Ethernet & SDN Executive Council

State-of-the-Industry Survey Report, 2Q13

July 2013

Stan Hubbard

Senior Analyst, Heavy Reading

Ethernet & SDN Executive Council Program Coordinator

Ethernet & SDN Expo Americas & Ethernet Europe Chair

www.heavyreading.com

Table of Contents

Ethernet & SDN Executive Council Overview

Survey Background & Demographics

Council Member Companies Participating in Survey

Survey Key Findings & Results

• Service trends & issues – including the impact of SDN

• Service revenue growth expectations

• Plans & opinions related to network technologies

Ethernet & SDN Executive Council Overview Who’s Who of the Carrier Ethernet & SDN Service Provider Community

• Launched in September 2011 to honor individuals driving Ethernet and Ethernet-enabled cloud

services market growth.

• In 2013, we expanded the Council’s scope to include software defined networking (SDN), network

functions virtualization (NFV) and software-driven services.

• Provides unique avenues for shaping the debate and direction of the industry – events, LRTV

interviews, columns, survey-based reports, networking dinners, etc.

• Now consists of 140+ service and technology experts from 73+ service providers worldwide – with

particularly strong representation from North America and Europe.

Platinum Sponsors

CTO/VP Technologist

16%

Senior Technologist

11%

Corporate/ Marketing/

Product Mgmt. Executive

32%

Marketing/ Product Mgmt.

Senior Director or

Director 26% Marketing/

Product Mgmt. Senior

Manager or Manager

15%

Survey Participants: 47+ Service Providers Who Employ 95+ Council Members

Survey Background & Demographics

• The survey ran from 22 April to 25 May 2013.

• We received responses from 47+ service providers,

whose companies employ 95+ Council members.

• 71% of respondents are involved in corporate

management, marketing or product management.

• 29 % of respondents are CTOs, VPs of Technology

or Engineering or other senior technologists.

• 74% of respondents work for companies with an

annual revenue that is at least $500 million.

Executive – Technology

22%

Senior Technologist

7%

Executive – Corporate, Marketing,

Product Management,

or Sales 27%

Senior Director/

Director – Marketing,

Product Management

or Sales 22%

Senior Manager/

Manager – Marketing,

Product Management

or Sales 20%

Other 2%

Survey Participants: 47+ Service Providers Who Employ 95+ Council Members

14%

12%

14%

60%

0% 10% 20% 30% 40% 50% 60% 70%

Less than $200 million

$200 million to $500 million

$500 million and $1 billion

More than $1 billion

Approximate Annual Revenue of Respondents' Employers ($US)

Council Member Companies Participating in Survey

Allied Fiber

Broadnet

CenturyLink

COLT

Comcast

CoreSite

Cox Business Services

Deutsche Telekom

Deutsche Telekom ICSS

Equinix

euNetworks

Expereo

Fibertech Networks

Frontier Communications

Global Capacity

GTS CE

Indosat

Integra Telecom

KPN International

Level 3

Lightpath

Lightower Fiber Networks

Lumos Networks

MegaPath

NTT America

Orange Business Services

PCCW Global

P&T Luxembourg

SSE Telecoms

Tata Communications

Telecom Italia

TeliaSonera

TeliaSonera International

Carrier

Telenor

Telus

Telx

Time Warner Cable

Transbeam

tw telecom

Verizon

Verizon Wholesale

XO Communications

Zayo

Others*

* Several respondents did not identify their company, so a few service provider names may be missing from this list.

Survey Key Findings

We are entering an exciting new phase in the development of service and technology markets. The

convergence of Carrier Ethernet 2.0 & Carrier SDN technologies promises to accelerate the ability of

operators to develop and deliver more scalable, dynamic and customized services & applications over

much more efficient networks. But survey feedback indicates that – despite all of the current hype

around SDN – it will take considerable time for SDN technologies (1) to reshape how most networks

are built and operated and (2) to significantly impact the competitive services landscape.

The vast majority of Council members participating in the survey agreed to at least some extent that

competition in the Ethernet services market generally has expanded beyond a focus on service types

and technical details to also include a greater emphasis on service performance and quality of

experience.

Respondents identified (1) end-to-end performance SLAs, (2) rapid service turn-up and (3) extensive

on-network service coverage within metro markets as the most important of 13 service features

affecting customer buying decisions in the past 12 months.

• Performance SLAs, in particular, have grown increasingly important in the past year. While 87% of

respondents identified them as important, very important or critically important in 2Q12, that

number rose to 100% in 2Q13.

Survey data suggests performance SLAs, rapid service turn-up and strong metro coverage are very

likely to remain the top 3 service differentiators other than price through the end of 2014.

• Many operators also appear to consider MEF CE 2.0 services certification as an important way to

help distinguish their offerings in the market. 80% of respondents said that they expect one or

more of their Ethernet services to be CE 2.0-certified within the next 2 years.

Survey Key Findings

Over time, we expect service providers increasingly will differentiate by emphasizing real-time

performance visibility via web service portals, 100G transport services, 100GE UNI services, dynamic

bandwidth and network-based application awareness that enable robust cloud service offerings.

• 35% of survey participants said that they currently offer real-time performance monitoring on all or

most of their retail and/or wholesale services, and nearly 90% plan to provide real-time reporting

for at least some services within the next 2 years.

• Survey feedback indicates that Council members generally regard (1) web service portals with

service performance statistics and (2) 100G optical transport technology as the two most

important technology innovations delivering the greatest value to their companies.

• 100G optical transport and 100GE interfaces on switches/routers are the new technologies that

have generated the most deployment, test/trial or evaluation activity in the past year. More than

50% of respondents said that their companies have deployed or are starting to deploy 100G

optical transport. Many of these companies are offering 100G wavelength services today or

positioning to introduce them soon.

