Source: Comms Business March 2012
My colleagues and I have spent a lot of time recently talking and writing about Ethernet, the challenges and opportunities. It is absolutely true that SMEs’ appetite for more and better quality bandwidth is insatiable and we haven’t really seen the significant use of cloud applications really kick in yet. When they do, then I believe there is a corresponding uplifting effect on connectivity ARPU. It stands to reason that when an organisation starts to consume more and more mission critical services from the cloud that they will be more receptive to spending more on connecting to the cloud.
So, the future is bright for EFM? Well, my prediction is that the next couple of years will be, but after that I’m not so sure. The competitive carriers will hopefully get their acts together and be delivering predictable and consistent bandwidths and lead times. The service providers that are doing the volume will have automation in place and the channel will be making hay whilst the sun shines.
Why only a couple of years? I believe that fibre-based services both broadband and Ethernet are going to squeeze EFM out. The inherent commercial weakness that EFM faces is its reliance on multiple copper pairs. The more bandwidth you want the more copper pairs you need. This has a consequential increase in carrier capital expenditure due to each copper pair needing to be plugged into equipment both in the exchange and on the customer premises. There are also significant installation and rental costs from Openreach that scale up linearly with the number of pairs required for a customer. There is a finite amount of copper pairs in any given area, with not much of a business case for investing in delivering more copper capacity.
Fibre to the cabinet broadband (FTTC), has such a small SME footprint compared to EFM that today it doesn’t really pose much of a threat to EFM. However, looking forward, BT is accelerating the fibre broadband rollout significantly with the aim of providing coverage for 66% of the UK by end of 2014. FTTC was originally launched as an up to 40Mbit/s downstream and up to 10Mbit/s upstream product. BT Wholesale recently announced that trials of an 80Mbit/s downstream and 20Mbit/s upstream version of FTTC will start in January 2012. BT has also being steadily upping the service levels, with it now being possible to pay for a guaranteed 7 hour fix on many broadband services.
The challenge of using broadband for carrying business applications is always that the backhaul is disproportionately expensive when you look at the cost of carrying traffic on a per Mbit/s basis. That said it is perfectly feasible for a service provider to provide an effectively uncontended service for specific applications by managing their network appropriately and supporting the use of end-to-end quality of service (QoS).
Fibre broadband has a lot going for it. I don’t think that it alone will spell the end of EFM and it will only be a viable business product when it is delivered by service providers that have built their network and products for businesses, rather than consumers.
Within 2-3 years there will be a multitude of optical Ethernet offers. Some will be the exact same products you can buy today, but at a much lower cost. Some will be innovative new products piggybacking on the relatively low cost Openreach fibre broadband infrastructure being rolled out today.
The message for resellers is clear. There are 400,000 UK SMEs with 5-50 employees and the majority currently use traditional DSL. Most of these will upgrade to Ethernet or fibre broadband in the next 24 months and there has never been a better time for resellers to get into these products. Some of the better ISPs have automated quoting and provisioning tools and will help you with your business processes, campaigns and sales approach.