May 3, 2010

By Laurence Cruz

The worst economic slump since the Great Depression was a mere speed bump for at least one technology segment.

That's according to experts who say the global market for Carrier Ethernet – a humble office networking technology turbocharged for use on major telecommunications networks – is on a roll. Telecom consultancy Infonetics Research estimates the global market for all types of Carrier Ethernet equipment ballooned from about $19 billion in 2008 to nearly $23 billion in 2009, and is projected to reach $34 billion by 2013.

That's not to say the market was unscathed by the recession. Infonetics principal analyst Michael Howard says sales of Carrier Ethernet switches and routers fell 12 percent from 2008 to 2009, despite an uptick of 17 percent in the fourth quarter.

"But overall, the market still defied the downturn," Howard says. "It continues to grow year by year even though we've had economic difficulties."

A Cost-Per-Bit Champion

Why the rapid growth? Kelly Ahuja, who runs Cisco's service provider routing technology group, says the "recession-proof" quality of Carrier Ethernet is due in part to larger underlying trends.

"Internet protocol (IP) traffic and video in particular continue to explode regardless of the economy, as does the popularity of bandwidth-hungry mobile devices," Ahuja says.

These in turn are driving communications companies to upgrade their networks, which were built to handle voice calls. And Ethernet, which was built from the ground up to manage the digital packets of the Web, is the natural choice for renewing these networks, Ahuja says. Ethernet is fast, ubiquitous and cheaper than competing technologies – "a known cost-per-bit champion," in Howard's words.

Ethernet has also evolved to "carrier" quality – meaning it's now fast and reliable enough to meet the demands of the massive-scale networks run by telecommunications companies, or carriers. According to Howard, more than 95 percent of operators of wired telecommunications networks use Carrier Ethernet equipment somewhere in their networks, and most wireless operators use it, too.

But that was not always the case.

An Improbable Journey

Ethernet's journey into the heart of the telecommunications infrastructure is a long and improbable one. Invented more than 30 years ago by four engineers at Xerox PARC in Palo Alto, Calif., Ethernet soon emerged as a dominant technology for local area network (LAN) communications among desktop computers and servers.

Then came a little thing called the Internet. By the late 1990s, public networks built for telephones were already straining under a growing freight of multimedia Internet traffic. Ethernet, with its innate ability to process digital payloads, became a logical alternative. But as late as 2000, despite Ethernet's pervasiveness in business networks, there were doubts about its suitability for use in large telecommunications networks.

"Ten years ago, if I had talked to a telecommunications company about Ethernet, I would have gotten a foot in my back because it wasn't up to the rigors of a true carrier-grade network," says analyst Ray Mota with technology consulting firm ACG Research.

Since then, building on the huge economies of scale enjoyed by Ethernet, several major developments have led to the creation of "Carrier Ethernet." They include technology advances that bump up a network's IQ and the efforts of standards bodies. The Metro Ethernet Forum (MEF), for instance, has defined five attributes for Carrier Ethernet including reliability, the capacity to scale up to huge numbers of users, and the ability to guarantee quality of service for high-priority traffic as opposed to "best effort" delivery, which offers no such guarantees.

An Ethernet-Focused Strategy

Like many others, Mota once had his own reservations about Ethernet's ability to rise to the networking challenges ahead of it. But he says he's seen the technology evolve to overcome every obstacle in its path.

"I learned early on not to bet against Ethernet," Mota says.

The same could be said of Cisco, which picked Ethernet as a winner as early as 1993, when the company acquired Ethernet switch-maker Crescendo Communications, Ahuja says.

Cisco's Carrier Ethernet strategy kicked into high gear with the launch of its 7600 series router, which was one of the first routers to support Ethernet in larger networks, Ahuja says. Cisco has since continued the trend with the 2008 release of the ASR 9000 – the company's latest and brawniest Carrier Ethernet router.

It's all part of a multi-pronged strategy that includes pushing the bounds of what routers – the traffic cops of the world's information superhighways – can do, Ahuja says. At the same time, the company plays a leading role working with standards bodies to help speed the adoption of Carrier Ethernet and other technologies, he says.

Cisco's Ethernet strategy also goes hand in glove with its data center and mobility strategies, Ahuja says. That's because data centers house a high concentration of Ethernet infrastructure – such as Cisco's Catalyst 6500 and Nexus 7000 series switches – to connect large numbers of servers to the Internet, he says. Cisco is also using Ethernet on the mobility front, working with communications companies to transmit wireless voice and data traffic from cellular towers onto wired networks in what's known as mobile backhaul, he says.

The approach seems to be working. According to ACG Research, in 2009 Cisco commanded nearly 57 percent of the global market for Carrier Ethernet routing and switching.

A Bright Future

But as far as Ethernet has come, analysts say the journey is far from over. For starters, traditional networking technologies have an entrenched presence that Howard estimates will take 15 years to phase out.

And Cisco itself faces competitive challenges in the Carrier Ethernet market. Mota notes that with standardization comes commoditization, which in turn opens the door for new competitors to enter the market. To stand out from the crowd, he says Cisco will have to keep developing new networked services and will have to work at educating its customers of their value.

Ahuja says Cisco's tackling that challenge with an array of services such as video performance monitoring, virtual private networks and screening digital packets for viruses in what's called deep-packet inspection. But he says some emerging capabilities present significant technical hurdles that are still being worked out – such as how to retain timing in voice calls via Synchronous Ethernet, or how best to further develop the new 100-Gigabit Ethernet standard.

That said, analysts and Cisco executives agree the potential gains are enormous. Howard predicts companies will spend a cumulative $146 billion on Carrier Ethernet equipment in the five-year period ending in 2013.

Mota's estimates are more conservative, but he, too, is optimistic.

"If there is an area of growth, Carrier Ethernet is it," he says.

Laurence Cruz is a freelance writer in Los Angeles