• About 40% of respondents expect their companies to offer 100GE intercity Ethernet services for

retail and wholesale customers by the end of 2013. While we suspect that a number of these

operators are likely to sell 100GE UNI services on just a limited basis in the near term, this is still

a noteworthy development for 2013. Moreover, nearly 80% of respondents expect their companies

to provide 100GE intercity and metro wholesale Ethernet services by the end of 2015.

Survey Key Findings

While Council members appear largely in agreement that we will see the emergence of more dynamic

service capabilities – including real-time capacity management and API-driven performance-on-

demand – a large portion of survey participants do not expect SDN to affect the services market any

time soon.

• Only 13% of respondents believe SDN will begin to significantly impact the landscape for

Ethernet, IP or wavelength services before the end of 2014. The vast majority of respondents

indicated that they do not expect more than 10% of their revenue to come from Ethernet, IP, cloud

or wavelength services delivered over an SDN architecture in the next 18 months.

• 2015 appears to be regarded as an important transition year in terms of a revenue shift as well as

the anticipated impact on the competitive landscape.

Survey feedback illustrates that we are still very much in the early days of any potential industry-wide

transition to SDN. Nearly two-thirds of respondents said that their companies are learning about SDN,

planning their SDN strategy or evaluating SDN solutions, while only 9% indicated they currently are

using or starting to use SDN technologies.

• The two most important factors driving the decision of Council members to embrace SDN

currently are (1) the desire to lower network operational costs through automation & other

efficiencies and (2) the desire to increase network agility.

• Respondents identified service orchestration & network functions virtualization (NFV) as the most

important areas of SDN-related development for their company.

• Despite all the buzz, SDN ranked 12 out of 14 in terms of the new technologies delivering the

greatest value to service providers.

Ethernet Service Market Evolution

86% of Council members strongly agree or agree to some extent that competition in the

Ethernet services market generally is centered on service performance & quality of experience,

and over time we’ll see increased differentiation around dynamic service capabilities. But many

respondents commented that extensive coverage and price remain key differentiators.

Question: To what extent do you agree with the following statement? Competition in the Ethernet services market

has expanded beyond a focus on service types, technical details and coverage, and is now primarily centered on

service performance and quality of experience. Going forward, service providers increasingly will differentiate by

emphasizing not only real-time performance visibility via web service portals but also dynamic bandwidth and network-

based application awareness that enable robust cloud service offerings. Real-time capacity management will evolve

beyond manual controls and threshold triggers to become API-driven. In addition, we are likely to see the emergence of

API-driven performance-on-demand, in which the network dynamically ensures not only that the appropriate capacity is

available for a given application but also that a guaranteed level of performance is delivered for a specific application.

2Q13 Question 1

33%

53%

7%

5%

2%

0% 10% 20% 30% 40% 50% 60%

Strongly agree

Agree to some extent

Neither agree nor disagree

Disagree to some extent

Strongly disagree

Ethernet Service Market Evolution – Service Provider

Comments (1 of 3)

2Q13 Question 1

I agree with the statement in its entirety.

I agree; it’s a question of timing and how extensive the portfolio of applications will be.

I agree with the concept described. Adoption may be hampered by regulatory constraints around application awareness, as well

as nascent business models around tailoring user experience.

Agree, but still see strong differentiation at higher bandwidths and coverage.

I agree with fact that the market is expanding beyond service types, what is yet to be seen is when. All of the items above are in

heavy discussion, but operationally there is still a focus on the basics of service types and coverage. So, while discussion and

research is expanding beyond, day-to-day business is still in the basics as the challenges of ubiquity and off net continue to grow.

The next steps of service evolution is focused on service wrap and higher flexibility in self configuring the service parameters. In

the longer term the technical aspect of Ethernet will move to the background as connectivity will be part of a wider maybe cloud-

based IT solution.

It appears that there are a number of providers focused on service performance and automation. The majority of providers (with

smaller market share) are still focused primarily on basic connectivity requirements. Over time, we agree that winning

business/share will require those service characteristics and abilities described above. API-driven strategies are still a ways off for

the vast majority of providers given their fragmented back office strategies.

Dynamic bandwidth and network-based application awareness are mid-term trends for B2B and retail segments only. On the other

hand, for the Wholesale segment production and operation excellence for carrier Ethernet services are more important trends.

Although we have seen requests for add-ons like bandwidth-on-demand, APIs, etc. we still see much focus given to reach, price,

speed and technical features.

Bandwidth on demand from a carriers perspective solves a commodity problem; however, I see this more happening from a cloud

provider – example is AWS/Amazon

Service performance and visibility is of greater importance to Ethernet customers than dynamic capacity capability.

Ethernet by its nature is a scalable solution with natural foundations for programmability to support dynamic networks. This makes

it easy to integrate with cloud/applications for a single application driven control end-to-end through the OSI layer

Ethernet Service Market Evolution – Service Provider

Comments (2 of 3)

2Q13 Question 1

There remains a large gap between customer expectations and willingness to pay for visibility/portals. There is a direct cost to

providing these, but I think it continues to become table stakes to win new business. SLAs will need to radically change as we

move from aggregate to circuit specific metrics with tangible credits.

Everything will be Ethernet and Ethernet will be everywhere, especially for enterprise cloud connectivity. With that said, while I

agree with the statement above, we still have a long way to go as an industry before for execution of CE 2.0 principles on a global

basis and do not see this moving as quickly as I would like.

API = SDN.

Will merge with IT.

Network must become flexible to accommodate the requirements of storage and compute services.

Saying that the focus is now "primarily centered" on service performance and quality of experience is an overstatement. Service

types, coverage and price are still the main focus.

The statement seems to be written by a customer who has no concept of how the above is profitable for the carrier.

