Seek facts, not promises

Not so long ago Ethernet metro area network (MAN) service had a bad reputation. Although some say this high-tech bad boy has cleaned up its act, Jim Slaby isn’t so hopeful.

Slaby, senior industry analyst with Giga Information Group Inc., remembers all too well when Ethernet metro won its “turkey” title. That defining moment came last year when Yipes Communications Inc., a metro Ethernet service provider headquartered in San Francisco, “filed a voluntary petition for reorganization under Chapter 11 in the U.S. Bankruptcy Court,” according to a March 2002 press release from the company.

Yipes’s troubles suggested to Slaby that perhaps this Ethernet metro stuff wasn’t as hot as some predicted it would be. He noted that the company burned through US$200 million in venture capital financing before filing its petition and suggested Yipes was not the only Ethernet metro operator with problems.

“Giga now cautions its clients to think long and hard before signing a contract with other start-up Ethernet MAN providers,” he wrote in a research note last April.

But that was then. Today, the buzz surrounding Ethernet MAN operators is once again on the boil. Yipes resurfaced from bankruptcy protection last summer. A handful of metro service providers remain committed to Ethernet, despite what happened to Yipes. And certain equipment vendors say Ethernet is ready for the big time.

Does Slaby feel any different about Ethernet metro in light of recent events?

“Not a whole lot,” he said during an interview with Network World Canada.

“The cautions we make have little to do with the technical approach of the infrastructure, it’s a question of can [Ethernet MAN operators] really hang in there in the long run? Do they have the staying power so we can recommend them to large enterprises that don’t want to flip to another carrier every three of four years if they can help it? It’s a dubious time to be betting on these upstarts.”

However, Slaby said some Ethernet metro service providers deserve attention, such as the electricity-turned-telecom companies, which have significant income from a source outside of the communications industry.

But for the most part Slaby’s message is “buyer beware.”

“Go into any Gig-E (gigabit Ethernet) MAN deal with plenty of hedges to protect against financial problems, changes in business focus, failure to follow through on expansion plans promised when you went in.…The classic thing we’ve seen with customers that have run into trouble in this space is when they sign on the line, the carrier has plans to expand into every major market in North America.”

But sometimes things go wrong for the carrier – and ultimately its clients.

“Their business plan starts to fall over; they don’t garner customers as quickly as they’d hoped. The venture capital well runs dry. They start pulling back on the expansion plans, leaving a lot of their customers in the bag.”

Slaby’s advice: “Buy the infrastructure based on what [service providers] already have deployed, not what they promise.”