Vertical Systems Group's U.S. bi-annual Ethernet service LEADERBOARD results for 2010 reflected a growing comfort level by enterprise customers to buy Layer 2 Ethernet services for their high bandwidth applications.
Driven by growing adoption from the financial, education and state/local government segments, the Ethernet port base grew 3 percent from Vertical's previous forecast of 31 percent to 34 percent.
One of the noticeable changes on this report, which lists service providers that have more than 4 percent of the market, is that there were only eight service providers that made the cut based on ports sold.
AT&T continues dominance
As has been the trend in Vertical Systems' previous reports, AT&T (NYSE: T) held the top spot again, followed close behind by Verizon (NYSE: VZ) and tw telecom (Nasdaq: TWTC) , accounting for what it says is half of the U.S. retail Ethernet port base.
"The top four providers on the LEADERBOARD did not change as AT&T, Verizon, tw telecom, and Cox held their respective spots, although AT&T did widen its lead," said Rosemary Cochran, principal and co-founder of Vertical Systems in an interview with FierceTelecom.
Cochran added that what helped AT&T widen its lead in 2010 was its wide fiber footprint.
"Not only did AT&T pick up some ports from their Centennial acquisition, which took a long time to close, but they have been pretty focused on the footprint they have, especially in the old SBC metro fiber footprint they have," she said. "In particular markets where the regional fiber exists that's where we are seeing the pockets of customers, and when you look at the AT&T footprint that's where the activity is."
Competitive market evolution
Outside of the Tier 1 providers, VSG noted that there were a number of shifts in the competitive Ethernet market segment that make up an estimated 20 percent of the U.S. Ethernet market.
While still dominated primarily by competitive providers and cable MSOs, XO Communications (OTC BB: XOHO.OB) tipped Qwest (NYSE: Q) from the fifth spot on the 2010 Ethernet Leaderboard.
At the same time, Cogent dropped off the Leaderboard while Level 3 Communications (Nasdaq: LVLT) moved up to the eighth position.
"Cogent has been always predominantly a provider of Ethernet-based Internet access, which is somewhat saturated," Cochran said. "A lot of the growth looks like it's coming from point-to-point and point-to-multipoint applications as opposed to access straight Internet access."
Another factor worth noting in 2010 was the ongoing M&A activity by both Tier 2 telcos, notably CenturyLink's (NYSE: CTL) impending acquisition of Qwest, and a bevy of fiber network M&A activity by a number of competitive providers, including Lightower Fiber Solutions and PAETEC (Nasdaq: PAET).
Since the CenturyLink merger with Qwest did not close, Cochran added, it's not clear how that could affect the shape of the U.S. Ethernet market.
However, it was clear that the moves by competitive providers illustrated the movement to acquire fiber to support the growing competitive Ethernet market.
"We've been trying to examine all of the changes at a lot of the companies and a lot of the changes are from service providers that acquired another company such as PAETEC acquiring Cavalier and Lightower acquiring Veroxity and Zayo acquiring American Fiber, for example," Cochran said. "A lot of these deals have to do with fiber acquisitions."
Cochran added that while there are certainly a number of options available to deliver Ethernet, including Ethernet over Copper (EoC), "there's clearly a link with fiber" and the deployment of Ethernet by competitive providers as well.
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