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Study: Ethernet in the city cuts carrier costs

Telephone companies could reduce operating costs by almost a quarter by using Ethernet in metropolitan area networks instead of traditional services, according to a study.

Telephone companies could cut their operating costs by 23 percent a year by using Ethernet services in their metropolitan area networks instead of traditional telecommunications services, according to a new study.

The study, released Monday, found that carriers could reduce their operational costs by 18 percent during the first year of a three-year network implementation. The potential savings rise to 20 percent in the second year and roughly 24 percent in the third year, according to the study, which was commissioned by the Metro Ethernet Forum, a marketing group made up of equipment vendors and service providers.

PointEast Research, which conducted the survey, compiled results based on interviews and data provided by 36 European and North American carriers, including British Telecom, BellSouth, SBC Communications, France Telecom, and Time Warner Telecom.

Supporters of metro Ethernet have long touted the technology's capital savings. Ethernet equipment typically can cost anywhere from 40 to 50 percent less than traditional SONET/SDH (Synchronous Optical Network/Synchronous Digital Hierarchy) gear, which is often used to transport traffic in a metropolitan network.

"This study reinforces the message that Ethernet is a compelling communications service," said Dave Senior, co-chairman of the Metro Ethernet Forum's Economic Committee "It's the most cost-effective way of offering data connectivity services."

These savings are important because carriers typically spend roughly 70 percent of their budgets on operating their networks, according to 2001 data from the Federal Communications Commission. Money saved on operations goes right to a carrier's bottom line, helping it to improve gross margins and achieve profitability.

Network operations comprise all the processes and functions needed to run a network and deliver services to customers. They include sales and marketing, various support functions, all the technicians and engineers for provisioning and monitoring, and corporate processes in general. Labor costs associated with all of these things account for the bulk of annual operating expenditures.

Ethernet was developed 30 years ago to connect computers on corporate networks. Since its inception, it has become the predominant technology used in corporate networks. Now carriers, which typically provide phone and Internet access services, are putting it to use in their metropolitan area networks.

As a result, Ethernet is competing against Frame Relay, ATM (Asynchronous Transfer Mode), dedicated leased line and other traditional wide-area technologies. These use TDM (Time Division Multiplexing) signaling to transport traffic, with bandwidth delivered in rigid blocks.

One of the advantages of Ethernet is that bandwidth is allocated incrementally. Most carriers provide services that start at 10 megabits per second and can scale up to 1 gigabit per second or more. Not only does Ethernet provide customers with faster data rates than traditional Frame Relay and ATM services do, but it also gives them more flexibility in upgrading their service.

Another benefit comes over time, when updating systems. Traditional TDM services require technicians to go to customer sites and install new equipment or manually provision a new circuit. With Ethernet, the upgrades can be done remotely, using software. According to the Metro Ethernet Forum study, carriers can reduce the expense of upgrades by between 66 and 83 percent annually.

"With Ethernet you don't have to send a truck out to a customer to upgrade the service," said Mike Rouleau, a senior vice president of business development at Time Warner Telecom. "All you do is type in a simple command, and it's done."

But Michael Howard, an analyst at Infonetics Research, points out that metro Ethernet technology still has a long way to go. Most services offered today are only point-to-point. As carriers look to deploy Ethernet throughout their network, they will need to address a slew of technical issues. For one, they will need products that can tie into carriers' current network management systems.

According to the study, metro Ethernet services currently don't provide major operational savings when it comes to streamlining network management. But the Metro Ethernet Forum says new products that are more tightly integrated into the existing management systems will likely provide more efficiencies in the future.