The top five service providers in terms of global on-net footprint, with on-net coverage in

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1 Executive Summary International Service Providers are updating and expanding their MPLS core and next generation DWDM networks to capture growing demand for enterprise data services. Their focus is on delivering resilient, cost-effective, and scalable solutions through optimized network architectures, promoting MPLS IP VPN and Ethernet services, or hybrids thereof, in place of legacy networks. Expansion is guided by customer requirements, investing in new PoPs and deploying equipment to follow their customers into new geographies. They are arranging partnerships that enable seamless delivery of end-to-end service, even when an end-point is off-net. Service providers are delivering the mix of customized solutions, from point-to-point to any-to-any connectivity, from low speed Internet to high speed access to cloud and data center services, that enterprises need to compete. TeleGeography s Global Enterprise Networks research details the international enterprise network service offerings and network coverage of 116 leading service providers in 166 major cities in 103 countries. The analysis examines trends in geographic coverage and expansion, service features, and pricing. Service offerings covered include MPLS IP VPN, Ethernet, Dedicated Internet Access (DIA), and private line services. Geographic Coverage TeleGeography s assessment of geographic coverage is based on the number of carriers surveyed that offer each service in a given city, country, or region. Year-on-year growth is calculated on the basis of how many of the 83 carriers surveyed in both 2012 and 2013 offer a given service in the 166 cities covered. Services included in TeleGeography s profiles are any-to-any network services (MPLS IP VPN, DIA, and VPLS), Ethernet private line services (EoMPLS, EoSDH/SONET, and EoDWDM), and long-haul private line (T/E Carrier, SONET/SDH, DWDM). Carrier Connectivity The top five service providers in terms of global on-net footprint, with on-net coverage in more than 100 of the 166 cities surveyed, are Orange Business Services, BT Global Services, AT&T, Verizon Business and Level 3. Sprint, Vodafone, Tata Communications, SingTel, and Cogent Communications round out the top 10. While each provider is extending its 1

2 network, coverage varies by service. The top five global IP VPN providers by footprint are Orange Business Services, Verizon Business, BT Global Services, AT&T and Level 3. For EoMPLS services, the top five are Level 3, AT&T, Orange Business Services, Cogent Communications, and Tata Communications. For VPLS services, the top five providers by footprint are Level 3, Orange Business Services, Cogent Communications, AT&T, and Vodafone (see figure: Top 10 International Service Providers by Product for On-Net Cities). FIGURE 1 Top 10 International Service Providers by Product for On-Net Cities Carrier On- Net Cities On- Net Rank VPN On- Net Rank EoMPLS On-Net Rank VPLS On- Net Rank Orange Business Services BT AT&T Verizon Business Level Sprint Vodafone Tata Communications SingTel Cogent Communications NTT Reliance Globalcom GTT TeliaSonera Emerging Markets Communications (EMC) KPN Notes: The total number of possible cities is 166. On-net indicates the number of cities where a carrier offers any service through its owned and managed point-of-presence. Any service indicates that the carrier serves the city either through its own point-of-presence or through a partnership/nni. Further explanation can be found in the Definitions and Methods section. Carrier Expansion The aggregate number of on-net PoPs enabled with enterprise network services grew 6 percent in 2013, significantly down from the 11 percent growth observed in GTT led all carriers by adding 29 new cities through its acquisition of Inteliquent. Ten other 2