Before we can establish service for bandwidth on demand and real time performance measurements, for which I haven't seen

some business case yet, we have to reduce IT costs and development times, especially when we think about huge infrastructures

which have been established for many years.

As incumbent operator, we are faced to a shift of the skills and competencies needed from pure Ethernet interface configuration to

API and software programming. The market is growing for Ethernet services, but the price per Mbps is going down quickly as well.

The market has come to maturity in many geographies and the rate of innovation has slowed down. Still many operators have to

invest and make carrier Ethernet available across their networks so that we can all interconnect and offer a seamless customer

experience end to end.

Move towards on-demand ad-hoc services. Major challenge will be inter-carrier real-time delivery of service. Different carriers use

different methods and the alignment, even thru APIs will require some evolution.

Cost per port and aggregate capacity will always be primary considerations.

There remains strong demand for reliable Ethernet services to more sites, in advance of the more complex capabilities.

Ethernet Service Market Evolution – Service Provider

Comments (3 of 3)

2Q13 Question 1

I think this is an evolution that will take time to develop. Today, coverage and ability to build Ethernet networks to provide

alternatives seems to be a more pressing issue as providers migrate networks from ubiquitous TDM networks.

General agreement with the evolution statement; however, significant customer base still focusing on Ethernet as commodity

connectivity and buying on price alone.

Other than highly competitive metro markets like New York, Chicago, etc., the main differentiator continues to be reach. The ability

to deliver a cost effective ubiquitous service still does not exist.

The Ethernet service will become a pipe to enable higher level applications.

Services offered over Ethernet, could be defined as services, solutions and features starting at Layer 3 and above, of the OSI model.

As the replacement for traditional TDM transport services, Ethernet become a baseline product offering.

We see Ethernet now being used for traditional L2-VPN's but mainly to deliver high bandwidth DIA services to cloud-based services.

With more market pull (customers) requiring layer 2 services and moving away from the traditional MPLS, the growth of services

on carrier Ethernet is a fact.

Services types are one of factor in competition, but in some other cases the price component is also something to consider.

Plain old connectivity (like POTS) much be differentiated as more companies offer the service. Cloud consumption is forcing

service providers to rethink how they offer and deliver Ethernet connectivity.

Right now in the UK, the state of the economy has turned the market into being totally price-orientated. Every deal is a battle

which is obscuring new trends. Cloud connectivity continues to rise in importance.

While a lot of work has been done from technology and marketing point of view, we still experience a lot difficulties in terms of

delivery to meet the market demand due to capacity, processes and system issues.

MEF 3.0 or other standards will make it easier to implement as opposed to proprietary vendor solutions.

Thinking on application aware bandwidth offering is aligned. However, MEF should focus on service definition as opposed to

making Ethernet as ATM/FR circuit. Let carriers work on service delivery alternatives.

Expect to see a further consolidation in the market regarding products and vendors.

What are your plans regarding MEF CE 2.0 certification of one

or more of your Ethernet Services?

43% of respondents said they expect one or more of their Ethernet services to be MEF CE 2.0-

certified by the end of 2013. Multiple operators who participate in the Council program already

have received CE 2.0 certification for at least one service. Those that are publicly announced

include Comcast, Telecom Italia, Fibertech and Lumos Networks.

7%

36%

26%

11%

20%

0% 5% 10% 15% 20% 25% 30% 35% 40%

We recently completed CE 2.0 certification

We expect CE 2.0 certification within 6 months

We expect CE 2.0 certification within 1 year

We expect CE 2.0 certification within 2 years

We currently have no plans for CE 2.0certification

2Q13 Question 2

When will SDN be widely adopted to the point that it

significantly impacts the competitive landscape for services?

Despite all the industry buzz around software defined networking, only 13% of respondents

indicated that they expect SDN will begin to significantly impact the competitive landscape for

Ethernet, IP or wavelength services before the end of 2014. Nearly one-fifth were hesitant to make

a guess. Comments on the next page are illustrative of the wide range of opinions about SDN.

2%

11%

32%

36%

18%

2%

0% 5% 10% 15% 20% 25% 30% 35% 40%

2013

2014

2015

2016 or later

Not sure

I don't think SDN will ever have a significantimpact on the competitive landscape

2Q13 Question 3

SDN & The Competitive Services Landscape – Service

Provider Comments (1 of 3)

2Q13 Question 3

We already use SDN-based networking equipment and technology.

Significant amount of SDN-like technologies already exist. Adoption will increase, but wide adoption will require more time.

SDN will have most impact in redefining corporate WANs to optimize private access to systems and data that have been relocated

into the cloud.

Highly disruptive to specific bandwidth-related applications.

SDN will be an enabler of service delivery as customers will demand faster, better and flexible services. The operator that can

provide that option will have a big competitive edge.

Carriers that can support on-demand provisioning of their network will attract enterprises that have virtualized their environment

and are looking to provide self-service support to their end-users without network limitations. Likewise, cloud companies will

become front-end distributors of the network as an integrated part of their cloud offerings

SDN is not required for on-demand delivery of services. What's required are business models, APIs and effective OSS-BSS

platforms to handle them. I trust SDN will eventually evolve into an OSS-BSS platform.

The capability of change on-the-fly, demand-based reconfiguration and such will change the landscape. At the end of the day, the

technology needs to be enabled by proper capacity management to accommodate the impact of these changes on-demand.

SDN should increase service flexibility in terms of the introduction of new features, reducing very much the time needed today for

firmware distribution and hardware updating. That will increase the competition in terms of services features and market time speeds.

Networks need to be more intelligent to flex bandwidth and service experience according to customer demand. If SDN is able to

provide a proper solution for this it will make a strong difference for a carriers service offering.

SDN has the potential to simplify provisioning and open new use cases (and revenue streams). However, the industry is

fragmented on approach, and a common standards body is required to realize early gains.

