service. He also recognized that network services benefit from a demand externality--the value of each person's telephone increases as each new subscriber joins the network. This made it imperative that each telephone company be able to buy and sell the services of all other companies. This became a process known as settlements and separations and remains in place today in a modified form. Internet Service providers also interconnect their services using a process called peering. Exploiting the demand externality was also Bell's motivation for pricing residential telephone service low compared to business service. Business telephone service becomes more valuable to the business as more of its customers have telephones. Free Internet services like Facebook and Twitter also contribute value to service providers in that they make each Internet connection more valuable to the end-user.

These time worn networking business principles have not been applied to Carrier Ethernet retail service offerings. E-Line and E-LAN offerings are typically offered in a proprietary form by a single service provider to a narrowly targeted area such as selected office buildings in world financial centers such as The City in London and Wall Street in New York.  Interconnectivity to other companies' Carrier Ethernet services is rare. Many Carrier Ethernet offerings do not even meet a strict definition of a service offering. Instead of offering a common carrier service, service providers build one-off ICB (Individual Custom Bid) projects to meet a single enterprise's networking requirements. This often involves dedicating multi service provisioning platforms (MSPP) to each customer and employing dark fiber leases to reach the enterprise's sites. This is not a service offer in the strict sense but a turnkey construction project.

CENX, whose founders have been active in the Metro Ethernet Forum since its founding, are creating Carrier Ethernet exchanges that will transform Carrier Ethernet services into service provider neutral offerings like the PSTN and the Internet. CENX provides three services. A Carrier Ethernet neutral exchange system that establishes virtual service-level interconnection among CENX service provider members by implementing the Metro Ethernet Forum's External Network to Network Interface (E-NNI) technical specification; back office processes that handle the commercial functions of buying and selling of wholesale Carrier Ethernet services; and a market making function that matches buyers and sellers of Carrier Ethernet services just as the New York Stock Exchange and its floor traders match buyers and sellers of stocks.

CENX's Voice Exchange Service is one example of a Carrier Ethernet exchange service. It matches buyers and sellers of VoIP services where the calls are transported to and from the exchange as Ethernet transport services (1 GbE or 10 GbE).  A Carrier Ethernet switch using the E-NNI technical specification switches calls among the service providers' networks. The service providers pay CENX a bandwidth based fee ($ per Mbps) for its service. Currently PSTN traffic is passed among service providers using TDM-based transport and circuit switches. Fees are usage based (minutes of use) with separate schedules for originated and terminated calls. The Carrier Ethernet exchange costs less than half as much to operate as the PSTN alternative due to its use of Carrier Ethernet technology versus the PSTN's TDM and circuit switching technology. Also CENX's fixed price (bandwidth-based) fee structure conforms to the modern fixed price structure of retail voice services. In contrast, the PSTN usage-based fee structure is an anachronism since retail voice services are no longer priced on a usage basis.

Development of a retail market for Carrier Ethernet services has been held back by proprietary service offerings and one-off service implementations for specific enterprise customers. Carrier Ethernet exchanges and the Metro Ethernet Forum's ENNI technical specification provide a market-based economic model for Carrier Ethernet service offerings that should stimulate Carrier Ethernet sales. However, a handful of very large service providers control most of the large enterprise services market. They may be reluctant to endorse this service provider neutral approach to service delivery out of fear of losing account control over their best customers.

Michael Kennedy is a regular FierceTelecom columnist and is the co-founder and Managing Partner of Network Strategy Partners, LLC (NSP) www.nspllc.com -management consultants to the networking industry. He can be reached at [email protected].