Metro Ethernet could pay off for RBOCs

Users can soon expect affordable metro Ethernet services from their traditional local carriers, if an economic model presented by an industry analyst recently turns out to be true.

According to the model, presented by Network Strategy Partners LLC consultant Michael Kennedy at a recent Massachusetts Telecommunications Council meeting, the RBOCs can compete on price with start-up metro Ethernet service providers and still make money. This means the RBOCs will be more likely to start offering metro Ethernet services, enabling users to procure them from their traditional carriers, he said.

Ethernet services from companies including Cogent Communications Inc., Telseon Inc. and Yipes Communications Inc. are generally priced to undercut RBOC data service prices. Cogent, for example, offers 100M bit/sec Ethernet service for US$1,000 per month. By contrast, a 45M bit/sec T-3 service can cost more than $6,000 per month, Kennedy says.

Users can increase the bandwidth of their Ethernet services in very small increments, typically 1M bit/sec. Dedicated lines, however, must be bought a T-1 at a time, and after somewhere between five and eight of them, it is cheaper to buy a T-3. This means users end up paying for bandwidth they don't use.

But the RBOCs can price Ethernet services so they don't compete with their current T-1 business yet still attract customers, Kennedy says.

By pricing a 1.5M bit/sec Ethernet service at the same price as a 1.5M bit/sec T-1 service, the RBOCs will be able to capture T-1 customers. Then by offering bandwidth increases at much less than the price of another T-1, they can continue to serve customers as their bandwidth needs increase, Kennedy says.

The RBOCs could price the incremental services so that customers wind up paying more for a 45M bit/sec Ethernet service than they would have for a T-3, he says. Customers will pay that premium, he says, because most would rather pay for service in increments vs. jumping off and buying a T-3, which would require purchasing new wiring and equipment. Overall, with customers buying services at bandwidths between T-1 and T-3 - an area where the RBOCs are currently losing out to start-up metro Ethernet providers - the RBOCs could wind up making more than they do without offering Ethernet services, Kennedy says.

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