Will reduce cost.

There are several ways to achieve service leadership. SDN is an automation framework and not confined to 1 or 2 technology trends.

Currently under discussion, but no firm plans to deploy.

Standardization will impact quicker adoption.

SDN & The Competitive Services Landscape – Service

Provider Comments (2 of 3)

2Q13 Question 3

There will be parts of "SDN" that are adopted and brought to market to meet demand - these components may not be as open and

standard as forums and organizations would like.

Have seen little to no discussion from carriers about the importance of this at this point (SDN’s impact on service

competitiveness). Seems to be more discussion in the media.

Wider implementation of SDN technologies is several years out. There seems to be 3 "camps" of SDN approaches currently - 1)

actually implementing; 2) developing strategies for implementation; 3) education on potential and business impact. It appears that

there are few providers actually implementing SDN strategies currently.

While the SDN is important, the collaboration on standards will take more time.

SDN will impact but not in 1 or 2 years.

Less will change in 2 years with the adoption of SDN and more will change in 10 years... SDN will play a role in certain segments

of the network and/or data center but I see in taking longer, if ever, to be widely adopted by operators.

Expect SDN to impact cloud somewhat earlier (in 2015) than the WAN (2016).

Due to the complexity of the existing implementation of the ongoing business models in the operator system IT-systems, the

transformation towards SDN will be beyond 2016.

Important for data center and cloud infrastructure, but less significant impact for Ethernet delivered to commercial locations.

SDN is already impactful in server rich data centers, but has a very long way to go before wide adoption and applicability in a

network operators network. I believe the challenges are less technical and more business and operational. Operators struggle

giving up access control to any network assets today.

It makes sense in data centers, but I'm not sure of the application across the network as it will be very difficult to get all the old

equipment update to accept SDN services.

Implementing SDN has many challenges; from billing to support to implementation. Some nuances of SDN will be implemented

within the next two years, but wide-scale availability and services will not be available until 2016 or later.

If the efforts of MEF and industry continue and the first customer cases will be there to prove its effect, SDN will be pushed forward.

The coming year will be critical to see if this will happen. Otherwise, the impact might never come to the competitive landscape.

Currently consider SDN to be a too broad term/concept to have any "significant" impact; "Many words, but less volume."

SDN & The Competitive Services Landscape – Service

Provider Comments (3 of 3)

2Q13 Question 3

SDN is about removing the proprietary OS (operating system) from the hardware and making it so that the optical / Ethernet switch

can be standard, common components controlled by open source software running on a generic server. Think Linux, or Asterisk.

That will happen to optical and Ethernet equipment, but it will take a few years.

As incumbent operator, we are faced to a shift of the skills and competencies needed from pure Ethernet interface configuration to

API and software programming. SDN is definitely a real challenge.

I believe a giant factor will be convincing carriers the software involved in SDN is "bug free" and will not bring down their network.

Network integrity is paramount for carriers.

This is perhaps a bit of a non-answer, but I think it is still to be determined. Obviously, it will be critical, but just how critical remains

to be seen.

Virtualizing things solves some problems, but creates others. There are many unknowns at this point, and I believe the industry

needs to fully understand the total cost of ownership (TCO) model.

Our customers are not there yet with SDN. Reliability, performance to SLAs, visibility and of course price remain the key factors for

their Ethernet services.

Not clear to me yet. I am interested in how to improve quality of service and how to make the network more self resilient. I think

that this will make a competitive advantage for some operators.

I think SDN is actually more a buzzword in the industry. Everybody put it on the agenda, but most of the people understand very

different functions concerning SDN. So we have to see which functions can really be supported.

I believe adoption of SDN will happen in the core of the network, or between carriers. A complete replacement of the installed

base of an existing carrier – I do not see that happening so fast.

Not sure at this point.

Not sure.

It is not clear at this time whether SDN will be widely adopted by operators.

Not sure whether SDN values are sufficiently compelling to drive adoption.

Still to early to assess the projected operational and financial benefits.

SDN is for the aggressive players like HP and Cyan as vendors.

What is your company's current plan for transitioning to an

SDN architecture?

Council member feedback illustrates that we are still very much in the early days of any

potential industry-wide transition to SDN. Nearly two-thirds of respondents said that their

companies are learning about SDN, planning their SDN strategy or evaluating SDN solutions,

while only 9% indicated they currently are using or starting to use SDN technologies.

28%

28%

35%

4%

5%

0% 5% 10% 15% 20% 25% 30% 35% 40%

We currently have no plans to transition to SDN

We are now getting up to speed on SDNconcepts, benefits, and challenges

We are in the early stages of planning our SDNstrategy or evaluating SDN solutions

We have recently begun deploying / using SDNsolutions

We have been using SDN-like solutions for quitesome time but just did not call it SDN

2Q13 Question 4

What are the most important factors driving the decision to

transition to SDN?

The two most important factors driving the decision of Council members to embrace SDN

currently are (1) the desire to lower network operational costs through automation & other

efficiencies and (2) the desire to increase network agility. Nearly 40% of respondents also said

faster time-to-market with new services & applications is a critical factor.

2Q13 Question 5

41%

38%

35%

29%

24%

19%

16%

10%

43%

36%

37%

50%

64%

52%

61%

43%

10%

19%

19%

12%

7%

21%

16%

36%

7%

7%

9%

10%

5%

7%

7%

12%

0% 20% 40% 60% 80% 100%

Lower network operational costs through automation & otherefficiencies

Faster time-to-market with new services and applications

More elastic and scalable services with user control

Greater service & application differentiation

Greater network agility

Enable dynamic service-driven virtual networks capable ofsupporting everything-as-a-service (including the network itself)

Lower network capital costs by using as much commercial off-the-shelf (COTS) hardware as possible

Extract & utilize business intelligence

Critical Important Marginal Not important at all

What percent of your revenues do you expect to come from

Ethernet, IP, cloud or wavelength services delivered over an

SDN architecture in coming years?