3 carriers (Sprint, Reliance Globalcomm, SingTel, GTS Central Europe, Bharti Airtel, Tata Communications, TeliaSonera, CenturyLink, China Telecom, and Lattelecom) extended their on-net enterprise service coverage to three or more new cities between 2012 and Onnet services in Africa grew 14 percent, with carriers adding 12 new on-net cities. Growth rates for on-net services in other regions were 4 percent in Asia-Pacific, 7 percent in Europe, 2 percent in Latin America, and 6 percent in the U.S. and Canada. FIGURE 2 Enterprise Service Growth, Notes: Data reflect enterprise services offered by 83 carriers in 103 countries and 166 cities within those countries. Blue columns represent the total number of new on-net enterprise service sites; rectangles reflect the growth rate of on-net sets. Aggregate MPLS IP VPN on-net reach in the 166 cities covered increased 4 percent in Regional growth in on-net MPLS IP VPN coverage ranged from 12 percent in Africa to 2 percent in Asia & Pacific and U.S. & Canada. Slowing IP VPN expansion is indicative of the nearly ubiquitous coverage of global carriers and their tendency to partner with smaller carriers at layer 3 rather than build their own infrastructure. Ethernet over MPLS services grew 12 percent. The fastest growth was seen in Africa, where EoMPLS reach grew 57 percent, followed by Latin America & Caribbean, with a 17 percent increase in EoMPLS reach. Expansion of EoMPLS services in developing markets is a response to customers preference for homogeneous network architectures. VPLS coverage expanded 28 percent overall in In the U.S. and Caribbean growth was 41 percent followed closely by Latin America where growth was 40 percent. Africa saw no new additions. The high growth rate exhibited in most regions is indicative of growing enterprise demand and the requirement that a similar solution be available at all customer sites, regardless of location. 3

4 Competition in Major Metropolitan Areas On-net enterprise network services are most readily available in major global business centers, where carriers can serve large numbers of corporate customers. In these major hubs, the number of carriers available reflects a combination of global and regional service provider networks, with carriers positioning themselves to serve international enterprise customer headquarters and data centers. Of the top ten cities, four are in Europe, four are in the U.S., and two are in Asia (see figure: Top 10 Cities Based on Number of Providers Offering Any On-Net Product). Within these top cities, Singapore moved up the most from tenth to seventh. It is also noteworthy that in London, the most competitive enterprise service market globally, only 56 of 116 carriers profiled have physical points-of-presence. FIGURE 3 Top 10 Cities Based on Number of Providers Offering Any On-Net Product Rank City On-Net Carriers Change in Rank London Frankfurt New York Los Angeles Amsterdam Hong Kong Singapore Chicago Miami Paris 33 0 Notes: The data include 116 carriers. The on-net number indicates the total number of carriers of those 116 that were able to provide any product in that city through its owned and managed point-of-presence. WAN Services Review MPLS Network IP VPN MPLS Network IP VPN service is nearly universally available, with 88 percent of profiled carriers offering the service. A key selling point of MPLS IP VPN is a customer s ability to manage and prioritize traffic streams to match the needs of specific applications. Traffic prioritization with Class of Service accommodates differentiated traffic streams by allowing packets from low latency applications such as voice and video to jump the queue ahead of other traffic. The most common number of service classes is four, typically labeled as Bronze, Silver, Gold and Platinum. 4

5 Carriers seek to differentiate themselves, not just in terms of price, but also with respect to their service features. Only 21 percent of service providers indicated they can configure customer bandwidth needs dynamically, and only 30 percent allow customers to burst beyond their contracted port speed commitments. Customers service portals are more widely available, with 72 percent of profiled carriers offering online service portals that allow enterprise customers to track and monitor network performance and billing. Customers seeking to turn over network monitoring to their service provider will find that 79 percent of profiled carriers offer fully managed customer premise equipment. Availability of IP VPN services via Ethernet ports continues to become more common. In 2013, 85 percent of carriers indicated that they offer T-1/E-1 interfaces, 87 percent offer 10 Mbps Ethernet, 95 percent offer 100 Mbps FastE, and 85 percent offer GigE. Just 63 percent of carriers offer 10 GigE ports. The relatively limited availability of 10 GigE ports is not entirely surprising, given that most port sales remain at the 10 Mbps level or lower (see Figure: IP VPN Port Speed Availability). FIGURE 4 IP VPN Port Speed Availability Ethernet While aggregate Ethernet service availability is growing steadily, the availability of Ethernet point-to-point, point-to-multipoint, and multipoint-to-multipoint services varies widely. All 112 carriers profiled that offer Ethernet services offer point-to-point Ethernet service, while 76 percent offer point-to-multipoint and 74 percent offer multipoint-to-multipoint Ethernet service. The most common implementations of these services are Ethernet over MPLS, Virtual Private LAN Service (VPLS), Ethernet over SDH/SONET, and Ethernet over DWDM (see Figure: Ethernet Protocol Availability). Each carrier service profile identifies which services a carrier offers, and the underlying network used to deliver it. 5

