Bright Future for Communication Service Providers, Report Finds

The multibillion dollar U.S. data transport services market represents promising revenue potential for communication service providers, growing at a compound annual growth rate of 4.6 percent, according to a report from market research firm Frost & Sullivan. The launch of EVPL (Ethernet virtual private line) service by most leading carriers is expected to enhance market potential for wholesale E-Line services, while multiprotocol label switching (MPLS) and Ethernet services are expected to ramp up market revenues.

The report, U.S. Data Transport Services Market Overview, found the market earned revenues of over $33 billion in 2009 and estimates $40 billion in 2014.The firm said it expects the year-on-year growth rates for these services at 10-12 percent for MPLS and 20-30 percent for Ethernet. In addition, the report predicted private line (DS1/DS3) and synchronous optical networking (SONET) services are likely to command a major share of data transport revenues in the near future.

Private line services, particularly DS1 and SONET services, have maintained a modest but steady inflow of revenues, largely owing to stable demand from wireless service providers on the wholesale front, the report noted. Modest growth was also pegged to the reluctance of end users to move to Ethernet unless their bandwidth needs exceed 6M bps on the enterprise/business front.

"Wavelength services are seeing a growth spike owing to escalating demand for higher bandwidth circuits," says Frost & Sullivan Research Analyst Roopashree H. "Also, the emergence of Ethernet has revived the wavelength services market as a number of service providers use waves to provision Ethernet circuits, and most 1 GigE and 10 GigE Ethernet circuits provisioned today are over dense wavelength division multiplexing (DWDM)."

The report also documented the decline of legacy services, particularly frame relay (FR) and asynchronous transfer mode (ATM), which are falling at a faster pace than expected, owing to market migration from these technologies to newer IP-based ones such as MPLS and Ethernet. However, despite the market shift to these newer services, Frost & Sullivan explained their growth in revenues are not as rapid as the decline in revenues for FR and ATM, because of the price competitiveness of IP-based services that offer more bandwidth for a lower cost.

Money-saving bundled products such as voice plus Internet plus VPN for data are predicted to have continued success in the small to medium-size business (SMB) space, while competition is expected to intensify in the MPLS and Ethernet arena, as carriers begin to position themselves as solution providers. "Large carriers are seeing a surge in demand for high bandwidth transport services -- especially MPLS VPN for multipoint-to-multipoint connectivity for large distributed enterprises," said Roopashree H. "Also, large carriers are showing increased interest in integrating telepresence type of solutions with MPLS, which obviously makes sense for large enterprises."