The vast majority of respondents indicated that they do not expect more than 10% of their

revenue to come from Ethernet, IP, cloud or wavelength services delivered over an SDN

architecture in the next 18 months. 2015 appears to be regarded as an important transition year

in terms of a revenue shift as well as the anticipated impact on the competitive landscape.

2Q13 Question 6

78%

71%

36%

19%

7%

9%

34%

28%

4%

7%

4%

26%

4%

4%

11%

2%

2%

4%

9%

13%

4%

4%

6%

13%

0% 20% 40% 60% 80% 100%

2013

2014

2015

2016

Less than 10% 10% to 20% 20% to 30%

30% to 40% 40% to 50% More than 50%

What are the most important areas of SDN development for

your company?

Respondents identified service orchestration & network functions virtualization (NFV) as the

most important areas of SDN-related development for their company, with 84+% saying these

were critical or important. While 69% said a centralized control option was critical or important,

just 19% said this was critical.

2Q13 Question 7

37%

27%

23%

19%

15%

8%

47%

58%

58%

50%

60%

47%

12%

8%

13%

25%

21%

31%

4%

6%

6%

6%

4%

14%

0% 20% 40% 60% 80% 100%

Service orchestration across technologies, layers, anddomains

Network functions virtualization

Standardized northbound APIs that would make itunnecessary for operators to create their own APIs

Centralized control option to supplement distributedcontrol (includes hybrid SDN-enabled switch/router)

Multilayer management, visualization, & modeling

Open source software

Critical Important Marginal Not important at all

Over the past 12 months, how has the competitive pricing

environment changed for various services?

Opinions regarding the service pricing environment varied widely. While a strong majority of

respondents said that pricing has deteriorated either slightly or significantly for Ethernet and

wavelength services, one-third said that price competition for metro Ethernet and metro

wavelength services has remained the same or has eased in the past 12 months.

2Q13 Question 8

4%

2%

2%

4%

2%

12%

6%

8%

6%

4%

4%

21%

14%

20%

10%

17%

28%

44%

41%

41%

49%

29%

43%

21%

20%

24%

28%

17%

14%

2%

16%

6%

6%

29%

10%

0% 20% 40% 60% 80% 100%

Metro Ethernet connectivity services

Long-haul wavelength services

Long-haul Ethernet connectivity services

Wholesale Ethernet access service (deliveredby operators to service providers)

Layer 3 VPN services

Metro wavelength services

Price competition has decreased significantly Price competition has decreased slightly

Pricing has remained the same Price competition has increased slightly

Price competition has increased significantly Don't know / Not sure

What have been the most important service features affecting

customer buying decisions over the past 12 months?

The most important differentiators other than price in the past 12 months were: (1) end-to-end

performance SLAs, (2) rapid service turn-up and (3) extensive on-network service coverage

within metro markets. About 30% of respondents also said diversity was critical to deal wins.

2Q13 Question 9

49%

40%

31%

28%

21%

18%

17%

12%

12%

12%

6%

6%

0%

19%

42%

31%

47%

37%

51%

48%

39%

35%

28%

39%

15%

17%

26%

17%

31%

23%

29%

26%

21%

33%

31%

31%

33%

19%

31%

4%

6%

2%

10%

4%

10%

12%

18%

22%

22%

44%

42%

2%

4%

2%

4%

4%

4%

8%

15%

10%

0% 20% 40% 60% 80% 100%

Extensive on-network service coverage within individual metro markets

End-to-end SLAs with service performance guarantees (availability, jitter,packet delivery, latency)

Diversity (node, link, geography) for improved reliability

Rapid service turn-up

Bandwidth scalability (including up to 10 GE UNI)

Intercity reach via your company's own points-of-presence

Expanded service reach via network-to-network interconnectionarrangements with other operators or exchanges

Support of virtual services with more than one class of service (CoS)

<50 ms protection

Multiple access methods (on-network fiber, G.SHDSL bonded copper pairs,xDSL, bonded TDM access circuits, PON, microwave, or third-party access)

Enhanced web service portals (including network utilization, real-timeperformance metrics, self-service capabilities, etc.)

Dynamic bandwidth (changes within minutes or hours)

Application awareness (visibility into application traffic and the ability tomanage & prioritize applications)

A critical differentiator (key to winning deals) Very important Important Marginal Not a factor at all

Performance

SLAs have

grown

increasingly

important in the

past 12 months.

While 87% of

respondents

identified them

as important,

very important

or critically

important in

2Q12, that rose

to 100% in

2Q13.

What will be the most important differentiators influencing

customer buying decisions in the next 12-18 months?

Using a weighted calculation of responses, it appears very likely that the top 3 service

differentiators through the end of 2014 will be: (1) end-to-end performance SLAs, (2) rapid

service turn-up and (3) extensive on-network service coverage within metro markets.

End-to-end SLAs with service performance guarantees (availability, jitter,packet delivery, latency)

Rapid service turn-up

Extensive on-network service coverage within individual metro markets

Diversity (node, link, geography) for improved reliability

Intercity reach via your company's own points-of-presence

API-driven capacity management or performance-on-demand (dynamiccapacity + guaranteed performance)

Bandwidth scalability (including up to 10GE UNI, perhaps even 100GE UNI)

Application awareness (visibility into application traffic and the ability tomanage & prioritize applications)

Support for virtual services with more than 1 class of service (CoS)

Enhanced web service portals (including network utilization, real-timeperformance metrics, self-service capabilities, etc.)

