tw telecom Surges as Biz Demand For Ethernet Vindicates Strategy

February 18, 2009 – There may be no better illustration of the surging business demand for Ethernet services than the success enjoyed by tw telecom, which has continually leveraged suppliers’ technology innovations to become a formidable competitive force against the major incumbent carriers.

The latest case in point is the carrier’s deployment of Cisco System’s ME 3400 Ethernet edge switch, the supplier’s newest Ethernet switch, which streamlines tw telecom’s ability to quickly deliver data, Internet and voice services to multiple customers served by a single fiber extension. “There are approximately 900,000 buildings within one mile of our fiber in the 75 markets we’re in today,” says Mike Rouleau, senior vice president at tw telecom. “By incorporating the 3400 into our switched service we can peel fiber from that backbone and get into buildings more cost effectively, manage the costs of electronics more effectively and give customers the scale they need for a real converged platform.”

tw telecom, an independent publicly traded company that started in 1992 as a joint venture between Time Warner Entertainment and U S West, made an early commitment to Ethernet in 2001 with launch of a multi-pronged metro service aimed at delivering native services on a plug-and-play basis, using switched Ethernet, Ethernet over Sonet or wavelength-based delivery. In 2008 the company’s revenues grew by seven percent to hit $1.159 billion, about 73 percent of which came from enterprise services, with the remainder coming from its carrier business and inter-carrier compensation.

“Our initial Ethernet strategy was a bit unique where we intended to support customers’ applications needs on the platform that best fit their networking and budget requirements,” Rouleau says. “We think about Ethernet as the foundational element, not the end game. It’s a platform that allows us to deliver not just data but voice and data and to deliver that fully converged service at double the bandwidth of parallel networks they might be using, such as T1, Frame Relay or ATM, and at a cost that’s 20 to 30 percent less than what customers spend on those parallel networks.”

In 2003 tw telecom expanded on the metro Ethernet strategy to support “doorstep-to-doorstep” delivery of Ethernet services across the country on a scalable basis, which today ranges from two megabits per second to over one gigabit per second per customer. “This strategy allows us to go anywhere to serve customers what they need,” Rouleau says.

The national service is operated as a virtual private line service over an IP MPLS backbone that utilizes several regional networks owned by tw telecom along with leased fiber facilities elsewhere. Today the carrier has extended the end-to-end reach to customers where it’s not cost effective to connect with fiber by using the copper facilities of incumbents, he adds.

Switched Ethernet, which falls under the Carrier Ethernet nomenclature used by the Metro Ethernet Forum, is just a piece, but a very important piece of what tw telecom offers, Rouleau notes. “What we deliver to our customers is scalable bandwidth with high performance and at service levels they need,” he says. “We deliver Ethernet services point to point, point to multipoint and multipoint to multipoint with targeted five 9s performance and zero packet loss.”

The switched-based infrastructure “doesn’t always afford customers everything they need in terms of the performance of the network,” he notes. For example, the switched Ethernet service using the Rapid Spanning Tree Protocol can be restored after a line cut within a second or two, whereas Ethernet over Sonet allows for sub-millisecond restoration.

But, as evidenced by what can be done with the Cisco 3400 switch, switched Ethernet is a bedrock to the company’s rapid growth and its success at drawing customers from what Rouleau jokingly calls the “Unfortunate 5,000,” the huge swath of relatively large enterprises below the Fortune 1000 that don’t get the attention from incumbents that the largest enterprises receive. “We launched Carrier Ethernet early, and, because of the size of our footprint, it helped draw incumbents into the game when they didn’t really want to go there, given the size of their commitments to ATM and Frame Relay,” he says.

Today tw telecom is ranked by research firm Vertical Systems as one of the top three providers of Ethernet connections in the U.S., right behind AT%26T and Verizon, notes Ian Hood, senior manager of service provider marketing at Cisco. “They’re at 13 percent of all ports and 14 percent of revenue [generated by Ethernet ports nationwide],” Hood says. AT%26T, by Vertical Systems’ accounting is at 20 percent of ports and 19 percent of revenue while Verizon’s numbers are 15 percent for ports and for revenues, he adds.

Implementing the 3400 on switched Ethernet services gives tw telecom a strong advantage against competitors, Hood says. “They’re able to support more customers with less gear,” he notes. “They can deploy four or five customers and offer business class SLAs (service level agreements) and security with this edge switch, located either in a building or in the field, which is not something you can do with basic switches.”

The strategy adds flexibility to raise data rates over time to each customer based on ongoing need without having to add new equipment, he notes. “You can say, ‘Okay, I’m going to hook up at 100 mbps and throttle it to 40 mbps, and if you want to turn it up later, we’ll do that,” he explains. “Choosing to build out a network in this fashion has taken the cost of customer acquisition and cut it by more than half. What was a $10,000 cost now is $4,000, which allows you get paid back within three months.”

In its latest service additions tw telecom has introduced a managed customer edge router solution to complement its existing MPLS IP VPN network capabilities and created “MyPortal,” a Web-based self service enhancement which provides customers a variety of online tools to more efficiently access their accounts for real-time order status, service changes, billing services, performance management and trouble ticket creation and status.

Graham Taylor, senior vice president for sales and marketing at tw telecom, says the company’s managed services include the procurement, staging, delivery, configuration, installation, network interoperability testing and ongoing management of the device, as well as software and hardware upgrade, configuration updates and other changes required by the customer. “Customers can focus on managing their applications and outsource management of their WAN and routers to us,” Taylor says.

“With these new managed services capabilities,” he adds, “the foundation is in place to ultimately merge public Internet and private intranet communications, where security is the key, and have a partner to install, configure and manage routers throughout the life of the device at customer locations. We will do it for them.”