Wholesale SONET Services Enjoy Surge in Demand while Bracing for Increasing Migration to Ethernet

Frost: Driven by increasing bandwidth demands across all customer segments, the North American wholesale synchronous optical network (SONET) services markets are witnessing strong growth. With the industry on a recovery path, revenues have shown a positive upturn, thanks mainly to strong demand from all customer segments, in particular the wireless carriers, and the price stability brought about by ongoing consolidation among telecommunication carriers.

However, customer migration from SONET to Ethernet is likely to increase due to the continuous development of Ethernet standards as well as the rising share of packetized traffic such as Voice over Internet Protocol (VoIP) and data in the traffic mix. Hence, the ability to provide a smooth migration path away from SONET, as customers move to Ethernet, is critical for wholesale SONET providers.

Revenues in this industry totaled $1.66 billion in 2004 and can reach $2.20 billion in 2012.

Prevalent factors driving the demand for wholesale SONET services include rising broadband connectivity, wireless backhaul needs and bandwidth demand from such content providers as satellite,. SONET’s reliability and maturity as a technology as well as its extensive installed base is likely to continue to ensure its position as the preferred private line service in North America.

While there exist many segments with strong growth opportunities, some of the fastest growing are wireless carriers for backhaul needs, as they seek to accommodate increasingly vast amounts of voice and data traffic at their point of presence (POPs). They are also migrating from digital signal level one (DS-1) and digital signal level three (DS-3) to optical carrier level (OCn) signals. Also, competitive local exchange carriers (CLECs) are continuing to add on lines and also have similarly increasing bandwidth demands as they provide greater amounts of voice and data as well as video to their customers.

However, the growth of a formidable competitive service offering in Ethernet/Gigabit Ethernet is likely to prove a major challenge for participants in the North American wholesale SONET services markets. The standards for metro Ethernet continue to progress and while service providers still provision Ethernet over SONET, native Ethernet services are likely to encroach upon SONET’s market share in the coming years.

Ethernet’s lower prices in comparison to SONET’s, its suitability for data transport, and the convenience of incremental bandwidth provided by the technology, are some of the key factors driving the growth of Ethernet services in metro networks. While we do not see SONET being entirely displaced for many years to come, there is a clear shift going on at this time. The early stages are appearing in the access network, where new builds are being designed around Ethernet over SONET and switched Ethernet. This trend will move slowly into metro core rings over time, and eventually to the long haul, as standards progress.

With the North American wholesale SONET services markets in a period of transition, the ability to provide a smooth migration path away from SONET, as customers move to Ethernet, is vital. Service providers must plan their networks to accommodate such migration, while pointing customers to a range of solutions to choose from based on their specific needs. Also, wholesale providers will increasingly compete on quality, range of services and speed of delivery, as well as real-time provisioning and maintenance, as opposed to offering low-cost transport.

North American Wholesale SONET Services Markets

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