Expanded service reach via network-to-network interconnectionarrangements with other operators or exchanges

Dynamic bandwidth (changes within minutes or hours)

Multiple access methods (on-network fiber, G.SHDSL bonded copper pairs,xDSL, bonded TDM access circuits, PON, microwave, or third-party access)

<50 ms protection

2Q13 Question 10

1

2

3

What are your company's plans to offer retail or wholesale

Ethernet service SLAs with "real-time" performance reporting?

35% of respondents said that they currently offer “real-time” performance reporting on all or

most of their retail and/or wholesale Ethernet services, while another 35% offer this on a limited

number of services. Nearly 90% of respondents expect to provide real-time reporting for a least

some services within 2 years.

2Q13 Question 11

vs. 23% in 2Q12

vs. 32% in 2Q12

35%

35%

11%

7%

11%

0% 5% 10% 15% 20% 25% 30% 35% 40%

We already offer these SLAson all or most services

We now offer these SLAson a limited number of services

We plan to offer these SLAswithin 12 months

We plan to offer these SLAsin 1 to 2 years

We have no plans to offer theseSLAs within the next two years

What are your company's plans for major types of cloud-

related services?

50+% of responders said that they expect their companies to offer the major types of cloud

services within the next 2 years. 85% said they offer or plan to offer Ethernet cloud connectivity

/ transport of cloud services within the next 12 months. Meanwhile, more than 60% expect to be

providing network-based cloud broker services within the next 2 years.

2Q13 Question 12

67%

43%

40%

29%

29%

17%

18%

12%

10%

20%

10%

19%

6%

12%

8%

12%

10%

27%

10%

33%

42%

39%

50%

38%

0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100%

Ethernet cloud connectivity and transport of cloud services (access to datacenters and data center interconnectivity)

Infrastructure-as-a-Service

Software-as-a-Service

Virtual Private Cloud Service

Platform-as-a-Service

Network-based cloud broker service (bridges chasm between cloudproviders & cloud users; manages the performance and delivery of cloudservices and applications; provides bandwidth and end-to-end assurance)

We offer this service now We plan to offer in the next 12 months

We plan to offer in 1 to 2 years We don't plan to offer in the next 2 years

Over the next 12 months, what are your company's most

realistic revenue growth expectations for major services?

94+% of respondents whose companies offer retail Ethernet services, Ethernet cloud

connectivity services and wholesale Ethernet services expect positive revenue growth for

these services during the next 12 months. 70+% of respondents expect their retail and

wholesale Ethernet services to grow by at least 10%. This contrasts with only 32% of

respondents who expect their retail wavelength sales to grow at least 10%.

2Q13 Question 13

36%

35%

35%

37%

18%

24%

8%

3%

38%

35%

30%

26%

39%

29%

35%

29%

20%

26%

30%

24%

24%

29%

40%

58%

4%

4%

4%

13%

16%

18%

18%

11%

2%

3%

0% 20% 40% 60% 80% 100%

Wholesale Ethernet for customers providing retail businessservices

Retail Ethernet services for enterprises / businesses

Carrier Ethernet cloud connectivity and transport of cloud services(access to data centers and data center interconnectivity)

Wholesale Ethernet backhaul services for mobile operators

Wholesale wavelengths

Cloud services (SaaS, PaaS, IaaS, Virtual Private Cloud Services)

Layer 3 IP VPN services for enterprises / businesses

Retail wavelengths

Grow more than 20% Grow 10% to 20% Grow 1% to 10% Remain flat Decline 1% to 10% Decline 10% to 20%

How have opinions changed regarding double-digit sales

growth for various data services since the 2Q12 survey?

The percentage of respondents anticipating double-digit growth for retail Ethernet services

was identical to the percentage in 2Q12. A higher percentage of respondents have more

positive expectations for double-digit growth of their wholesale Ethernet services, wholesale

Ethernet backhaul services and wholesale wavelengths when compared to feedback in 2Q12.

2Q13 Question 13

70%

62%

56%

52%

33%

33%

70%

73%

63%

43%

58%

32%

0% 10% 20% 30% 40% 50% 60% 70% 80%

Retail Ethernet services forenterprises/businesses

Wholesale Ethernet for customersproviding retail business services

Wholesale Ethernet backhaulservices for mobile operators

Layer 3 IP VPN servicesfor enterprises/businesses

Wholesale wavelengths

Retail wavelengths

2Q12 Survey 2Q13 Survey

What percentage of your company's retail Ethernet service

revenue was generated by services with a 10 GE UNI in 2012

and what do you expect in 2013?

21% of respondents stated that 5+% of their retail Ethernet revenues were generated by

services with a 10GE UNI in 2012. That figure jumped to 54% of respondents when considering

expectations for 2013. 18% of respondents expect at least 10% of their retail Ethernet revenues

to be generated by services with a 10GE UNI in 2013.

2Q13 Question 14-A

79%

46%

7%

36%

12%

7%

2%

9% 2%

0% 20% 40% 60% 80% 100%

2012 retail

2013 retail

Less than 5% 5% to 10% 10% to 15% 15% to 20% 20% to 25% More than 25%

60%

30%

17%

33%

2%

14%

10%

2%

7%

14%

5%

7%

0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100%

2012 wholesale

2013 wholesale

Less than 5% 5% to 10% 10% to 15% 15% to 20% 20% to 25% More than 25%

What percentage of your company's wholesale Ethernet

service revenue was generated by services with a 10 GE UNI

in 2012 and what do you expect in 2013?

40% of respondents stated that 5+% of their wholesale Ethernet revenues were generated by

services with a 10GE UNI in 2012. That figure climbed to 70% of respondents when considering

expectations for 2013. 37% of respondents expect at least 10% of their wholesale Ethernet

revenues to be generated by services with a 10GE UNI in 2013.

2Q13 Question 14-B

When will your company offer major types of Ethernet services

with a 100 GE UNI?

About 40% of respondents expect their companies to offer 100GE intercity Ethernet services

for retail and wholesale customers by the end of 2013, while just slightly less than that expect

to offer 100GE metro Ethernet services by the end of 2013.* Nearly 80% of respondents expect

to provide 100GE intercity and metro wholesale Ethernet services by the end of 2015.

2Q13 Question 15

* Keep in mind that nearly 75% of respondents are from companies that generate more than $500 million in annual revenue.

Also, we believe a number of these operators are likely to offer 100GE UNI services on just a limited, individual-case-basis at

least until the cost of 100GE interfaces on switch/routers declines more with volume shipments.

32%

29%

26%

26%

9%

10%

12%

12%

21%

10%

23%

9%

18%

14%

19%

19%

21%

38%

21%

35%

0% 20% 40% 60% 80% 100%

Wholesale intercity Ethernet service

Retail intercity Ethernet service

Wholesale metro Ethernet service

Retail metro Ethernet service

Already offer this now By end of 2013 2014 2015 2016 or later

What are the top technology innovations from the past 2 years

that are delivering or promising to deliver the greatest value?

Using a weighted calculation of responses, the top two technology innovations were: (1) web

service portals with performance statistics and (2) 100G optical transport. The MEF 33 E-

access specification and expanded use of OAM tied for the No. 3 slot. SDN ranked 12 out of 14.

2Q13 Question 16

1

2

3

3

Web service portals with service performance statistics

100-Gigabit optical transport

Carrier Ethernet 2.0 - MEF 33 wholesale Ethernet access specification

Expanded use of OAM technology throughout the service life cycle

Network interface devices with Ethernet service OAM

Carrier Ethernet 2.0 - MEF 23 multi-provider class of service agreement(delivering end-to-end class-of-service across interconnected networks

ROADM-based metro networks that provide cost-efficient, flexible access

100-Gigabit Ethernet interfaces on switches / routers

MPLS-TP

G.8032 v2 Ethernet ring protection

Carrier Ethernet 2.0 - MEF 26 external network-to-network interconnectionspecifications for operators

Emerging SDN technologies / standards (OpenFlow, service orchestrationplatforms, etc.)

OTN switching

10-Gigabit Ethernet intelligent demarcation platforms

At what stage is your company in terms of evaluating, testing,

trialing or deploying various next-generation technologies?

100G optical transport & 100GE interfaces on switches/routers are the new technologies that

have generated the most deployment, test/trial and evaluation activity. More than 50% of

respondents said that their companies have deployed or are starting to deploy 100G optical

transport. Only 15% said that SDN-related technologies have moved beyond the evaluation

stage. 51% have no plans for standalone OpenFlow switches or OpenFlow controllers.

2Q13 Question 17

28%

19%

16%

13%

12%

10%

6%

4%

2%

2%

9%

13%

36%

15%

26%

10%

13%

2%

11%

19%

18%

28%

26%

13%

27%

11%

11%

11%

21%

21%

16%

17%

22%

17%

21%

34%

34%

43%

32%

28%

14%

28%

14%

50%

33%

51%

51%

45%

0% 20% 40% 60% 80% 100%

IP/MPLS to the customer demarcation site(with control-plane based management)

10-Gigabit Ethernet intelligentdemarcation platforms

100-Gigabit optical transport

OTN switching

100-Gigabit Ethernet interfaces onswitches / routers

MPLS-TP (using either IETF-backedOAM or ITU-backed OAM)

G.8032 v2 Ethernet ring protection

OpenFlow controller

OpenFlow switch

Hybrid OpenFlow switch/router (OpenFlowintegrated into a traditional switch or router)

We already have significant deployment We are starting to deploy now

We are testing/trialing We are evaluating but have not started testing

We have no plans for this at present

What is your company's plan for extending MPLS out to the

access network to support various applications?

More than 75% of respondents said that they are using or intend to use MPLS at least to a

limited degree in the access network to support business and wholesale services. 50% already

use MPLS extensively in the access network for business and wholesale services, while 41%

use MPLS extensively in the access network for cloud and mobile backhaul services.

2Q13 Question 18

53%

50%

41%

41%

27%

25%

27%

20%

20%

25%

33%

39%

0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100%

Business services

Wholesale services

Cloud services

Mobile backhaul services

We will use MPLS extensively in the access network for this service

We will make limited use of MPLS in the access network for this service

We don't plan to use MPLS in the access network for this service

Which technologies do companies prefer in the access

network to support retail business services?

The top three preferred technologies in the access network supporting retail business services

are: (1) IP/MPLS, (2) Q-in-Q (VLAN stacking) and (3) VLAN switching.

2Q13 Question 19-A

66%

51%

11%

15%

13%

23%

64%

60%

0% 10% 20% 30% 40% 50% 60% 70%

IP/MPLS

VPLS

H-VPLS

MPLS-TP (MPLS-Transport Profile)

Provider Backbone Bridging (PBB)

G.8032v2 Ethernet Ring Protection

Q-in-Q

VLAN switching

Which technologies do companies prefer in the access

network to support wholesale services?

The top three preferred technologies in the access network supporting wholesale services are:

(1) Q-in-Q (VLAN stacking), (2) VLAN switching and (3) IP/MPLS.

2Q13 Question 19-B

52%

50%

12%

19%

14%

26%

69%

62%

0% 10% 20% 30% 40% 50% 60% 70% 80%

IP/MPLS

VPLS

H-VPLS

MPLS-TP (MPLS-Transport Profile)

Provider Backbone Bridging (PBB)

G.8032v2 Ethernet Ring Protection

Q-in-Q

VLAN switching

Which technologies do companies prefer in the access

network to support cloud services?

The top three preferred technologies in the access network supporting cloud services are: (1)

IP/MPLS, (2) VLAN switching and (3) Q-in-Q (VLAN stacking). VPLS ranked almost as popular

as Q-in-Q.

