Small- to medium-size businesses represent a relatively untapped, large, high-margin opportunity for service providers that can deliver high-bandwidth services. Telecommunications services for this segment are not a luxury, but rather a necessity. Therefore, the services are worth more, and higher margins are available to the provider. The market may appear daunting; however, with strategic planning, winning SMB business from MTU locations is relatively straightforward.
First, the market is large. According to The Wall Street Journal, in January 2007 the yearly business telecommunications service market was worth $115 billion. This revenue comes from 119 million employees. So the average annual telecommunications spending per employee is $959, which equates to $79.92 per month.
According to data from the U.S. Census in 2006, firms with one to four employees comprise 60.94 percent of the market. Companies with five to nine employees represent 17.61 percent. Enterprises with 10 to 19 employees are 10.74 percent of the market, and firms with 20 to 99 employees comprise 8.9 percent of the market. Together, these SMBs represent 98.19 percent of the market.
From the Census, we see that firms with less than 99 employees represent 98 percent of the U.S. market. From The Wall Street Journal figures, we see that the recent telecommunications revenue per employee is approximately $79. Therefore, one connection to an SMB in an MTU represents significantly more revenue potential than a similar connection to a residential subscriber.
Today, most of these SMBs are served by incumbent voice service providers. Their pricing structures leave considerable room for cable operators to win business with better pricing and/or better service.
In the U.S., 60 percent of all businesses are located in MTUs. This comes to a total of 850,000 buildings. Each building typically has multiple potential customers, and two-third of U.S. MTUs serve greater than five SMBs. So a building with five businesses, each with five employees, can be worth $1,975 per month in telecommunications revenue. If the MSO infrastructure is nearby, then bringing a connection to the MTU can have a very rapid ROI. For this discussion, SMB and MTU are somewhat interchangeable terms.
Tenants in these buildings are looking for alternatives to their current telecommunications services. New applications and higher-bandwidth requirements are driving this quest. Cable operators’ video offerings are increasingly a competitive advantage, even for MTU subscribers.
MSOs can leverage their existing HFC infrastructure to efficiently reach this market, but serving the MTU market requires that cable operators understand the unique needs of the SMB subscriber. Some of these issues include access media constraints, stringent SLA requirements, unique business applications’ sales cycles and vertical market issues, and heterogeneous building infrastructure needs.
MTUs are straightforward to identify and easy to locate. Zoning laws typically cause them to cluster in close proximity to one another, making physical access uncomplicated. MSO infrastructure is often close to – if not directly attached to – many of these structures.
For example, Rogers in Canada uses geospatial analysis to locate prospective SMBs in MTUs using maps that simultaneously display streets, fiber runs and MTUs on the same page. This gives their planning groups the ability to create sales campaigns to direct their sales force toward the most productive locations. This approach offers sales tools that include the available network topology, product offerings and service pricing so they can create opportunities that result in simple, inexpensive and leveraged new SMB subscribers.
Studies by Nemertes Research confirm that SMB customers in MTUs share the following characteristics: geographical proximity, large volumes of data to transfer, low latency needs and high reliability requirements. These customers are typically connecting headquarters with distributed offices for data and voice traffic, connecting data centers for server access or connecting voice contact centers. Rogers finds that the top industry verticals in their markets are health care, municipalities, schools, finance, government and media.
These applications and vertical markets are usually supported by Ethernet within the enterprise, and Ethernet services are now supporting these services on the WAN. Vertical Systems reports that carrier Ethernet services grew 41 percent in 2008 and will be a $31 billion worldwide market by 2012. Carrier Ethernet services are offered worldwide by more than 50 service providers and 100 equipment manufacturers. This figure is growing at an annual rate of 40 percent. This is the primary area of growth for SMB services. IP and L2 VPNs and Ethernet are growing rapidly, and other data services are either shrinking or relatively flat. Ethernet is the basis for most of the new services offered to SMB locations. It meets the bandwidth requirements of SMB applications.
Delivering Ethernet over optical fiber is often the best, if not the least expensive way to deliver Ethernet services. With unlimited bandwidth support, noise immunity and the ability to traverse long distances, optical fiber can provide the performance for the applications of today and those envisioned for tomorrow.
One approach to delivering Ethernet over fiber is called Active Ethernet. It is delivered in a point-to-point topology and directly connects Ethernet switches or routers. Using standard optics, 2 km to 70 km distances are standard. Active Ethernet deployments are a good choice when subscribers require between 500 Mbps and 10 Gbps. These data rates are typically associated with large enterprises.
The SMB market located in MTUs normally requires data rates between T1 speeds (1.5 Mbps) and 100 Mbps. For these data rates, a more efficient fiber topology is passive optical networking. Whereas Active Ethernet requires a transmit and receive fiber for each customer, PON shares one fiber among up to 128 customers. PON is a point-to-multipoint optical access architecture that facilitates broadband communications between an optical line terminal (OLT) at the central office and multiple remote optical network units (ONUs) over a purely passive optical distribution network with a reach of up to 70 km.
PON’s most obvious benefit is that it uses significantly less fiber than other approaches. The same fiber can be shared by many buildings in the same vicinity without the cost of wave division multiplexing. Other benefits of PON include increased bandwidth compared with copper, large reductions in electrical use and cost, and reduced maintenance requirements.
PON can be used in conjunction with existing DOCSIS management systems. Translation of DOCSIS management commands into Ethernet formats to manage EPON fiber access equipment is a new development in fiber access. This preserves investments in existing DOCSIS servers, software and procedures. An upgrade path to 10 Gbps exists for PON, with standards being developed at IEEE and ITU-T.
PONs match the topology of the HFC plant and are an efficient way to reach many buildings with few fibers. Cable operators are experts at designing, changing and upgrading this portion of their field equipment. Once the fiber reaches the MTU, there is the question of how to physically distribute service within the MTU. Differences in age, architecture, construction materials and local laws make it nearly impossible to make generalizations about cabling within MTUs. However, there are solutions for all MTU types, including Low Rise, Mid Hi Rise, Horizontal, Garden, Office Towers, Technology Parks and Hospitality (hotel, motel, resorts, dorms, hospitals). The table below shows the amount of space recommended for the access and distribution of telecommunications equipment by the American Institute of Architects.
MTU SERVICE MANAGEMENT
SMB customers in MTUs will often require strict SLA enforcement. Management of these mission-critical applications on high-bandwidth access technologies is accomplished via OAMP functions. These management protocols are necessary to insure QoS and SLAs. Ethernet PON was defined within IEEE 802.3ah Ethernet in the first mile. This was the first standard to include remote monitoring and testing of an Ethernet service. Monitoring and testing are just two of the management parameters that are critical for maintaining SLA to SMB subscribers.
After the IEEE 802.3ah was completed, IEEE 802.1ag – connectivity fault management – was also finalized. It provided a more generalized method for monitoring the health of an Ethernet service, as well as partitioned the network for better fault management granularity. ITU Y.1731 built on 802.1ag to add performance management capabilities, and for the first time it enabled the monitoring of Ethernet SLAs.
802.1ag enables the OAM of an Ethernet service to be partitioned into maintenance regions, which might be different carriers in a wholesale example or different regions of a single carrier. There are eight different layers of OAM that can be used, and they are allocated logically to the operator, provider and customer. The table shows how the main standards for Ethernet management relate to the physical network and also illustrates the equipment or links they manage.
MTUs represent a large new opportunity for the cable service provider. The profitability of the SMB subscriber within these buildings can be higher than residential subscribers. Applications within the SMB market are increasing their need for advanced telecommunications services.