A report by Vertical Systems Group (VSG) showed the demand for gigabit-speed commercial services in the U.S. is surging, fueled by increasing customer needs for higher network connectivity capacity.
Gigabit revenue now constitutes the majority of the $18 billion U.S. Carrier Ethernet services market, outpacing contributions from lower-speed services. This shift is even considering market challenges like price compression and ongoing customer migration to alternative services like fiber and SD-WAN, according to the report.
Gigabit Ethernet ports are seeing a double-digit compound annual growth rate (CAGR), while lower-speed ports, particularly 100 Mbps and below, are steadily declining. Vertical’s projections indicate that by 2027, the number of gigabit ports will surpass the combined total of Ethernet ports at 100 Mbps and below.
100 Mbps is still the “most prevalent out there, but it's rapidly changing,” Vertical’s principal and co-founder, Rosemary Cochran, told Fierce Telecom.
“It’s been the sweet spot for a long time. But now everything requires more speed,” she added.
While 1 Gbps remains the most widely installed gigabit service, Vertical found its revenue outlook is experiencing erosion as customers upgrade to higher-speed gigabit Ethernet ports or explore alternatives like wavelength services. In contrast, 10-gig ports are growing at a healthy double-digit rate through 2027, with revenue expected to nearly double between 2022 and 2027.
The 100+ Gbps segment, although relatively small, is rapidly expanding due to competitive pricing, with revenue projected to increase almost fivefold between 2022 and 2027.
Price erosion impacts all Ethernet segments, except DIA
Price erosion is impacting various Ethernet service segments, such as Ethernet Access to IP/ multiprotocol label switching (MPLS), ethernet private lines, ethernet virtual private line (EVPL), Metro LAN and WAN VPLS, with the exception of dedicated internet access (DIA).
DIA has become the top use of gigabit services, in large part because it provides the underlay connectivity that companies use for carrier managed SD-WAN. And DIA’s growth also has to do with the fact that it's “a really solid connection,” said Cochran. Other “major applications” for DIA include connecting data centers to the internet, as well as providing access to public cloud services.
The next biggest segment is Ethernet private lines, which are typically used for other types of applications. The connectivity for Ethernet lines is point to point, Cochran said, an application that “has taken a hit because of the pandemic.”
Before COVID, companies often linked private networks between their facilities. Now, they are going to the internet. “The big picture here is the migration from those kind of connectivity services, which were between network sites within a company, as opposed to linking them to the internet sites, data centers and to cloud services,” explained Cochran.
Ethernet faces fiber, SD-WAN competition
The Vertical report highlighted challenges to Ethernet market growth, including the migration to alternative services such as carrier managed SD-WAN, secure access service edge (SASE), wavelength services and dark fiber.
Carrier managed SD-WAN and SASE customers predominantly use broadband and Ethernet DIA for secure, gigabit-speed and symmetrical connectivity. But wavelength services up to 400+ Gbps are emerging as an alternative to gigabit Ethernet, addressing business-critical applications with what Cochran called "managed, dedicated" circuits, especially for companies that rely on the cloud.
Dark fiber is also presenting itself as an alternative, offering dedicated fiber for custom-designed connectivity or proprietary application interfaces. Cochran noted that currently, nearly two-thirds of U.S. Ethernet connections are delivered over direct optical fiber, with over 1.4 million commercial buildings and data centers already equipped with carrier-grade fiber connectivity.
All Ethernet service providers on Vertical's Mid-2023 U.S. Carrier Ethernet Leaderboard also rank as leading fiber providers on the latest U.S. Fiber Lit Leaderboard, underscoring the interconnected growth of gigabit Ethernet and fiber infrastructure.