2Q13 Question 19-C

68%

43%

10%

10%

13%

18%

45%

53%

0% 10% 20% 30% 40% 50% 60% 70% 80%

IP/MPLS

VPLS

H-VPLS

MPLS-TP (MPLS-Transport Profile)

Provider Backbone Bridging (PBB)

G.8032v2 Ethernet Ring Protection

Q-in-Q

VLAN switching

Which technologies do companies prefer in the access

network to support mobile backhaul services?

Q-in-Q (VLAN stacking), VLAN switching and IP/MPLS essentially tied in terms of the preferred

technologies in the access network used to support mobile backhaul services. G.8032v2

Ethernet ring protection ranked higher for mobile backhaul than it did for other services.

2Q13 Question 19-D

49%

41%

11%

8%

16%

30%

51%

51%

0% 10% 20% 30% 40% 50% 60%

IP/MPLS

VPLS

H-VPLS

MPLS-TP (MPLS-Transport Profile)

Provider Backbone Bridging (PBB)

G.8032v2 Ethernet Ring Protection

Q-in-Q

VLAN switching

Which of the following best describes how your company

provides Ethernet mobile backhaul services?

71% of the respondents whose companies offer Ethernet mobile backhaul services said that

they now run these services on the same network as their Ethernet business services. This

illustrates the growing trend toward service convergence on a common high-performance

carrier Ethernet/MPLS network.

2Q13 Question 20

71%

9%

20%

0% 10% 20% 30% 40% 50% 60% 70% 80%

We run Ethernet mobile backhaulservices on the same network as

Ethernet business services

We run all Ethernet mobile backhaulservices on a separate network from

Ethernet business services

We run some Ethernet mobile backhaulservices on a separate network fromEthernet business services, but we

run others on the same network

Yes.

Sometimes.

Yes, QOS to deliver multiple layers at different price points,

including dedicated bandwidth services to migrate from the

TDM network.

We don't oversubscribe. QOS is not something we see value

in at this point. Lack of fiber would be a catalyst.

From a marketing point of view, we have always been

reluctant to overbook due to the risk of cannibalization of the

existing business that is not oversubscribed.

QoS yes, but only at the edge. Especially for business and

wholesale services every data packet within the network

MUST be transported. So oversubscription in the network is

actually not used. The link usage between two routers will not

reach more than 50% to 70% of the link capacity before a new

link will be added.

No, although we have been asked. We do not plan to offer

over-subscription as it introduces significant complexity,

especially to performance management reporting/portals.

Would likely allow for "over-subscription" related to increase

of mobile broadband traffic, support of service differentiation

and integrated solutions across mobile and IP.

For mobile backhaul operators, do you run your network with

oversubscription? If not, do you ever see the need/value of

using QoS techniques to allow for oversubscription?

About half of those who responded to this question said that they run their networks with

oversubscription on at least a limited basis. The remaining half of respondents said they do not

run oversubscribed.

2Q13 Question 21

1. No 2. Yes - microcell

Limited mobile backhaul deployments - we have been

opportunistic here.

No oversubscription; converged service capacity

management in all IP network.

No oversubscription on backhaul services.

We believe that enhanced QoS techniques are a powerful tool

to optimize the bandwidth .

We do not run with any oversubscription or QoS. Only use

dedicated bandwidth.

We run with oversubscription.

Yes

Yes and yes.

Yes, we do.

Yes.

Yes.

No.

No, as fiber-based company, we will continue to utilize

additional fiber in place of oversubscription.

For core network operators, what role do you see for carrier

Ethernet technologies in a core router bypass application?

About half of the respondents who answered this question indicated that they see a role for

carrier Ethernet in a core router bypass application. Several noted they’re using DWDM/OTN

for router bypass.

2Q13 Question 22

Yes, costs dictate need for bypass at L2 and also at optical

transport.

No. From my point of view we have to do a separation

between a very cost critical and mostly automated layer for

mass market and consumer services and business services

which have to be flexible in any direction.

We do not see router bypass becoming a standard rule, but

we will consider it for all highly loaded routes. However, our

current plan is to configure bypass at the TDM circuit layer

(wavelength or OTN) rather than Ethernet.

Absolutely! But the subtending architecture must include a

routing function node along with a server cluster (Akamai-style)

CDN. These subnets can serve 50-100 towers in a given

region and assist in reducing backhaul congestion, reducing

latency and overall opex and improving the user experience.

Some lower cost Ethernet platforms can perform some

upfront, backhaul/aggregation functions but router type

platform still needed for full services support (point-to-point

and multipoint services, QoS, etc.).

Router is also an Ethernet switch, virtualizing routing sw takes

the cost equation out of this discussion.

Cost savings and performance enhancements.

Have not identified any cost benefits.

Maybe, but WDM mostly used or MPLS based.

No.

The matter is under study.

We do not use Ethernet in the core. I do see opportunities to

lower cost with Ethernet.

Yes - we are in the process.

Yes this makes sense .

Yes, using high end layer 2 Ethernet switches.

Yes.

Yes, savings in router cost as well simplified operations.

Favor DWDM services in core network.

IP/MPLS/VPLS are and will remain the dominant network

protocols. SDH core circuits will migrate to Ethernet, but end-

to-end Ethernet will remain limited in scope and will

predominantly be delivered over the MPLS/VPLS platforms.

What are the biggest security concerns regarding cloud

services?

Based on a weighted response, the top three security concerns related to cloud services were

(1) denial-of-service attacks, (2) intrusion and (3) remote access to information.

2Q13 Question 23

Denial-of-Service (DoS) attacks

Intrusion

Remote access to information

Viruses

Bring your own (BYO) device

Mobile connectivity

Deep Packet Inspection (DPI)

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