Upstart companies deploying Internet services over Ethernet are pulling the plug out of the broadband bottleneck. And while newcomers such as Yipes Communications and Telseon are at the leading edge, the space is growing more competitive as the big dog telcos join the fray.
Verizon and SBC Communications have begun to fend off competitors with Ethernet-based products and they are likely to be soon joined by others. In late September, Foundry Networks said it will begin building software into its networking equipment that will allow legacy carriers to build their own Ethernet networks and compete against the likes of Elastic Networks, Telseon and Yipes.
The new Ethernet players are promising a better, cheaper answer to the clogged last mile.
While the long-distance Internet backbone has been growing in speed and capacity over the last decade, the broadband bottleneck in the local loop has slowed the data revolution for nearly everyone.
Existing urban telecommunications networks were built for voice transmission. For the most part they have relied on copper wire from the building to the telephone company central office. Once piped into the long-distance network, data zips along at OC-3 (155-megabit-per-second) and up to OC-192 (10-gigabit-per-second) speeds. At the end of the route, though, the signal pours back on to pokey copper that carries it on to buildings at no faster than 1.5 Mbps.
But inside those buildings, on the local area networks that businesses, universities and other enterprises use to communicate among themselves, there is a huge installed base of Ethernet technology that zooms data around the office at high speeds, delayed until it hits the local loop bottleneck back out in the real world.
No more long waits
The new industry segment is growing up to take advantage of that installed base, working to break through the local-loop bottleneck using Ethernet technology. Internet-protocol over Ethernet architecture promises customers scalable, high-speed data transmission at rates as high as 10 Gbps and at about one-fifth the cost of alternative service and without the long installation waits.
"We certainly have the perspective that the technology evolution in the metro area is going to evolve away from the SONET architecture," says Telseon's Chief Executive John Kane. IP over Ethernet "is cheaper, easier to maintain and scales better."
Ethernet technology, developed by Robert Metcalfe and outlined in his 1974 Ph.D. thesis at Harvard University, is overwhelmingly the preferred protocol for enterprise networks connecting computers within buildings. The equipment is inexpensive and the technology is well understood by IT departments. CIBC World Markets estimates that this year there are 326 million installed Ethernet connections.
"This technology has a very good chance of becoming the most common data access technology in wide area networks. It already is in LANs. Now it's going to do the same thing in wide area networks," said NetForecast analyst Peter Sevcik.
Yipes is the first to roll out a retail version of IP-over-Ethernet service to bypass the legacy telephone companies and their copper lines.
Frank Robles, Yipes' vice president for corporate development and one of the original founders of the company, had the original concept and took the legendary "scare your wife" route to financing the venture - a second mortgage on his home.
"We took a lot of risks in the beginning and walked out there on the edge. The choices that we made were right. We used Gigabit Ethernet in the metro area. So what we do is we buy or lease dark fibre in the metro area," Robles says. The fibre loops are purchased or leased from traditional sources such as Level 3 Communications or Metromedia Fibre Network, but also from a number of nontraditional providers, such as power companies, transit authorities or municipal utilities.
Yipes has gathered US$230 million in venture financing, closing its US$139 million third round last week. The first round, in July 1999, brought in US$13.8 million. The second, completed last March, raised US$77 million. Yipes is operating in 15 metro areas, and hopes to add another five by year's end. The company so far has lit more than 4,000 route miles of fibre.
"From the fibre, we extend a lateral - or our own fibre - connection from the ring into the basement of the building. We put wire-speed switching routers into the basement of the building. We serve customers with Internet interfaces inside the building," Robles says.
This loop-to-building connection provides greater reliability because the interfaces are used solely for data transmission and do not support a voice network. Besides greater reliability, the architecture can deliver high speeds and greater flexibility. Yipes can provision a higher level of service depending on customer requirements. If customers need more bandwidth for teleconferencing for a few hours, they can call Yipes and get the additional bandwidth within a few minutes or hours.
"Yipes interconnects the many providers and owners of this existing fibre with the necessary network interconnect and edge hardware, and then offers this service in the form of an RJ-45 Ethernet port directly into a customer's premises," explains Yipes' Chief Technical Officer Kamran Sistanizadeh. "The result is a network service . . . that can be provisioned anywhere from 1 Mbps to 1 Gbps at the customer's request."
One of the major advantages to the Ethernet revolution is its cost. According to data compiled by Yipes, Extreme Networks and Juniper Networks, and analysts from Dell'Oro Group and The Yankee Group, the cost of Ethernet-based Internet service can be one-fifth to one-thirteenth the cost of other high-speed transmission options.
Twice as much bandwidth
For example, with IP/Ethernet gear, equipment costs run US$1 to US$3 per megabit, compared with US$8 to US$40 for IP/Asynchronous Transfer Mode/SONET network architecture. Bandwidth management and provisioning runs about 20 percent of the cost of IP/ATM/SONET and IP/SONET options, and annual maintenance and upgrades are one-fifth to one-eighth as expensive.