6 FIGURE 5 Ethernet Protocol Availability Notes: Data reflect 84 Ethernet service providers surveyed by TeleGeography. Class of Service implementation is less widely available for Ethernet services than it is for IP VPN. Among the Ethernet carriers surveyed, 66 percent offer CoS differentiation for point-to-point Ethernet services, and 71 percent of carriers that provide Ethernet multipointto-multipoint services offer CoS differentiation. As with MPLS IP VPN services, the most widely used convention is to offer four classes of service. Service interoperability becomes increasingly important when customer requirements cover multiple regions. The Metro Ethernet Forum Carrier Ethernet 2.0 standard aims to standardize carrier interconnection, Ethernet mapping, and the alignment of multiple classes of service. Staying abreast of the evolution of these standards and carrier certification is important for enterprises that have a multi-carrier sourced network. Enterprise Services Pricing Global Enterprise Networks analyzes pricing trends for three enterprise network services: MPLS-based IP VPN, dedicated Internet access (DIA), and Ethernet. The analysis of IP VPN and DIA pricing draws on data from TeleGeography s Enterprise Network Pricing Service, while the Ethernet pricing analysis utilizes data from our Ethernet Pricing Service. IP VPN Prices for IP VPN services continue to decline. The expansion of carrier geographic reach and the resulting increase in competition are driving down prices in a number of markets. 6

7 In 2013 the rate of decline was more rapid than the longer term trend, with prices for T-1/ E-1 ports in key global cities falling an average of 27 percent, compared to 17 percent compounded annually since 2010 (see Figure: Median T-1/E-1 Port Price Erosion in Major Cities, Q Q3 2013). In London and Singapore, the median best efforts E-1 price declined 29 and 33 percent respectively, compared to 15 and 21 percent over the past three years. In Q3 2013, port prices in the two cities were $286 and $412 per month. FIGURE 6 Median T-1/E-1 Port Price Erosion in Major Cities, Q Q Notes: Each column represents the change in the median monthly lease price for the listed city. Prices are in USD and exclude local access and installation fees. T-1 = 1.5 Mbps, E-1 = 2 Mbps. VPN port prices and their rates of change continue to vary widely by city. Between Q and Q3 2013, the rate of price decline ranged from 35 percent in Mumbai to 7 percent in New York. Despite these significant reductions, at $862 per month, Mumbai remains twice the price of a comparable port in London. Similarly, Mexico City remains twice the price of New York at $565 per month. The price of IP VPN ports reflects the level of competition and relative cost of international bandwidth to a city. IP VPN service is far more expensive in Africa and the Middle East, where data transport costs remain high. At $3,153 per month, median prices for E-1 ports in Johannesburg were 12 times the price of London. This disparity is even larger in the Middle East. In Q3 2013, E-1 port prices in Dubai were $12,470 per month, a staggering 44 times more expensive than London. 7

