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Ethernet Exchanges: A Market Concept Revisited
Rapid development of the Ethernet services market by hundreds of providers worldwide left interconnectivity and interoperability central ongoing market issues as customers tried to connect beyond their own providers' coverage areas regionally, nationally and internationally. Carriers want to interconnect fundamentally to access others' Ethernet service footprints outside their own and so provide relatively ubiquitous coverage. Interconnection agreements, or E-NNIs (external network to network interfaces), between provider pairs that often used different service variations and class-of-service (CoS) structures have historically been complex, costly and time-consuming to negotiate and implement, slowing market-leading Ethernet growth below its potential, an issue that persists even despite adoption of formal industry-wide E-NNI standards in 2010 by the Metro Ethernet Forum (MEF) trade group. EEs appeared to offer promise of economically expanding provider market reach, at the same time heightening market competition between a more robust variety of Ethernet services with more customer options at lower prices from more players in more places.

The EEs that emerged in 2009-10 in response to these concerns were a trend that appears to much of the industry in 2013 to have promised much more than it delivered. Introduced with fanfare as an alternative to direct bilateral ENNI interconnection agreements, EEs have been slow to take off. Many carriers wrote them off as of little if any significance, often after signing up with one or more exchanges but realizing little if any business on them.

Ethernet Exchanges were a new phenomenon in U.S. and worldwide Ethernet service markets, designed to facilitate interconnection with many providers at once and obviate the need for complex, costly and time-consuming individual arrangements with each interconnection partner, resulting in greater efficiency and more Ethernet service competition at lower prices.

EEs have, however, dramatically disappointed expectations in terms of take-up and business magnitude, though they appear to be growing again at this time, largely through extending themselves into previously unanticipated or at least under-estimated end-user segments and applications, prominently involving cloud and financial service entities as well as other enterprises.

The market for EE use among carriers for which EEs were designed has developed with painful slowness when at all, with carriers sticking wherever practical with conventional bi-lateral ENNI arrangements, generally resisting change to long-established practices, avoiding the multiplicity of commercial arrangements often required by EEs, and generally finding less utility than anticipated in this new modality.

Both of these models will have a significant future. Data center-based players are already starting to grow into software, as well as diversifying their appeal by market segment. Both models are likely to expand as their appeals become increasingly manifest to a broadening array of market participants.

Ethernet Exchanges: A Market Concept Revisited examines Ethernet Exchanges (EEs), their emergence, potential and promise in the market. It also touches on EE business models, new use cases and emerging applications. Finally, the report profiles four leading vendors in the market.
Table of Contents (hri0213_toc.pdf)

The EE segment has grown much more slowly than was widely expected at the time of its establishment; however, at the same time, the segment is featuring a greater variety of applications, participant categories and "use cases" than was originally anticipated partly out of providers' understandable efforts to rescue a good idea that risked sinking, by broadening its potential uses. Initial expectation of a large business with perhaps hundreds of millions of dollars annually remains unrealized. Payments for EE services in the U.S. have rather probably not exceeded the low tens of millions annually.
Companies analyzed in this report include: CENX Inc.; Equinix Inc. (Nasdaq: EQIX); Inteliquent; and Telx Group Inc.
Total pages: 18
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