VSG: Charter's pending TWC deal could shake up Ethernet services market

If Charter Communications (NASDAQ: CHTR) is successful in acquiring fellow cable MSOs Time Warner Cable (NYSE: TWC) and Bright House, it could alter the dynamics of the Ethernet market once again.

VSG leaderboard mid-2015 EthernetMergers and acquisitions continue to have an effect on the Ethernet market. By acquiring tw telecom along with its own aggressive build out strategy, Level 3 was able to surpass Verizon for the first time on the Leaderboard earlier this year.

Rosemary Cochran, principal of Vertical Systems Group, told FierceTelecom that the Charter/TWC and Charter/Bright House deals could create a "potential market share shakeup" in the Ethernet market.

"Now that the Comcast Time Warner Cable deal is off the table, the next major one in line would be Charter," Cochran said. "When you look at Time Warner Cable, which is already on the Leaderboard and Charter and Bright House are challenge tier companies, if the merger goes through then by the end of the year it would make a change."

While it depends on when the deals close, "Level 3's acquisition of tw telecom bumped them way up ahead of Verizon so they are the major competition for AT&T in terms of share."

There weren't many changes in VSG's current Carrier Ethernet Leaderboard.

AT&T (NYSE: T), Level 3 and Verizon (NYSE: VZ) continued to enjoy the top spots on the list.

However, there were some changes on the lower end. Cox, which had enjoyed a higher position for over seven years, dropped to eighth place, replaced by XO Communications. XO has been expanding its Ethernet base through its ongoing fiber rollout and enhancing its Ethernet over Copper (EoC) products to support higher speeds of 50 and 100 Mbps. 

Overall demand for higher speeds and the transition from TDM to IP-based services is driving up new demand for Ethernet services.

Despite being a maturing market, Cochran said Ethernet port growth continues to ramp.

"The big news is that the port growth has been more than anticipated," Cochran said. "It is defying the law of numbers like how things work because at this point in time the market is maturing, but we're seeing larger growth than the first six months of 2014 and the growth last year was pretty healthy still."

While VSG is not release specific numbers yet, Cochran added that "in terms of ports installed it is definitely tracking ahead of where we expected."

One of the reasons that Ethernet port sales are rising is the aggressive moves by large telcos such as AT&T, CenturyLink (NYSE: CTL) and Verizon to transition more of their customers from TDM-based T-1 services to Ethernet.

Take AT&T: During the second quarter, AT&T reported that strategic services, a segment that includes MPLS and Ethernet, rose 13 percent to $2.7 billion and now makes up one-third of total wireline business revenues. Perhaps not surprisingly, the underlying driver of the telco's strategic wireline business growth was its ongoing fiber to the building (FTTB) buildout. 

Similarly, CenturyLink, which has been expanding its traditional metro Ethernet and GPON-based service sets, reported in the second quarter that it continued to see "solid demand" for high-bandwidth data services.

"TDM is going away and migrating to IP, and particularly as companies demand higher speed and it's now hitting a lot of the T-1 installations," Cochran. "We're now reaching up to 100 Mbps services so TDM isn't there, and providing access to public and private cloud services is using high speeds as well."

For more:
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Editor's Corner: Charter's Bright House deal could further disrupt competition in the Ethernet, business services market

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