8 Ethernet Point-to-Point Ethernet services are becoming a standard technology globally, providing a cost effective and scalable solution to legacy technologies. Of all the underlying transport technologies, EoMPLS is the most popular and widely available, with global prices decreasing accordingly. Prices for EoMPLS 10 and 100 Mbps circuits on a broad sample of routes decreased an average of 23 and 24 percent, respectively, between 2012 and Nevertheless, data from TeleGeography s Ethernet Pricing Service show that great geographic price disparities persist. Ethernet services are most readily available, and prices are lowest, on routes in well established markets such as Europe and the U.S.. In H2 2013, the median monthly price of a FastE EoMPLS pseudowire was $882 between London and Paris, $1,238 between Los Angeles and New York, and $1,321 between London and New York. In contrast, Ethernet circuits connecting to Asia and Latin America remain far more expensive due to more limited service availability, less robust competition, and higher underlying transport costs. The median price of a FastE EoMPLS connection from Hong Kong to Tokyo in H was $5,746, while a circuit from Miami to São Paulo cost $4,875 per month (see Figure: Median 10 Mbps vs 100 Mbps EoMPLS Prices, H2 2013). FIGURE 7 Median 10 Mbps vs 100 Mbps EoMPLS Prices, H Notes: Each column represents the median monthly lease price for the listed city and capacity. Prices are in USD and exclude local access and installation fees. Regional differences are also apparent when looking at the cost associated with increasing capacity. In H2 2013, 10 and 100 Mbps EoMPLS circuits on London-New York were $702 and $1,321 per month respectively, a difference of 1.9 times. In comparison, 10 and 100 Mbps prices between Hong Kong and Tokyo were $1,150 and $5,746 per month, a difference 8

9 of five times (see, again, Figure: Median 10 Mbps vs 100 Mbps EoMPLS Prices, H2 2013). Compared to the historical SDH/SONET multiple, where a four times capacity increase costs 2.5 times more per month, Ethernet delivers 10 times more capacity for a two to five multiple. Ethernet VPN Price Trends In addition to point-to-point configurations, carriers offer multipoint-to-multipoint Ethernet VPN service. Similar to IP VPN, the service is priced per port, rather than per circuit. Most carriers position layer 2 Ethernet VPN services as a complement to layer 3 IP VPN services, rather than as a substitute, and hybrid network implementations are common. VPLS prices continue to decline as a growing number of carriers offer the service. Between H and H2 2013, best efforts FastE port prices in key global cities fell an average of 32 percent, and 16 percent compounded annually since 2010 (see Figure: Median Best Efforts FastE Port Prices vs VPLS Availability, H2 2013). VPLS services remain cheapest in established markets such Europe and the U.S., where availability is higher. In H2 2013, median FastE VPLS prices in London and New York were $2,684 and $2,809 per month. Prices are higher in regions where VPLS is a less mature product. The median FastE VPLS price in Mumbai was $9,916 per month, nearly 4 times the price in London. The median FastE VPLS price in São Paulo was $8,868, three times more expensive than in New York, despite a decline of 19 percent in the past year. 9

10 FIGURE 8 Median Best Efforts FastE Port Prices vs VPLS Availability, H Notes: Each column represents the median monthly lease price in the listed city. Prices are in USD and exclude local access and installation fees. The line represents VPLS availability derived by dividing the total number of carrier sites across all carriers by the maximum possible number of sites for VPLS service in that city. FastE = 100 Mbps. Dedicated Internet Access In 2013, Dedicated Internet access (DIA) prices continued to decline in all regions, many at a quicker pace than the historical trend (see Figure: Median FastE DIA Prices in Major Cities, Q Q3 2013). Median monthly lease prices for FastE ports in major cities decreased an average of 31 percent in the past year compared to 17 percent compounded annually over the past three years. Median FastE prices in New York dropped 35 percent in 2013, compared to 14 percent compounded annually since In Q3 2013, FastE prices in New York were $12 per Mbps per month. The persistence of a significant price range between major cities is notable. The median price in Mexico City, at $55 per Mbps, remains five times that in New York. Mumbai FastE DIA prices, at $130 per Mbps, are 8.6 times those in London at $15 per Mbps per month. 10

