Last month, Level 3 Communications (NYSE:LVLT, news, filings) announced that it had quintupled the Ethernet switches in its core network. After discussions with the company it is clear that what was just phase 1 of an Ethernet offensive that is now well into phase 2, which entails offering Ethernet Switched Access (ESA) via new equipment that is being deployed across its entire network footprint. By being able to offer ESA, Level 3 can offer more flexible products and pricing to the enterprise market.
ESA is a shared service, meaning that the access link can be used by other streams of data when the capacity isn’t in use. Ethernet links are sold end-to-end, but they are built out of three pieces: an access link on each end and a core link in the middle. Often, carriers will sell a switched Ethernet service that is made up of a switched core link but with more expensive dedicated access links. With this additional expansion, Level 3 will be able to offer both dedicated and shared services contiguously from one customer location to another. Thus they will be able to price such products more competitively and increase their addressable market.
It is no coincidence that Level 3 is making such a move just as Ethernet exchanges like those of CENX and Equinix are beginning to flower. By extending their next generation of Ethernet offerings to their entire on-net footprint, they will be able to take full advantage of all those end points available through both exchanges and direct NNI’s to other carriers that they are still adding. Likewise, they will be able to present their entire, unified on-net footprint of over 8000 lit buildings to other participants in the increasingly interconnected Carrier Ethernet world.
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Categories: Ethernet · Internet Backbones
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During the O’hara and Abdel Pump Feast Days prior to implosion over “stubbed toes,” they had referenced $100 billion addressable markets for the Enterprise space. Subsequent to their fall, Crowe corrected that number to $33 billion, from which (3) holds about 3 percent share today. Recently I read about this “Ethernet Exchange” $40 billion addressable market. Is this $10 billion more opportunity in the enterprise space than I believe I know, or is it an ADDITIONAL market opportunity inside of (3)’s addressable market sandboxes?
Considering this company maintains significantly less than $4 billion in core network services across all revenue lines, I must say that, their lack of capturing the necessary flags while talking Big(3) all of these years, remains UNIMPRESSIVE!
You may call me Mr. Skeptic and place me in the corner next to Mr. Rusin who demands revenues and profits like the Wall Street BANKSTERS whom I many times disdain!
Two less obvious factors also need to be recognized here in terms of addressable markets. One, a huge amount of enterprise traffic went to proprietary (dark-fiber) networks built by those enterprises earlier in the decade that are now ripe for offload onto high-quality, affordable Ethernet. During the 2003-5 time frame clients of mine were leasing six-packs and ten-packs of 10G lambdas (without service provider’s Ethernet provisions), for example, as backups for their dark-nets. Until now enterprises have not had standards-based public offerings to choose from at scale that were both affordable and architecturally suitable as a replacement for SONET. Now, increasingly they do. Second, the mid-band Ethernet market is heating up, maturing to the point where it will inevitably lead to higher GigE requirements, even within SMBs and smaller enterprises.
A couple of releases over the past two days accentuate this trend, which will only fuel greater demand for aggregation at upper tiers as well. Actelis and Covad each have made announcements within a few days of each other, which can be seen here: http://bit.ly/aGhyVE and here: http://bit.ly/dyigiD respectively.
So Mr. C, in as few words as possible, would you like to suggest an “addressable market” number for the whole “enterprise space” which LVLT, specifically, might be attacking today? 🙂 It has been revised and stated as $30B up until these Ethernet Exchanges arrived on the scene! Since (3) is a share taker according to themselves, one who likes to gobble fifty percent or greater of available pie portions, I remain highly doubtful and doubly SKEPTICAL still!
Carlk, you asked me to do two things I don’t do well: tell the future and write short replies. How’s one out of two? 😉
Mr. C, I’ll take the former, instead of the latter, just this time, if you will, please. 🙂
Best to you, good sir.
No numbers, it’s too combinatorial for anything like that at this stage. The folks who do that get paid, whether they’re right or wrong. The best I could do is be right, and gratis, to boot. Worst case, if I’m wrong, I’m marked a bum 😉
[ Btw, have you seen Mary Meeker’s “Internet Trends April 12, 2010”? Mostly social-net and mobile projections, not a single word on Ethernet in 67 pages, but worth a look: http://bit.ly/dq0sba … and oh yeah, caveat emptor! ]
However, qualitatively there’s new business (new requirements for Ethernet), which adds to total market opportunity. Offsetting this, there’s also replacement taking place, in the form of SONET and ATM traffic shifting to Ethernet, which results in a momentary (quarters, halves?) lowering of overall revenue for _the _ latter _split _ of services across the entire industry, due to the comparative lower pricing of Ethernet on a per-bit basis to that of SONET.
The question then becomes, by what measure will the generative, or multiplicative, effects of the new Ethernet services offset the revenue reductions incurred due to replacements of more pricey alternatives, and who will be the early winners and losers? Also, perhaps to a lesser extent, some enterprises who are currently rolling their own Ethernet services, for want of a suitable market provider in the past, may seek to convert some of those DYI’s to leased or managed Ethernet services.
Who stands to lose when SONET and ATM pipes are replaced by leased and managed Ethernet services? Who stands to gain? I think these factors will conspire to force the larger incumbents to join the exchanges before long, just as they cannot avoid participating in hand-offs at Layer 3 today.
frank@fttx.org
Thanks Mr. C. I have always felt the # of salespeople in an organization along with their “annual capacity” to produce would be representative of a company’s near term addressable markets.
To be sure, (3) won’t provide a per capita data point tied to their “direct” sales force, and of course, there are many “indirect” channels which one would need to understand those benchmarks to get a better handle on top line growth rates in sync with the sand boxes that a “Big (3) Telecom” plays in.
Measure that against the combinatorial forces in play where debits and credits are battling against one another in between, and you have quite a COMPLEX story for something that should be a hell of a lot simpler!
I’m sure it is to the Brain Trust inside Big (3), but getting DATA POINTS from them is like attempting to steal top secret information from the CIA!
For now, we’ll have to be satisfied with a BABY (3) as respects aggregate revenues, one who is CRYING all the time about how BIG they’re going to be, and how much “market share” might as well be theirs!
At the same time, we’ll have to see how many more DECADES it’s going to take for this BABY LAMB to KILL every DAMN TELECOM MONOPOLIST who has ever lived while playing their game!
And while these vicious battles ensue, the great beneficiaries will continue to be the GOOG’s of this internet world, who are bringing home all the REVENUE MARBLES because they don’t pay FAIR FREIGHT.