tw telecom's (Nasdaq: TWTC) recent designation as the third largest Ethernet service provider by Frost and Sullivan, trailing only AT&T (NYSE: T) and Verizon (NYSE: VZ), is recognition that the competitive provider's dedication to building out its own fiber network to meet medium and larger business clients continues to be the right decision.
To date, tw telecom has 14,000 fiber-lit buildings. In the first half of this year, the CLEC's fiber-connected building additions grew nearly 60 percent over the first half of 2010.
Frost and Sullivan isn't alone in designating tw telecom as the third largest Ethernet provider. The service provider has held a similar third designation spot on Vertical Systems Group's quarterly U.S. Ethernet Leaderboard for the past four years and counting.
As Vertical Systems Group (VSG) principal and founder Rosemary Cochran always points out when talking about Ethernet growth, the key to winning "is all about having that last mile access" into buildings in the metro and large cities.
Having its own own fiber network is a key differentiator for tw telecom.
By building out its own fiber network, tw telecom can have more control over the quality of the connections and service they provide to customers versus another service provider that has to rely on other service providers exclusively to reach customers. To meet multisite business needs that may be out of their territory, tw telecom has augmented its fiber network with off-net connections by establishing External-Network to Network Interconnection (E-NNI) agreements with other service provider partners.
Between 2008 and 2010, tw telecom's Ethernet services revenue grew at a CAGR of 28 percent, a factor that continued to bear fruit in Q2 2011. During the second quarter, tw telecom's data and Internet revenue grew 3.9 percent sequentially and 17.9 percent year-over-year, a factor that was driven by a 29 percent year-over-year increase in Ethernet and VPN-based products.
tw telecom's fiber drive is not based on a build-it-and-they-will-come mentality, but rather a success-based investment approach. As it sells more services to businesses, it has been reinvesting more money into its business to fund other long-haul fiber builds and extending fiber into more buildings.
On top of the fiber drive, tw telecom allows customers to build hybrid network services with the ability to use Ethernet as a way to access MPLS VPN services in addition to offering application-aware networking services to its Ethernet customers. Having these capabilities in hand gives tw telecom an advantage in serving larger businesses over other service providers that lack those capabilities.
All of these fiber-based Ethernet services are tied together with a dual strategy of indirect sales via channel partners and direct sales. On the direct sales end, tw telecom has empowered account executives and sales engineers make decisions on the local level, meaning that customers can get the attention they need for their specific business needs with representatives that treat them like a partner.
While tw telecom has retained its upper hand over other fiber-based Ethernet service providers, it can't necessarily sit on its laurels either. The service provider faces a growing array of aggressive CLECs, cable MSOs and the independent ILECs like CenturyLink which instantly gained the fourth spot on VSG's Mid-Year 2011 U.S. Business Ethernet Leaderboard after completing its acquisition of the former Qwest Communications.
CenturyLink (NYSE: CTL) may now be in the larger business Ethernet spotlight, competing directly with tw telecom and others, but it faces the dual challenge of network integration and presenting a common Ethernet message to clients it traditionally never served before purchasing Qwest.
Regardless of the competitive outlook, the reality is that tw telecom and others that have that last mile access are the ones that control their own destiny in the Ethernet services market.--Sean