11 FIGURE 9 Median FastE DIA Prices in Major Cities, Q Q Notes: Prices reflect monthly leases and exclude local access and installation fees. FastE = 100 Mbps. Outlook As the enterprise market evolves, customer solutions will increasingly shift towards hybrid networks, integrating a mix of layer 3 IP VPN, Ethernet, and DIA services to connect sites that may have dramatically different capacity requirements. End-user capacity needs at will continue to grow and network optimization will be driven by service availability, Class of Service requirements, and price. Integration of cloud services and distributed data centers into the corporate network will be a major driver for connectivity demand. Enterprise service providers will continue to expand their on-net layer 3 IP VPN, EoMPLS, and VPLS footprints. Many of the carriers profiled are working towards a goal of a single unified service platform where all customer requirements are delivered over a single network, creating economies of scale and enabling more efficient management. Global and panregional carriers, who are more likely to have customers with sites in both developed and developing markets, will continue to see strong demand for IP VPN. Service providers focused more exclusively on developed markets (e.g. Western Europe) will focus on scalable high capacity Ethernet services, looking to deploy fiber based solutions wherever possible. Ethernet will continue to dominate incremental sales of point-to-point service. While SDH/SONET services will persist in some environments, particularly submarine cable systems, they will continue to be phased out across terrestrial systems and metro markets. EoMPLS will serve the largest segment of the market, replace legacy services and allow for Class of Service differentiation. Demand for EoDWDM, particularly GigE, will continue to grow as more carriers upgrade their networks with next generation equipment. As it is most 11

12 closely tied to wavelength prices, EoDWDM will be the most cost effective way of delivering point-to-point services at high capacity increments. More end-users will evaluate selection of Dedicated Internet Access (DIA) as their primary network technology. The low cost, high capacity alternative may be the solution of choice for customers that do not have Class of Service or major security requirements and want to avoid the higher cost of MPLS IP VPNs. When multiple sites in a region can be connected with a single service provider, keeping all traffic on-net to that provider, end-users can successfully deploy tunneled solutions and still be able to identify and isolate network failures quickly. The outlook for emerging markets is largely unchanged since early Developing countries, particularly those in Africa and Latin America, will see greater availability of Ethernet services and more choice of providers for layer 3 IP VPN. As transport costs on submarine cable systems to these developing markets falls, it will become more attractive for carriers to establish their own MPLS PoPs and offer VPN and Ethernet services directly, rather than backhaul requirements through a partner back to their network. The main development in these regions will be the expansion of local Ethernet services. In an ideal world, a single technology platform will be able to serve all customer sites. Regional and national carriers will continue to invest in their local networks to connect more sites with Ethernet. No enterprise service provider has universal coverage and the need for NNI agreements between carriers to serve customer needs out of region will persist. Standardizing network interconnects and improved mapping of Classes of Service for layer 3 and layer 2 service between carriers will be critical to ensuring service continuity to the end user. Many carriers will seek certification by the Metro Ethernet Forum for Carrier Ethernet 2.0, and although not technically a requirement, it will be a pre-qualifier that potential customers will use in selecting a service provider. Continued innovation drives cost reduction for transport, the foundation for MPLS meshed networks and EoDWDM point-to-pont services. Price points for 100G wavelengths on terrestrial routes have already declined to 6 to 8 times the monthly lease rate for a 10 Gbps wavelength, down from 8 to 10 times a year ago. Service providers expectations the multiple will narrow to between 5 to 6 in less than five years. Carriers will continue to invest in their networks to compete for the lowest cost base, and competition will continue to yield double digit price erosion. Managed service pricing, which has declined in the 10 to 20 percent per year range over the last three years, will continue to do so. Ethernet services, particularly EoDWDM, may fall faster initially as prices are more closely tied to DWDM transmission costs where the greatest reductions continue to occur. 12

13 The content on the preceding pages is a section from TeleGeography's Global Enterprise Networks The work is based on sources believed to be reliable, but the publisher does not warrant the accuracy or completeness of any information for any purpose and is not responsible for any errors or omissions. This work is for the confidential use of subscribers. Neither the whole nor any part of this publication may be reproduced or transmitted in any form or by any means, electronic, mechanical, photocopied, recorded or otherwise, without prior written consent from PriMetrica, Inc. All rights reserved. TeleGeography A Division of PriMetrica, Inc. Washington, D.C. / San Diego / Exeter U.S. tel: / U.K. tel: