Survey: Ethernet Service Providers Face Price Resistance

Service providers are rushing to bring carrier Ethernet services to the market, but they may be disappointed by their customer's disinclination to pay premium rates. According to a new survey from Heavy Reading, carriers are underestimating the cost of delivering carrier Ethernet and just how much their customers are willing to pay for the service.

According to Heavy Reading's "2004 Survey of Ethernet Service Providers," service providers are lining up to offer Ethernet services like virtual LANs and IP virtual private networks over Ethernet. More than 70 per cent of the service providers surveyed plan to deploy these services by the end of next year. Heavy Reading expects carrier Ethernet to be the main focus of future growth of Layer 2 services, displacing Frame Relay and ATM.

For all of their excitement, however, service providers don't agree with their customers on the technology's key benefits and could be overestimating the price that they are willing to pay for these new services. Heaving Reading notes that while carriers are attracted by operational benefits of offering Ethernet services, like the ability to change bandwidth quickly without a service interface change, their customers - initially expected to be primarily small and mid-sized enterprises - are more interested in network cost reductions.

Consequently, new carrier Ethernet services could face price resistance. While carriers expect quality of service guarantees and managed protection to add ten per cent to the cost of the new services, they will probably not provide expected profits. According to Heavy Reading, 31.6 per cent of enterprise do not expect to pay anything extra for carrier Ethernet service with QOS, while another 38.5 percent said they would be willing to pay only up to 10 percent extra for QOS.