"Typically, we're letting them buy twice as much bandwidth for 80 percent of their original cost," Robles says "Typical Internet access cost is US$900 to US$1,000 per megabit. We're around US$500." A T1 (1.5-Mbps) line costs about US$685 at each active end, while Ethernet-based access is in the US$350 range.
Several factors have come together to make good old Ethernet the hot new last-mile technology. In June 1998, the Institute of Electrical and Electronics Engineers approved the Gigabit Ethernet standard, which allows transmission of data at 1 Gbps - 100 times faster than the original Ethernet standard of 10 Mbps. But speeds this high cannot be sustained for more than a few hundred feet over copper wire, so fibre optics is key to the success of the technology.
"Originally, Ethernet was designed to go over copper and for short distances. It was first in buildings, then on campuses," says Jonathan Marshall, Yipes' senior director of public relations. "But when it became available over fibre optics, and laser modules became available to pump signals 70 to 100 kilometers, it became a viable technology for regional rings."
As long as the signals are relayed to switches on the loop about every 100 kilometers, there is no limit to how far the signal can be faithfully carried.
"Some articles have said that Gigabit Ethernet travels only a few miles," Marshall says. "But actually Gigabit Ethernet now goes over very long distances." The technology can also take advantage of the maturing fibre-optic infrastructure.
Yipes is a privately held company and would not release financial data. However, Robles says the company is "overshooting" its revenue projections. "Sales have been more effective than we had planned. There is very high demand for this solution," he says. " 'When can you get it here?' is the question they ask. I've got customers signing contracts before we even have the fibre lit."
Telseon, which raised US$86 million in two rounds of financing last year, is working from a different business plan than Yipes, and considers itself more of a wholesaler.
"Our customers are the service providers in colocation facilities," Telseon's Kane says. "We're generally not going out into the marketplace and putting fibre-optic cable into every building we pass. We're selling to the intermediate providers. We want to be a service provider's service provider."
Telseon is operating in 14 cities and will expand to 20 by the end of the year. The company is also negotiating some European and Pacific Rim expansions, Kane says. But Yipes' Robles says of Telseon: "Their model is to be the carrier's carrier. But the retail model is the way to go.
"I'm not seeing them in the market," Robles says. "I hear that they are in Palo Alto, Dallas and Seattle. But I've got customers in all those markets, and I don't see them being there in terms of competitiveness."
End-user oriented
Kane says that Yipes is "very end-user oriented. They are more interested in managing the customer service, kind of like an ISP [Internet service provider] . . . We don't do any of those things, because they compete with the customers we are trying to serve."
Kane says that while the technologies the two companies offer are similar, Telseon offers real-time provisioning software. Customers will be able to boost their bandwidth on demand, without waiting for the company to throw a switch. "Nobody else has this," he says.
Yipes has supplied each of three Philadelphia-area colleges - Bryn Mawr, Haverford and Swarthmore - with a 10-Mbps Internet on-ramp and a 10-Mbps LAN-to-LAN connection to the other campuses. This will more than triple their existing bandwidth and allow the schools to share electronic library catalogues and course materials. Dorms have been wired for Ethernet as well.
"It's amazing how bandwidth has become an expected and demanded right," says Matthew Nocifore, director for networking and systems at Haverford.
"We anticipate lots of distance education between the campuses over Yipes," says Mark Dumic, manager of networking and telecommunications at Swarthmore. "Students and faculty will use our private network to access content on all three campuses, enlarging their overall educational resources."
Yipes is also providing service to the Fort Collins, Colo., newspaper The Colouradoan. "The biggest thing is the expandability," says Bob Romine, director of technology at The Colouradoan. "Right now, we're just at the equivalent of a T1. But, say I need to do video streaming for the major networks, I can just call [Yipes] up and they could give me 5 megabits [per second]."
Romine says that so far Yipes' customer service has been outstanding.
"Nowadays, when you get any service, it's wonderful. But they follow thorough on phone calls, They warn you about maintenance. They've got competent people answering the questions. Their phone list goes right up to the CEO. Despite Ethernet's promised economies, Romine says that in the initial stages, The Colouradoan did not save any money. However, he says, as bandwidth is added, there should be considerable savings. "What happens as you start going up in bandwidth, the other [companies'] prices keep going up and theirs started dropping off. At 10 megabits [per second], their monthly fee was 30 percent less than the other companies . . . You can add more bandwidth at a relatively inexpensive cost."
Even with its bargain-basement rates, Robles says he expects Yipes to capture 30 percent to 40 percent of the data-transmission market by 2005. CIBC World Markets estimates the market this year for local loop transmission at US$130 billion, with US$90 billion in voice and US$40 billion in data transmission. By 2005, the total for the market should grow to US$190 billion, with voice transmission shrinking to only US$40 billion and data growing to US$150 billion.
hey this sounds real cool! when can I get one of these connections in Australia?